Procedures for Supervisory Designation Proceedings

<RULE> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1091</CFR> <DEPDOC>[Docket No. CFPB-2025-0013]</DEPDOC> <RIN>RIN 3170-AB34</RIN> <SUBJECT>Procedures for Supervisory Designation Proceedings</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB or Bureau) is rescinding the amendments it adopted in April 2022, November 2022, and April 2024, to the Procedures for Supervisory Designation Proceedings, with the exception of some limited process adjustments. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective October 27, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Dave Gettler, Paralegal Specialist, Office of Regulations, at 202-435-7700 or <E T="03">https://reginquiries.consumerfinance.gov/.</E> 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. Background</HD> The Consumer Financial Protection Act of 2010 (CFPA) established the Bureau. Section 1024(a)(1)(C) of the 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.”  <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  12 U.S.C. 5514(a)(1)(C). 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. <E T="03">Id.</E> </FTNT> In 2013, the CFPB issued procedures to govern these supervisory designation proceedings (2013 rule). <SU>2</SU> <FTREF/> Under the 2013 rule, information regarding the proceedings was treated as confidential supervisory information and not publicly disclosed. The process under the 2013 rule began when the “initiating official” from the Bureau's supervision function served a notice of reasonable cause on the respondent. The respondent had an opportunity to submit a written response. The respondent could then provide a “supplemental oral response” before the Associate Director of the Division of Supervision, Enforcement, and Fair Lending (Associate Director of SEFL), in which the initiating official also participated alongside the respondent. The Associate Director of SEFL then formulated a recommended determination to the Director of the Bureau (the Director) about whether to designate the respondent. After considering the recommended determination, the Director made a final determination, which like other information about the proceeding was confidential supervisory information. It was also possible for a respondent to elect to voluntarily consent to supervision, as an alternative to this contested process. <FTNT> <SU>2</SU>  78 FR 40352 (July 3, 2013); <E T="03">see also</E> 85 FR 75194 (Nov. 24, 2020) (updating certain cross-references). </FTNT> In April 2022, November 2022, and April 2024, the Bureau issued a series of rules (collectively, the 2022-2024 rules) that amended the 2013 rule. <SU>3</SU> <FTREF/> Most significantly, the new rules enabled the Director to publicly release the Director's final decisions and orders designating respondents for supervision. The Bureau also removed the role of the Associate Director of SEFL from the process, citing an internal reorganization that abolished that position, and instead specified that the Director would preside over the proceeding without receiving a recommended determination. The Bureau also made various other changes. <FTNT> <SU>3</SU>  87 FR 25397 (Apr. 29, 2022); 87 FR 70703 (Nov. 21, 2022); 89 FR 30259 (Apr. 23, 2024). </FTNT> In May 2025, the Bureau issued a notice of proposed rulemaking that requested public comment on rescinding the 2022-2024 rules and restoring the 2013 rule. <SU>4</SU> <FTREF/> The Bureau received eight comments. <SU>5</SU> <FTREF/> After considering the comments, the Bureau has decided to rescind the 2022-2024 rules, except that the Bureau is retaining some limited process adjustments that were contained in the 2024 rule. <FTNT> <SU>4</SU>  90 FR 20401 (proposed May 14, 2025). </FTNT> <FTNT> <SU>5</SU>  The comments are available at <E T="03">https://www.regulations.gov/document/CFPB-2025-0013-0001/comment.</E> </FTNT> <HD SOURCE="HD1">II. Legal Authority</HD> Section 1024(b)(7) of the CFPA authorizes the CFPB to “prescribe rules to facilitate supervision” of the nonbank covered persons described in section 1024(a), as well as to facilitate “assessment and detection of risks to consumers.”  <SU>6</SU> <FTREF/> Additionally, section 1022(b)(1) provides, in relevant part, that the CFPB 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.”  <SU>7</SU> <FTREF/> The CFPB issues this rule based on its authority under section 1024(b)(7) and section 1022(b)(1). <FTNT> <SU>6</SU>  12 U.S.C. 5514(b)(7). </FTNT> <FTNT> <SU>7</SU>  12 U.S.C. 5512(b)(1). </FTNT> <HD SOURCE="HD1">III. Discussion</HD> <HD SOURCE="HD2">A. Public Release of Decisions and Orders</HD> <HD SOURCE="HD3">Proposed Rule</HD> The proposed rule explained that the Bureau has particular concerns about the manner in which the 2022-2024 rules provided for public release of decisions and orders. If an entity consents to supervisory designation, under the procedures as amended there is no decision or order issued by the Director that is eligible for public release. However, if it exercises its statutory right to contest designation, that choice may ultimately result in a public decision and order asserting that the entity “is engaging, or has engaged, in conduct that poses risks to consumers.”  <SU>8</SU> <FTREF/> Because businesses are concerned about their public reputations, this procedural disparity may put inappropriate pressure on entities to consent to designation, even when they have good arguments that designation is unwarranted. The Bureau also requested comment on the impact of public release on supervised entities and the supervisory process. With respect to other changes made by the amendments, the Bureau's preliminary view subject to considering comments is that they were largely unnecessary. <FTNT> <SU>8</SU>  12 U.S.C. 5514(a)(1)(C). </FTNT> <HD SOURCE="HD3">Comments</HD> A trade association representing the U.S. business community, a trade association of financial technology firms, and a trade association whose members include installment lenders submitted comments opposing any public release of decisions and orders. Accordingly, they supported the Bureau's proposed rescission. All three of these trade associations cited unfair reputational harm from public release. Two associations identified a risk to competition, because firms that contest designation may be competitively disadvantaged by a public order compared to firms that consent to designation and so are not the focus of a public order. Also, if a published order raises concerns about a particular type of product, competitors may be more hesitant to enter into the market and risk being labeled as an entity whose products pose a risk to consumers. The same two associations also argued that public release is inconsistent with supervisory confidentiality and harms the supervisory relationship between the Bureau and the entity. <SU>9</SU> <FTREF/> <FTNT> <SU>9</SU>  One association also requested that the Bureau codify a provision that states that the Bureau will not publish decisions and orders. The Bureau notes that, because of § 1091.115(c) of the proposed and final rules, the Bureau is required to treat decisions and orders as confidential supervisory information under the Bureau's confidentiality rules, and the Bureau does not consider any further amendment on this subject to be necessary. </FTNT> Two trade associations representing the banking industry submitted a comment opposing public release of decisions and orders, but instead recommended public release of the names of designated nonbank entities. These two associations argued that supervisory confidentiality is important because it encourages candid communication between an entity's management, an entity's board of directors, and the supervising agency. Public release discourages entities from fully and freely responding to a potential designation because information shared in the response could be included in a published decision and order. The associations also argued that, because decisions and orders are issued at a preliminary stage before the Bureau's supervisory examination, there will be uncertainty about whether the Bureau would ultimately find that the conduct described in the decision and order violates the law. This uncertainty could discourage conduct that the Bureau ultimately would not deem illegal, including innovative ways of designing and delivering financial services. According to the two banking trade associations, by instead publishing a list of designated nonbank entities, the Bureau would provide transparency to the public and to other market participants about which nonbanks are subject to Bureau supervision, without causing the harms from publishing decisions and orders. Two consumer advocacy organizations, an individual commenter, and an anonymous commenter favored public release and opp ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 77k characters. 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