Alert July 09, 2013

CFPB Issues Procedural Rule on Supervision of Nonbanks

The CFPB issuedfinal rule establishing procedures under which it may supervise a nonbank whose activities it has reasonable cause to determine has engaged or is engaging in conduct that poses risks to consumers. Nonbanks are generally companies that offer or provide a consumer financial product or services, but does not hold a bank, thrift or credit union charter. Such conduct, according to the CFPB, includes unfair, deceptive, or abusive practices or acts. The final rule substantially adopts the proposed rule published in May 2012 (see May 29, 2012 Alert) with a few modifications, most notably that: (1) all aspects of a proceeding will be deemed confidential; (2) the Notice of Reasonable Cause will set forth a summary of the documents and other sources relied upon in issuing the notice; (3) nonbanks have 30 days to respond to a Notice of Reasonable Cause and (4) nonbanks will receive a copy of the Associate Directors’ recommended determination at the end of the process. The final rule also creates a mechanism by which supervised nonbanks may file a petition to terminate the CFPB’s supervisory authority after two years. In addition to its enforcement authority over nonbanks that pose risks to consumers, the CFPB has enforcement authority over other nonbanks that provide consumer financial products or services, including debt collectors, consumer reporting agencies and student loan servicers. Previously, the CFPB issued rules defining "larger participants" of the debt collection market (see November 13, 2012 Alert) and the consumer reporting market (see July 24, 2012 Alert) and a proposed rule defining "larger participants" of the student loan servicing market (see March 19, 2013 Alert). This rule is effective August 2, 2013.