CFPB Proposes New Standard for Nonbank Supervision

The Consumer Financial Protection Bureau ("CFPB") proposed a rule to establish a binding legal standard for the term "conduct that poses risks to consumers." The standard would be used to designate nonbank covered persons for CFPB supervision under the Consumer Financial Protection Act, (12 U.S.C. 5514(a)(1)(C) ("Supervision of nondepository covered persons.")

The CFPB stated that establishing the legal standard for the term will "ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies."

The proposed standard defines such conduct as that which: (i) "presents a high likelihood of significant harm to consumers;" and (ii) "is directly connected to the offering or provision of a consumer financial product or service as defined [by] the CFPA."

The CFPB said it is proposing this rule to address three primary concerns with its current case-by-case approach to supervisory designations:

• Inconsistency: The agency said that the ad hoc nature of individual orders creates a risk that the "risks to consumers" standard may be applied inconsistently across different cases.
• Uncertainty: The CFPB said that the current approach creates uncertainty for institutions about the specific standard the Bureau will apply in a potential designation proceeding.
• Statutory Adherence: The CFPB said that a binding framework is intended to ensure the Bureau conforms to the best reading of its statutory authority under the CFPA.

The agency is requesting public comment on all aspects of this proposal, including specifically whether "risks to consumers" must be potential violations of law. Comments are due by September 25, 2025.