CFPB moves to limit nonbank supervision with new 'risk to consumers' definition

"This will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies, the CFPB said in the proposed rule published in the Federal Register on Tuesday. Under the Consumer Financial Protection Act of 2010, the CFPB has the authority to supervise nonbanks when there is reasonable cause to believe they have engaged in conduct posing risks to consumers in connection with financial products and services."

"Until now, however, the Bureau had not defined what risks to consumers means, a gap it says has led to inconsistent interpretations, uncertainty for institutions and the inclusion of cases involving only immaterial potential harm. The proposed rule clarifies that conduct posing risks to consumers includes only conduct that 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 as defined in section 1002 of the CFPA."

"In the Bureau's preliminary view, Congress would not have expected it to expend its supervisory resources on issues that are speculative in likelihood or trivial in impact, the CFPB said. The agency expects the rule will make it less likely to designate nonbanks for supervision and will reduce compliance costs. It estimates about 154,430 nonbanks fall within its supervisory scope, excluding entities where financial services are not the primary activity. On average, supervisory exams carry an estimated $27,000 in labor costs."

The CFPB proposed a rule narrowing the definition of conduct that poses risks to consumers to conduct presenting a high likelihood of significant harm and directly connected to consumer financial products or services as defined in section 1002 of the CFPA. The rule aims to ensure the Bureau acts within statutory authority and provide clarity to institutions about supervisory standards. The CFPB expects the rule will reduce the likelihood of designating nonbanks for supervision and lower compliance costs. The agency estimates about 154,430 nonbanks fall within its supervisory scope and cites average supervisory exam labor costs of $27,000. Comments are due Sept. 25, 2025.

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