A CFPB First: Bureau Publicly Asserts “Dormant” Supervisory Authority Over Company

Troutman Pepper

On February 23, the Consumer Financial Protection Bureau (CFPB or Bureau) released an order, dated November 30, 2023, establishing supervisory authority over installment lender World Acceptance Corp. The CFPB found that it had reasonable cause to determine that the conduct of World Acceptance “poses risks to consumers with regard to the offering or provision of consumer financial products or services,” and, therefore, the agency could exercise its supervisory powers over the company under the Consumer Financial Protection Act (CFPA). Notably, this is the CFPB’s first supervisory designation order in a contested matter, andy, as permitted by the Bureau’s amended rules governing this process, the Bureau chose to publicize its decision (and issue a press release about it).

As background, CFPA § 1024(a)(1)(C) gives the CFPB discretion to supervise nonbanks that do not qualify for supervision under one of the primary grounds in the CFPA (offer/broker/service mortgages, offer student loans, offer small dollar loans, larger market participant). The discretionary supervisory authority can apply to “any [nonbank] covered person who … the Bureau has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond, based on complaints collected through the system under § 1013(b)(3) … or information from other sources, that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”

The CFPB’s finding that World Acceptance’s conduct posed “risks to consumers” was based on consumer complaints alleging that the entity:

  • Failed to adequately explain to its customers that its offered insurance is optional.
  • “Harassed” and “embarrassed” borrowers in default of their loan obligations, including contacting defaulted borrowers at their place of work and disclosing debts to borrowers’ friends and relatives.
  • Furnished inaccurate information to consumer reporting agencies and failed to adequately investigate disputes.
  • Engaged in refinancing practices that risk trapping consumers in debt for years. Specifically, “World’s business hinges on convincing low-income borrowers to renew their loans over and over again, a practice that can radically increase the amount of interest they pay.”

Although the order does not constitute a finding that World Acceptance has violated any law, the text of the order makes it clear that the CFPB believes that such violations are, at least, quite likely.

Our Take:

This action has been a long time coming. The CFPB announced that it would use this “dormant authority” back in April 2022, which we discussed during a podcast found here, and at the same time created for itself the right to publicize its one-off supervisory designations based on perceived “risks to consumers.” The CFPB touted the “dormant authority” again in the 2023 summer edition of its Supervisory Highlights, discussed here. We also are aware that the CFPB has designated several nonbanks for supervision under this authority, keeping those designations confidential in exchange for the nonbanks’ agreements not to contest the designations. With this most recent action, the CFPB is making good on its threat to publicize the designation of nonbanks who resist the Bureau’s efforts to supervise them by announcing that they pose “risks to consumers.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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