Fintechs Face Expanded CFPB Supervision With Little-Used Tool

The Consumer Financial Protection Bureau is dusting off its previously untapped authority to examine financial technology companies, including at least one unnamed tech giant, to determine if their emerging financial products are risky to consumers.

Supervision of several companies has already begun and the agency has been “gratified” by their cooperation, CFPB Director Rohit Chopra said in a July 17 interview in his Washington office.

Chopra telegraphed the move in April 2022, when he said the agency plans to use a previously unused Dodd-Frank power to quickly require companies in new financial markets to undergo agency exams without going through the rulemaking process.

Chopra declined to provide the number or type of companies the agency is supervising. But at least three companies—one buy now, pay later business; one earned wage access provider; and a big tech company—had agreed to CFPB supervision, according to an industry source, declining to identify the companies.

“Many entities are thinking to themselves that they would prefer to go through that process rather than answering to an enforcement investigation,” Chopra said.

Allowing for CFPB supervision is a sign of “maturation” for some companies that are providing new financial products, Chopra added.

“There is less of a ‘move fast and break things’ orientation,” he said. “They want to be able to demonstrate to their bank partners, to their investors, and others that they’re running a mature operation,” he said.

Agency examiners will have access to financial records, company policies, and other internal documents. Companies are granted confidentiality. Their identities would be made public only if they challenged the CFPB’s designation.

The CFPB issued a rule in 2013 outlining how it would determine that a company or new financial product posed a big enough risk to require supervision. But it never designated any businesses under that policy.

The 2010 Dodd-Frank Act gave the CFPB three different paths to supervise companies. First, it subjected banks with over $10 billion in assets, large credit unions, nonbank mortgage lenders, private student lenders, and payday lenders to CFPB supervision.

The second path under the landmark law, which created the CFPB, also allowed the agency to bring the biggest players in other consumer finance markets under its supervision. To do so, the agency would have to create a “larger participant” rule that goes through notice-and-comment rulemaking to establish criteria for supervision. The CFPB has already done so for consumer credit reporting companies, auto lenders, student loan servicers, and debt collectors.

The designation of novel financial products for supervision that Chopra telegraphed in April 2022 is the third.