Legal Standard Applicable to Supervisory Designation Proceedings

CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1091</CFR> <DEPDOC>[Docket No. CFPB-2025-0018]</DEPDOC> <RIN>RIN 3170-AB45</RIN> <SUBJECT>Legal Standard Applicable to Supervisory Designation Proceedings</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Proposed rule; request for comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (Bureau or CFPB) is proposing to adopt a standard definition of “risks to consumers with regard to the offering or provision of consumer financial products or services” that will bind the Bureau in proceedings to designate nonbank covered persons for Bureau supervision. This will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before September 25, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit responsive information and other comments, identified by Docket No. CFPB-2025-0018, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments. A brief summary of this document will be available at <E T="03">https://www.regulations.gov/docket/CFPB-2025-0018.</E> • <E T="03">Email: 2025DesignationStandardNPRM@cfpb.gov.</E> Include Docket No. CFPB-2025-0018 in the subject line of the message. • <E T="03">Mail/Hand Delivery/Courier:</E> Comment Intake—Legal Standard Applicable to Supervisory Designation Proceedings, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. <E T="03">Instructions:</E> The Bureau encourages the early submission of comments. All submissions should include the agency name and docket number. Additionally, where the Bureau has asked for specific comment on a topic, commentors should seek to highlight the topic to which its comment is applicable. Because paper mail is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to <E T="03">https://www.regulations.gov.</E> All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Dave Gettler, Paralegal Specialist, Office of Regulations, at 202-435-7700. If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Executive Summary</HD> Section 1024(a)(1)(C) of the Consumer Financial Protection Act of 2010 (CFPA) authorizes the Bureau to supervise a nonbank covered person that the Bureau has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond, is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. 12 U.S.C. 5514(a)(1)(C). <SU>1</SU> <FTREF/> The Bureau has existing procedures at 12 CFR part 1091 that govern the process by which the Bureau provides notice and a reasonable opportunity to respond. The Bureau has separately requested public comment on amendments to that process. 90 FR 20401 (May 14, 2025). <FTNT> <SU>1</SU>  The Bureau must base such reasonable-cause determinations on complaints collected by the Bureau under 12 U.S.C. 5493(b)(3), or on information collected from other sources. 12 U.S.C. 5514(a)(1)(C). </FTNT> The Bureau has not, to date, issued a rule addressing the meaning of “risks to consumers” in the context of section 1024(a)(1)(C). Instead, the Bureau has issued orders in individual cases. The Bureau has three independent concerns about this status quo. First, the ad hoc nature of individual orders creates a danger that the Bureau's application of “risks to consumers” may not be consistent between orders. Second, because the applicability of the precedents in past orders to new contexts can be unclear, and also because the agency may depart from an existing precedent in a later case, the status quo creates uncertainty for institutions facing potential designation about what standard the Bureau will apply to their case. Third, without a binding framework on the meaning of “risks to consumers,” the Bureau may not conform to the best reading of section 1024(a)(1)(C) in individual cases. The proposed rule is intended to address these issues by binding the Bureau to a standard that is consistent, foreseeable, and based on the best reading of section 1024(a)(1)(C). <HD SOURCE="HD1">II. Legal Authority</HD> Section 1024(b)(7) of the CFPA authorizes the Bureau to “prescribe rules to facilitate supervision” of the nonbank covered persons described in section 1024(a). 12 U.S.C. 5514(b)(7). Additionally, section 1022(b)(1) provides, in relevant part, that the Bureau's Director “may prescribe rules . . . as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 12 U.S.C. 5512(b)(1). The Bureau issues this proposed rule based on its authority under section 1024(b)(7) and section 1022(b)(1). <HD SOURCE="HD1">III. Discussion of Proposal</HD> The proposed rule would explain that, for purposes of section 1024(a)(1)(C) of the CFPA, “conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services” consists of conduct that: (a) presents a high likelihood of significant harm to consumers; and (b) is directly connected to the offering or provision of a consumer financial product or service as defined in section 1002 of the CFPA. In the Bureau's preliminary view, Congress would not have expected it to expend its supervisory resources on issues that are speculative in likelihood or trivial in impact. Although some prior orders have adopted a broad approach to the phrase “risks to consumers” under section 1024(a)(1)(C), asserting that it can include even immaterial potential harms, the Bureau proposes to reconsider this approach. <SU>2</SU> <FTREF/> The context of section 1024(a)(1)(C) indicates that Congress intended the Bureau to be squarely focused on serious conduct. <FTNT> <SU>2</SU>   <E T="03">See, e.g.,</E> <E T="03">Google Payment Corp.,</E> File No. 2024-CFPB-SUP-0001, at 16-17 (Nov. 8, 2024), <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_Publication-Redacted-Decision-and-Order-Designating-Google-Payment-for-Su_6EZQyMz.pdf, withdrawn</E> (May 7, 2025), <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_gpc-withdrawal_2025-05.pdf.</E> </FTNT> In addition, the Bureau proposes to find that the phrase “with regard to the offering or provision of consumer financial products or services” requires a direct connection to a statutorily defined “consumer financial product or service.” It is essential that the Bureau focus only on the specific categories of products and services that Congress charged the Bureau with overseeing. The Bureau requests comment on all aspects of this standard. The Bureau specifically requests comment on whether “risks to consumers” must be potential violations of law in the context of section 1024(a)(1)(C). <HD SOURCE="HD1">IV. Proposed Effective Date of Final Rule</HD> The Bureau proposes that the final rule take effect 30 days after publication in the <E T="04">Federal Register</E> , consistent with the Administrative Procedure Act, 5 U.S.C. 553(d). However, if the final rule is determined to be a “major rule” as defined in the Congressional Review Act, 5 U.S.C. 804(2), <SU>3</SU> <FTREF/> the Bureau proposes that it take effect 60 days after publication in the <E T="04">Federal Register</E> , consistent with 5 U.S.C. 801(a)(3)(A). <FTNT> <SU>3</SU>  A major rule is a rule that the that Office of Information and Regulatory Affairs finds has resulted in or is likely to result in: (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. 5 U.S.C. 804(2). </FTNT> <HD SOURCE="HD1">V. Consumer Financial Protection Act Section 1022(b)(2) Analysis</HD> In developing this proposed rule, the Bureau has considered its potential benefits, costs, and impacts in accordance with section 1022(b)(2)(A) of the CFPA. 12 U.S.C. 5512(b)(2)(A). There are generally limited data with which to quantify potential costs, benefits, and impacts of the proposed rule. The Bureau conducted a limited number of supervisory designation proceedings under the existing rules, but the Bureau does not have quantitative data regarding the costs to respondents or other impacts of those proceedings. The Bureau also does not have quantitative data to predict most of the impacts of the changes made by this rule relative to the current state of affairs based on the broad understanding of “risks to consumers” drawn from prior orders, which is the comparison th ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 23k characters. 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