The Consumer Financial Protection Bureau has proposed a new rule that would establish a binding definition of “risks to consumers” under the Consumer Financial Protection Act, limiting the agency’s ability to designate nonbank entities for supervision. Published in the Federal Register today, the proposal aims to ensure consistency and clarity in how the CFPB exercises its authority over nonbanks engaged in consumer financial products or services, including those in credit, collections, and debt buying.
Under the CFPA, the CFPB can supervise nonbanks if it determines they pose risks to consumers through their offerings. Historically, the agency has relied on case-by-case orders rather than a formal rule, leading to concerns about inconsistency, uncertainty for firms, and potential misalignment with statutory intent. The proposed rule defines “risks to consumers” as conduct that (a) presents a high likelihood of significant harm to consumers and (b) is directly connected to a statutorily defined consumer financial product or service.
This narrower standard reflects the CFPB’s view that Congress intended the agency to focus on “serious conduct,” rejecting broader interpretations from prior orders that included speculative or immaterial harms. For industry professionals, this could mean fewer designations overall, as the CFPB notes it would be “less likely to designate any particular entity for supervision, all other factors being equal.” The agency estimates a vast population of potentially affected nonbanks, around 154,430 based on 2022 Economic Census data across relevant NAICS codes like credit intermediation, debt collection, and consumer reporting, though it has designated fewer than 20 entities to date under existing procedures.
Potential benefits include reduced supervision costs for entities on the margin of designation. The CFPB estimates an average supervisory exam costs about $27,000 in labor, based on national averages for attorneys and compliance officers. Firms might also adjust behaviors: those previously avoiding marginal risks could engage in more activities if they fall below the “high likelihood of significant harm” threshold, potentially lowering compliance review expenses but raising consumer harm risks if unchecked.
The proposal comes amid shifts under Acting Director Russell Vought, who has moved to curtail the CFPB’s reach following Rohit Chopra’s more aggressive tenure. Vought’s actions include workforce reductions, funding cuts, rescinding guidance, and dropping enforcement cases. Notably, the CFPB is preparing to close nearly 2,000 matters requiring attention from bank exams, signaling a broader pullback.
