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    CFPB to Tighten Noose on Nonbank Fintech Firms

    April 25, 2022

    The Consumer Financial Protection Bureau (CFPB) published a report on the financial challenges faced by Americans in rural communities and announced its decision to invoke a largely unused legal provision to examine nonbank financial companies that pose risks to consumers.

    The report on rural community challenges highlights that many of these communities lack access to physical bank branches and are more likely to seek credit from nonbanks. Since rural Americans are less likely to have a credit history and more likely to use non-bank credit, this results in rural consumers paying more for credit. However, the provision of non-bank credit by non-bank lenders is not very strictly scrutinized by the regulators at present. This brings us to another development, wherein CFPB is seeking to level the regulatory playing field (with respect to non-bank entities) with supervised banks by invoking its dormant authority to examine nonbank financial companies that may pose risks to consumers. CFPB also published the procedural rule that is relevant in this context. The invoked authority being discussed will allow CFPB to supervise entities that may be fast-growing or are in markets outside its existing nonbank supervision program.

    Under the Dodd Frank Act, after the 2008 financial crisis, Congress tasked CFPB with supervising certain nonbanks and their service providers, in addition to large depository institutions with over USD 10 billion in assets. Nonbanks do not have a bank, thrift, or credit union charter; many today operate nationally and brand themselves as “fintechs.” Congress had authorized several categories of entities subject to the nonbank supervision program of CFPB; the categories cover all nonbank entities in the mortgage, private student loan, and payday loan industries, regardless of size; entities that are "larger participants” in other nonbank markets for consumer financial products and services; and nonbanks whose activities CFPB has reasonable cause to determine pose risks to consumers. While CFPB did implement the provision through a procedural rule in 2013, the agency has now begun to invoke this authority. 

     

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    Keywords: Americas, US, Banking, Credit Risk, Non-Bank Financial Institutions, Dodd Frank Act, Lending, Consumer Lending, CFPB

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