CFPB claims special, risk-based oversight over lender

Federal Issues CFPB CFPA Investigations

On February 23, the CFPB released a supervisory designation over a nonbank, small-loan consumer finance company (the Company). This is the first time the CFPB has used its authority under Section 1024(a)(1)(C) of the Consumer Financial Protection Act (CFPA) to designate a company for supervision based on a determination that the company’s conduct poses “risk to consumers” after a contested proceeding. This provision of the CFPA only required the CFPB to have “reasonable cause to determine” that a covered person’s conduct posed risks to consumers––which the CFPB stated is a “less demanding” legal standard than the preponderance-of-the-evidence standard generally used in civil proceedings.

The CFPB described the relevant statutory framework of the proceeding with particularity since this proceeding was “one of the first” under Section 1024(a)(1)(C). The CFPB found the company to be a covered person and stated that the CFPB had reasonable cause to determine that the Company’s conduct poses risks to consumers, including its alleged bundling of loans with insurance coverage, harmful collection practices, inaccurate credit reporting, and serial refinancing. The CFPB alleged that consumer complaints are sufficient to establish reasonable cause that the Company’s actions put consumers at risk.