On February 23, 2024, the Consumer Financial Protection Bureau (CFPB) released a order establishing supervisory authority over a non-bank installment lender on the basis that the institution poses risks to consumers. The order provides insight into the procedural aspects of the CFPB's exercise of this function. authority never used before – and the standards you might use to assess whether an institution poses a risk to consumers and therefore warrants continued oversight. While the CFPB has a long-standing nonbank supervisory program in the area of mortgages, student loans, and short-term and small-dollar loans, and may also examine larger participants in certain financial markets ( for example, automobiles and debt collection), the order lays out the path for the CFPB to supervise smaller, but “risky,” nonbank financial services providers, as well as fintechs that offer novel products.
Consumer Complaints and Product Offerings May Drive CFPB Supervision Determination
According to the CFPB's April 25, 2022 announcement, the CFPB's determination that the installment lender poses risks to consumers was based on a combination of consumer complaints and the nature of the products, services and lender operations. Specifically, the CFPB said it has reasonable grounds for concern based on:
- The way a lender describes optional insurance products to consumers and incorporates them into loans.
- Debt collection practices, including claims of harassment and coercion that jeopardize the consumer's employment or cause stress.
- Accuracy in providing information to consumer reporting agencies.
- The percentage of existing small loans that are refinanced with new small loans.
The CFPB's determination appears to depend largely on the content of consumer complaints, a reliance which the lender cautioned against during the determination procedure because those complaints may be inaccurate, not credible, or contradicted by other evidence. Interestingly, the CFPB turned this argument against the lender during the proceeding, suggesting that this is why oversight is necessary: to learn more about the lender's practice and resolve any factual uncertainty between the conduct alleged in the complaints and the reality. The CFPB also uses the order to criticize the way the lender responds to customer complaints, saying the institution's responses inappropriately ignore the substance of the complaint, offer a conclusive denial of wrongdoing or describe the relevant facts in a misleading way. different from those presented by the consumer. without substantiated evidence.
The appointment process took approximately eight months and required at least three submissions by the now-supervised lender.
The order makes clear that the designation process will require significant institutional resources. The CFPB issued the lender its official notice of intent to supervise on March 10, 2023, one year after it announced its intention to begin using the authority. The lender filed a written response to the notice on April 12, 2023 and then made an oral presentation to the CFPB on May 17, 2023. The CFPB reviewed the lender's file and reports, gathered additional information, including what appeared be a report. -in-depth review of consumer complaints, and allowed the lender to file a supplemental report on October 16, 2023, although this is not required under CFPB procedures. CFPB Director Rohit Chopra determined that the CFPB would place the lender under supervision on Nov. 30, 2023, although the lightly worded order was made public three months after it was issued.
Whats Next?
This order serves as a warning to entities that are not subject to the CFPB's automatic supervisory authority that the CFPB is still monitoring the broader market. For those who need a reminder, the CFPB has automatic supervisory authority over institutions engaged in mortgage lending and servicing, private student loans, payday loans, and larger participants involved in consumer reporting, debt collection, debt servicing. student loans, international money transfers and car loans. In November 2023, the CFPB will also proposed establishing a supervisory authority over digital wallet and payment app providers. Institutions that are not subject to the CFPB's oversight authority are still required to maintain comprehensive compliance management systems and appropriately resolve consumer complaints filed with the CFPB, as well as other regulatory agencies.
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