[authors: Christi R. Adams, Martin J. Bishop, Timothy S. Crisp, Michael C. Lueder]
Some “non-banks” that provide financial products and services to consumers may soon receive notice that they have a new federal regulator. The Consumer Financial Protection Bureau (Bureau) proposed a rule last week to establish procedures to determine when the Bureau has supervisory authority over companies and individuals that provide, or have provided, financial products or services to consumers that the Bureau deems “pose risks” to consumers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the Bureau supervisory and primary enforcement authority over certain non-bank companies and individuals when the Bureau has reasonable cause to believe that such entities and persons engage in conduct that poses risk to consumers in the areas of financial products and services. However, Congress left it for the Bureau to decide who would be covered under this authority. Now the Bureau has announced how it will let companies and individuals know when they are being considered for Bureau supervision.
The details are simple. Based on consumer complaints or other information, the Bureau will first send a “Notice of Reasonable Cause” to a target company or individual, setting forth the reasons why the Bureau believes supervision is appropriate. The target company or individual then has 20 days in which to make a case to the Bureau as to why such company or individual should not be included under the Bureau’s supervisory authority. If the Bureau determines that a target company or individual is engaged, or has engaged, in conduct that poses risks to consumers in the areas of financial products and services, there is no direct appeal process, making the response to the Bureau’s notice critically important for targeted companies and individuals. Once the Bureau selects a company or individual for supervision, the only recourse will be to resist Bureau supervisory and enforcement efforts in court. After two years, the target can ask for reconsideration. In the meantime, the Bureau has the authority to ask for documents, visit job sites, interview employees, prosecute enforcement actions, and take all of the typical actions of an examining regulator.
The Bureau’s latest announcement is part of the massive new developing regulatory scheme it is building. Any business that provides consumer financial products and services should take heed. State and federal authorities have regulated banks, thrifts, and credit unions for decades. For them, doing business with a federal regulator is old hat. But there is a large, unsuspecting population of companies and individuals that has never experienced supervision or enforcement by a federal agency. They may be about to get it from the Bureau.
