On August 26, the CFPB issued a proposed rule to clarify the legal standard when determining whether to designate a nonbank covered person for Bureau supervision under Section 1024(a)(1)(C) of the CFPA. The proposal would define “conduct that poses risks to consumers” as conduct that both “presents a high likelihood of significant harm to consumers” and is “directly connected to the offering or provision of a consumer financial product or service.”

The CFPB indicated that, if promulgated, the rule would likely reduce the circumstances under which the Bureau designates an entity for supervision, assuming all other factors remain unchanged. The Bureau explained that the proposal is intended to replace the current ad hoc approach with a binding framework, thereby promoting greater consistency and predictability in supervisory designation proceedings.

The Bureau has requested public comment on all aspects of the proposed standard and is specifically seeking input on whether “risks to consumers” should be limited to potential violations of law. Comments will be due by September 25.

Visit our resource center, CFPB Pause: Where From Here?, to stay on top of the latest and what it may mean for the federal and state regulatory and enforcement landscape.