Last week, the CFPB proposed procedures for asserting its supervisory authority over nonbanks engaged in conduct that poses risk to consumers. Under the Dodd-Frank Act, the CFPB has authority to supervise a nonbank, regardless of its size, that the CFPB has reasonable cause to determine “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.”

Beyond the specifics of the procedures proposed by the CFPB is the question of how the CFPB intends to use its risk-based supervisory authority.  Dodd-Frank gave the CFPB authority to supervise, regardless of their size, providers of residential mortgage loans or certain related services, payday loans, and  private education loans.  The CFPB could identify other industries that involve products or practices it thinks are inherently risky for consumers and seek to use its risk-based authority as the vehicle for extending its supervisory authority to those industries.  Another possibility is that the CFPB might seek to use its risk-based authority to supervise smaller entities in the same markets where it’s using its authority under Dodd-Frank to supervise providers considered to be “a larger participant of a market for other consumer financial products or services.”

For details on the procedures proposed by the CFPB, see our legal alert.