What's Happening?
The Consumer Financial Protection Bureau (CFPB) has proposed a new rule to narrow its supervisory authority over nonbanks. The rule aims to focus oversight only on nonbanks that pose a 'high likelihood of significant harm to consumers.' This proposal seeks to define what constitutes 'risks to consumers' under the Consumer Financial Protection Act, providing clarity and consistency in the application of the rule. The CFPB's current approach has been to issue orders on a case-by-case basis, which has led to uncertainty and inconsistent application. The proposed rule intends to tighten the definition of 'risks to consumers,' focusing on serious conduct directly tied to consumer financial products.
Why It's Important?
The proposed rule represents a significant shift in the CFPB's regulatory approach, potentially reducing its oversight of nonbanks. This change could benefit nonbanks by providing clearer guidance for compliance and reducing regulatory scrutiny. However, nonbanks that fall under the new stricter standard may face challenges due to the CFPB's targeted focus on serious conduct. The impact on consumers remains uncertain, but the rule aims to ensure the CFPB acts within its statutory authority, providing clarity to institutions about the standards applied.
What's Next?
The CFPB is seeking public comments on the proposal, with submissions due by September 25, 2025. If finalized, the rule would take effect 30 days after publication. Stakeholders, including nonbanks and consumer advocacy groups, are likely to weigh in on the proposal, potentially influencing its final form. The CFPB's focus on serious conduct may lead to increased scrutiny of nonbanks that pose significant risks to consumers.
