The Consumer Financial Protection Bureau (CFPB) will begin conducting supervisory examinations on nonbank financial companies (a.k.a., fintechs) the agency believes “pose risks to consumers.”
The CFPB announced Monday it will invoke a “largely unused legal provision” to conduct supervisory examinations of the books and records of fintechs—an authority the Dodd-Frank Act already gave the agency for fintechs operating in the mortgage, student loan, and payday loan industries. The CFPB said it is expanding that authority to conduct examinations on fintechs “that may be fast-growing or are in markets outside the existing nonbank supervision program.”
“Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to,” said CFPB Director Rohit Chopra in a press release. “This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads.”
The agency said it could use a variety of sources to determine whether a particular fintech might pose a risk to consumers, including complaints, judicial opinions, and administrative decisions. “The CFPB may also learn of such risks through whistleblower complaints, state partners, federal partners, or news reports,” the agency stated.
Prominent Democrats have been calling for the CFPB to step in and regulate fintechs for some time. In July 2021, Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, wrote a letter to then-CFPB Acting Director Dave Uejio asking the agency address risks to consumers posed by fintechs.
Brown specifically mentioned the company Chime, which was subject to media reports that it closed or froze accounts because of potential fraudulent activity without any prior warning to customers.
“The CFPB’s mission is to protect consumers from risk in the marketplace for consumer financial products and services. This includes the risks associated with receiving financial services from nonbanks,” Brown wrote at the time.
Sen. Elizabeth Warren (D-Mass.) said in an October 2021 interview with Bloomberg that the CFPB also has the power to stop fraud within the cryptocurrency industry.
“Crypto infiltration of the market cuts across different regulatory agencies’ jurisdiction,” she said. “The answer to that is not that each agency should wait for the other to act; it’s that the agencies should all pick up the tools available to them and move.”
Also included in the CFPB’s announcement Monday was a proposed procedural rule regarding risk determinations at nonbank entities. The agency would like to be allowed to release some information about final determinations it reaches to the public “[i]n order to provide greater guidance to the marketplace on how the CFPB will make determinations.”
“The company involved will have an opportunity to provide input to the CFPB on what information is released to the public,” the agency said.