On September 25, 20 state attorneys general submitted comments on a newly proposed rule by the CFPB that would redefine the legal standard for supervisory designation proceedings. The attorneys general of New York, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, North Carolina, Oregon, Rhode Island, Vermont, and Washington, as well as the Hawaii Office of Consumer Protection, opposed the proposed rule and warned that the CFPB’s attempt to limit its supervisory authority would increase the risk of financial harms to Americans.
The attorneys general averred the proposed rule does not meaningfully engage with the Dodd-Frank Act’s statutory text or legislative history, and it lacks detailed policy justification. The letter asserted the CFPB’s proposed rule imposes two artificial restrictions on the Bureau’s future authority to designate nonbanks for supervision. First, it would redefine “risks to consumers” to mean only risks presenting a “high likelihood of significant harm,” a standard the attorneys general said does not reflect the congressional intent under the Dodd-Frank Act. Second, the rule would limit designation authority to products or services expressly defined by the Dodd-Frank Act, which the attorneys general argued is inconsistent with Congress’s vision for the CFPB. The letter noted that the Bureau’s proposed rule would designate fewer than twenty entities for supervision.
As previously covered by InfoBytes, the CFPB issued a proposed rule to clarify the legal standard when determining whether to designate a nonbank covered person for Bureau supervision under Section 1024(a)(1)(C) of the CFPA, defining “conduct that poses risks to consumers” as conduct that both “presents a high likelihood of significant harm to consumers” and is “directly connected to the offering or provision of a consumer financial product or service.”
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