CFPB Invokes Dormant Authority to Examine Nonbank Companies Posing Risks to Consumers and CFPB Claims Oversight Over More Entities Including Fintechs; Says It Will Publish Supervisory Determinations -

"The CFPB is also issuing a procedural rule today to increase the transparency of the risk-determination process."

"The CFPB will determine if a company poses a risk to consumers by looking at CFPB complaints, judicial opinions, administrative decisions, whistleblower complaints, state partners, federal partners, or news reports."

Why this is important: The Dodd-Frank Act authorized the CFPB to exercise authority over several categories of entities. Traditionally, banks and credit unions have been subject to federal supervision. The CFPB supervises large depository institutions that have more than $10 billion in assets. However, nonbanks -- many of whom are financial technology, or fintech, companies -- now may be subject to oversight by the CFPB. If the CFPB determines that the nonbank poses a risk to consumers, it may exercise authority over them. The determination of whether a nonbank poses a risk to consumers may be a smoky, amorphous decision. The CFPB advises in the article that the risky conduct may include "potentially unfair, deceptive, or abusive acts or practices" ("UDAAP"), which is another amorphous concept. The article reports that the CFPB may decide that a nonbank is engaged in UDAAP from many sources, including news reports and "information from other sources." At bottom, the CFPB has decided to invoke its UDAAP authority to supervise fintechs and other nonbanks. Keep in mind that this new supervision isn't limited to fintechs. It potentially could include any entity that interacts with consumers and impacts their financial status. This could include many other types of entities, such as Buy Now Pay Later entities. We hope that the CFPB's decision to introduce some transparency into its determination that risky conduct and UDAAP are taking place will inject some certainty into what looks like a nebulous and vague process. Any entity that questions whether it will come under the CFPB's new supervision should ensure it has a strong compliance department.