CFPB will Directly Supervise Fintech Companies

In an aggressive expansion of its regulatory oversight of the financial services market, the Consumer Financial Protection Bureau (“CFPB”) announced last month its intent to use dormant authority within the Dodd-Frank Act to begin supervising non-banks (including fintech and crypto companies) that the CFPB has reasonable cause to determine pose risks to consumers. According to the CFPB, this rule will allow supervision of fast-growing entities or entities in markets outside the CFPB’s existing nonbank supervision program.

The basis for the CFPB’s authority can be found in Dodd-Frank provisions allowing the agency to oversee certain nonbank entities including, in this case, non-banks engaged in conduct that poses risks to consumers. While the CFPB has exercised its supervisory authority under Dodd-Frank previously in connection with non-banks, it has done so only under the act’s more defined categories for non-bank entities, including certain loan originators and servicers and other non-banks deemed “large participants” by the CFPB.

Accompanying the announcement was an amendment to a 2013 procedural rule promulgated by the CFPB, which created a governing process for determining whether a nonbank company falls into this supervisory category under Dodd-Frank. This largely forgotten procedural rule will take on significant importance as the CFPB moves forward with this effort.

As for the type of information on which the CFPB may base its reasonable cause determination, the standard outlined in the announcement sounds frustratingly like “whatever we feel like” and includes complaints collected by the CFPB, and other information the CFPB collects from other sources including, but presumably not limited to, judicial opinions, administrative decisions, whistleblower complaints, federal or state partners, or news reports.

The announcement from the CFPB that it may now supervise entities of any size that it deems pose a risk to consumers greatly expands the CFPB’s already immense influence in the world of financial technology and payments.

You can find a copy of the CPFB’s announcement as well as a link to the 2013 procedural rule and its amendment, here.