The Consumer Financial Protection Bureau (CFPB) will examine nonbank financial companies that pose a risk to consumers by invoking a largely unused legal provision to level the playing field between banks and nonbanks, the agency said Monday.
“Given the rapid growth of consumer offerings by nonbanks, the CFPB is now utilizing a dormant authority to hold nonbanks to the same standards that banks are held to,” the bureau's director, Rohit Chopra, said in a statement. “This authority gives us critical agility to move as quickly as the market, allowing us to conduct examinations of financial companies posing risks to consumers and stop harm before it spreads.”
Banks have long complained that their rivals in the fintech space, such as buy now-pay later operators or big tech companies with vast payments businesses like Apple, Google and Meta, are able to offer financial services without having to comply with many of the same legal requirements that banks do.
Fintechs have repeatedly denied dodging legal requirements. As part of the new examinations, firms will have an opportunity to provide input to the CFPB upon the public release of company information.
Under the Dodd-Frank Act, the CFPB can use traditional law enforcement, including litigation, to stop companies from engaging in conduct that could harm consumers. The law also gives the CFPB authority to review the books and records of regulated entities and demand changes be made.
Mortgage brokers, private student-loan lenders and payday operators are among the types of nonbank entities Congress subjected to CFPB supervision regardless of size, according to the bureau.
Larger international remittance providers, consumer reporting agencies, debt collectors and student-loan lenders are also subject to the bureau’s oversight, as are nonbank entities the bureau has “reasonable cause to determine pose risk to consumers,” such as allegations of unfair, deceptive, and abusive practices, the CFPB said in its statement. The agency didn't cite any particular service providers that it's targeting.
Under Chopra’s leadership, the CFPB has launched separate investigations into the business practices of buy now-pay later (BNPL) operators after some Democrats in Congress raised concerns about consumer debt. The agency also has an inquiry into big tech companies. The CFPB is particularly concerned about safeguarding consumers' confidential information.
“We encourage the CFPB to continue to work toward a predictable policy that encourages continued fintech-driven innovation,” the Electronic Transactions Association, which counts BNPL providers among its members, said in a statement.
The Consumer Bankers Association (CBA) applauded the move and noted the rise in banking activity outside the regulated banking system increases risks to consumers who don't get the same level of protection at nonbanks.
“As regulators look to mitigate the growing risk of consumer harm in the under-regulated and quickly growing non-bank marketplace, CBA will continue to urge the Bureau to issue a larger participant rule to ensure the highest level of consumer protections are upheld," the trade group's CEO, Richard Hunt, said in a statement.
A spokesperson for the CFPB declined to comment.