At the program held on April 7 entitled “The State of Consumer Protection Initiatives” at the American Bar Association Business Law Section Consumer Financial Services Committee 2017 Spring Meeting, Peggy Twohig, the CFPB’s Assistant Director for Supervision Policy, announced that the CFPB has begun to examine service providers on a regular, systematic basis, particularly those supporting the mortgage industry.  Since its inception, the CFPB has had the authority to supervise service providers.  However, in the past, the CFPB has only examined some service providers on an ad hoc basis.  The change represents a significant expansion of the CFPB’s use of its supervisory authority and will substantially increase the number and types of entities facing CFPB examinations. 

A “service provider” is generally defined in Section 1002(26)(A) of Dodd-Frank as “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, including 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….”

Sections 1024(e) and 1025(d) of Dodd-Frank authorize the CFPB to supervise a service provider to a bank or non-bank already supervised by the CFPB – namely, depository institutions with more than $10 billion in assets and the following types of non-banks:

1. Mortgage originators, brokers or servicers;
2. Payday lenders;
3. Private student lenders; and
4. A “larger participant of a market for other consumer financial products or services” as defined by a CFPB rule. The CFPB so far has issued rules covering larger participants in the following industries:  auto finance, debt collection, student loan servicing, consumer reporting, and international money transfers.  (At an earlier program held at the ABA meeting, Ms. Twohig stated that CFPB’s next larger participant rule will deal with consumer installment lending and auto title loans.)

Not only is this expansion of the CFPB’s supervision program important to service providers, it is important for banks and non-banks already supervised by the CFPB because the CFPB’s position is that they can be vicariously liable for violations of law committed by their service providers.