CFPB considers nonbank naughty list

A broad swath of consumer financial services firms, including financial technology providers, could find themselves on a public registry if they run afoul of state and federal consumer protection statutes. This would be under a new plan proposed by the Consumer Financial Protection Bureau.

The CFPB was given federal oversight authority for nonbank financial firms under the 2010 Dodd-Frank Financial Reform Act. However, many of these firms can also find themselves on the receiving end of orders handed down by state, local and even other federal consumer protection agencies (like the Federal Trade Commission) or in the form of court orders.

It is these orders that the CFPB wants to keep track of and publish using an online registry. The proposal, which clocks in at 212 pages, would also require large nonbank financial services firms supervised by CFPB to designate senior executives responsible for submitting annual written statements attesting to steps taken to comply with any orders.

The proposal, which is subject to revisions based on public comments, aims to help the consumer watchdog identify and mitigate risks to American households and keep the public appraised of bad actors, the bureau said in a statement.

"Protecting American households is a shared effort across local, state and federal authorities," said CFPB Director Rohit Chopra. "The proposed registry will help the CFPB, the law enforcement community, and the public limit the harms from repeat offenders."

Banks, credit unions, could follow

Banks and credit unions would not be subject to the proposal, but these institutions are not quite in the clear. "While the CFPB might later consider collecting or publishing the information described in the proposal from insured banks and credit unions, there is currently a greater need to collect this information from nonbanks," the bureau stated.

Also, federal financial institution regulators regularly publish consumer financial protection orders. "In contrast, comprehensive, readily accessible information is lacking about the identity of orders issued against nonbanks subject either to the CFPB's market monitoring authority or to its supervisory authority across the various markets for consumer financial products and services," CFPB stated.

Throughout the detailing of its proposal, the CFPB points to situations and circumstances that might involve the registry. For example, the consumer watchdog suggests it could use the information to take actions against "repeat offenders," and to bring its own investigations and enforcement actions.

The law firm Sidley Austin LLP suggested in a blog post that the proposal, if adopted, could render covered companies vulnerable to further legal action.

"Because the database will be public, it would provide others – including private parties – with information that could serve as the basis for further litigation or investigations," Sidley Austin attorneys wrote. "Although the database would include only orders that are already public, it would provide a centralized source of readily available information that may otherwise be difficult to access,"

In conclusion, the law firm advised, "Companies in the consumer financial product and service industry would be well served to consider the potential implications of compliance with the proposed rule, including the potential uses of information to be submitted to the CFPB if and when its proposed rule becomes final."

Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.

Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.