The CFPB has exclusive supervisory authority over depository institutions that have assets totaling more than $10 billion dollars. For these depository institutions, the CFPB is the primary rule maker and enforcer of consumer protection laws applicable to these institutions. For depository institutions that have $10 billion or less in total assets, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) or the Office of the Currency (OCC) is their primary regulator.
What is not as well known, is that although these federal agencies retain supervisory and enforcement authority over smaller institutions, Section 1026 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) authorizes the CFPB to send its examiners, on a sampling basis, to examinations by these other federal agencies in order to assess compliance with the requirements of Federal consumer financial law. The CFPB is also authorized to require smaller depository institutions to provide reports directly to the CFPB and if the CFPB determines that there is non-compliance, the CFPB can refer enforcement actions to these other federal agencies. Recently, the OCC announced that it has protocols in place to schedule exams and coordinate supervisory activities with the CFPB. The effect of this is that these smaller depository institutions, community banks and regional banks with total assets under $10 billion are effectively subject to additional oversight by the CFPB.
Smaller depository institutions are not the only entities that are subject to supervision by the CFPB. Due to its broad mandate, the CFPB has the potential to regulate an expansive cross-section of financial transactions that have previously been either lightly regulated or not regulated at all.
The Dodd-Frank Act gave the CFPB broad powers to assume regulatory and rulemaking authority under numerous existing consumer protection laws and to enact new regulations. Specifically, the CFPB has authority to regulate any “covered person” which is “anyone who engages in offering or providing a consumer financial product or service.” The definition of “consumer financial product or service” is extensive and covers a variety of transactions, including:
- Engaging in deposit-taking activities
- Extending credit (e.g. credit cards) and servicing loans, including mortgages
- Check cashing, check collection, or check guaranty services
- Acting as a custodian of funds or any financial instrument for use by or on behalf of a customer
- Transmitting or exchanging funds
- Providing real estate settlement services
- Collecting, analyzing, maintaining or providing consumer report information or other account information
- Providing certain financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services
- Extending or brokering leases of personal or real property
- Selling, providing, or issuing stored value or payment instruments (e.g. gift cards)
- Collecting debt, including foreclosing on property
This definition brings under CFPB surveillance many entities and individuals that historically have not had their transactions subject to extensive regulation. Non-depository finance companies, student lenders, money transmitters, prepaid card issuers, debt relief service providers, and check cashers are entities that were either lightly regulated or not regulated at all prior to the enactment of Dodd-Frank. Not only does the CFPB regulate these entities, but the CFPB has the ability to expand its supervision to other companies if they engage in the extension of credit or sell a financial product or service. Automobile dealers, real estate brokers, accountants, income tax preparers, real estate agents, and a variety of retailers and sellers of nonfinancial goods are other entities that may meet the definition of a “covered person”. Even certain attorneys have come under the purview of the CFPB. In January 2013, the CFPB issued a rule that any entity with greater than $10 million in annual receipts from consumer debt collection activities qualifies as a “larger participant” and subject to CFPB supervisory authority. This step brought many debt collection companies, including debt collection attorneys that collect debt through litigation, under CFPB jurisdiction.
Larger Participants and Service Providers are Regulated
The CFPB also has the authority to supervise certain nonbank “larger participants” that are providing consumer financial products or services. To date, the CFPB has exercised this authority 5 times to expand its jurisdiction over nonbank companies in the market. In addition to debt collection companies, the CFPB also has jurisdiction or is proposing jurisdiction over “larger participants” that are student loan servicers, credit reporting agencies, nonbank auto finance companies, and money transmitters participating in a market for international money transfers.
Service providers to large depository institutions and “covered persons” are also subject to CFPB supervision to the surprise of many of these entities. Under Section 1026, a “service provider” is any person that “provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” This includes a person that “(i) participates in designing, operating or maintaining the consumer financial product or service; or (ii) processes transactions relating to the consumer financial product or service.” As more and more banking services become automated and technology driven, banks are outsourcing a variety of payment functions and services relating to credit cards, loans and other banking services to third parties. For example, banks that offer credit cards often use third party processors that share responsibility for accepting and processing credit card payments. Such third party firms may also participate in credit card transactions by setting up credit card accounts, routing credit card transactions to networks, or managing relationships among different businesses that participate in a credit card transaction. Recently, there has been speculation as to whether Apple is subject to regulation as a “servicer provider” by offering Apple Pay. The CFPB has signaled that it will monitor the mobile payments space and has launched an inquiry into the use of mobile financial services by consumers.
What’s Next for CFPB?
CFPB Director Richard Cordray has described himself as the “cop on the beat” for consumer matters and has already pursued enforcement actions against a wide variety of companies offering consumer financial products and services. Recently, Cordray “uncovered auto-lending discrimination” at banks and is pursuing enforcement actions against larger banks and non-banks involved with auto-lending. The CFPB has proposed a rule to supervise nonbank auto finance companies that make, acquire or refinance 10,000 or more loans or leases in a year. This will bring under the CFPB jurisdiction approximately 38 auto finance companies, which originate approximately 90% of all nonbank auto loans and leases. The CFPB has also recently taken action against title insurance agencies for illegal quid pro quo referral agreements, mortgage servicers for violating the new mortgage servicing rules, and has released a report finding that manufactured home owners are paying higher interest rates on their loans than borrowers that build their home onsite. As the CFPB’s reach expands, companies that fall under CFPB’s jurisdiction can expect to see increased reporting obligations along with intensified examination and enforcement.