CFPB to Invoke "Dormant Authority" to Supervise Nonbank Fintech Companies
The CFPB announced in a press release that it plans to invoke a "dormant authority" under the Dodd-Frank Act to regulate nonbank fintech companies.
On Monday, April 25, 2022, the Consumer Financial Protection Bureau ("CFPB") issued a press release announcing its intent to utilize a "dormant authority" under the Dodd-Frank Act to examine nonbank "'fintechs'" that the agency determines pose risks to consumers. This "largely unused legal provision" is found in 12 CFR 1091, a "procedural rule" finalized in 2013. The rule established a process by which nonbanks are given notice of a CFPB determination that they present risks to consumers and an opportunity to respond, after which the CFPB may determine the nonbank to be within the CFPB's supervisory authority. In tandem, the CFPB announced a new procedural rule "to increase the transparency of [that] process" by "authoriz[ing] the release of certain information about any final determinations."
The CFPB's release cites familiar UDAAP principles as examples of risky conduct that can subject a fintech to supervision, stating that it may rely on, inter alia, complaints it receives, judicial opinions, administrative decisions, whistleblower complaints, state or federal partner information, or news reports to establish the necessary reasonable cause for action. The CFPB specifically points to its authority "to use traditional law enforcement," including the possibility of "adversarial litigation." And the CFPB notes its powers to conduct "supervisory examinations [to] review the books and records of regulated entities."
The announcement comes weeks after the White House's March 9 Executive Order ("EO") touting a "whole-of-government" approach to assessing risks and benefits of digital asset technologies. Our prior Alert, "White House Issues Executive Order Calling for Inter-Agency Study of Digital Assets," noted that the EO specifically highlights consumer and investor protection as a focus point for further research by relevant federal agencies (including the CFPB) over the coming months. The CFPB's announcement signals its intent to take a more active role in the digital asset and broader fintech space, and to root itself firmly within the "whole-of-government" approach advanced by the Biden administration.
