Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders

Federal RegisterJan 30, 2023

Ask Donna

What actually matters in this document.

Text

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1092

[Docket No. CFPB-2022-0080]

RIN 3170-AB13

Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Proposed rule with request for public comment.

SUMMARY:

Pursuant to its authorities under the Consumer Financial Protection Act of 2010 (CFPA), the Consumer Financial Protection Bureau (Bureau or CFPB) is proposing to require certain nonbank covered person entities (with exclusions for insured depository institutions, insured credit unions, related persons, States, certain other entities, and natural persons) that are under certain final public orders obtained or issued by a Federal, State, or local agency in connection with the offering or provision of a consumer financial product or service to report the existence of such orders to a Bureau registry. The Bureau is proposing to include all final public written orders and judgments (including consent and stipulated orders and judgments) obtained or issued by the Bureau or any government agency (Federal, State, or local) for violation of certain consumer protection laws. Pursuant to its authority under the CFPA, the Bureau is also proposing to require certain supervised nonbanks to submit annual written statements regarding compliance with each underlying order, signed by an attesting executive who has knowledge of the entity's relevant systems and procedures for achieving compliance and control over the entity's compliance efforts.

DATES:

Comments must be received on or before March 31, 2023 to be assured of consideration.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2022-0080 or RIN 3170-AB13, by any of the following methods:

•

Electronic: https://www.regulations.gov.

Follow the instructions for submitting comments.

•

Email: 2022-NPRM-OrdersRegistry@cfpb.gov.

Include Docket No. CFPB-2022-0080 or RIN 3170-AB13 in the subject line of the message.

•

Mail/Hand Delivery/Courier:

Comment Intake—Nonbank Registration of Certain Agency and Court Orders, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically.

Instructions:

The Bureau encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. In general, all comments received will be posted without change to

https://www.regulations.gov.

All comments, including attachments and other supporting materials, will become part of the public record and are subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Comments will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

Clay Coon, Office of Supervision Policy, at 202-435-7700. If you require this document in an alternative electronic format, please contact

CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

The Bureau is proposing to establish and maintain a registry that would collect information about certain public agency and court orders and facilitate the Bureau's supervision of certain companies. In this way, the Bureau would more effectively be able to monitor and to reduce the risks to consumers posed by entities that violate consumer protection laws. The Bureau also proposes to publish the registry online for use by the public and other regulators.

The proposed rule would require certain nonbank covered person entities (with exclusions for insured depository institutions, insured credit unions, related persons, States, certain other entities, and natural persons) to register with the Bureau upon becoming subject to a public written order or judgment imposing obligations based on violations of certain consumer protection laws. Those entities would be required to register in a system established by the Bureau, provide basic identifying information about the company and the order (including a copy of the order), and periodically update the registry to ensure its continued accuracy and completeness. The Bureau would publish this information on its website and potentially in other forms.

The Bureau would also require certain nonbanks subject to the Bureau's supervisory authority under section 1024(a) of the Consumer Financial Protection Act of 2010 (CFPA)

annually to identify an executive (or executives) who is responsible for and knowledgeable of the firm's efforts to comply with the orders identified in the registry. The name and title of the executive would also be published in the registry. The supervised nonbank entity would also be required to submit on an annual basis a written statement signed by that executive (or executives) regarding the entity's compliance with each order in the registry.

12 U.S.C. 5514(a).

Nonbank registrants would have to register in the Bureau system starting after both the effective date of the final rule and the launch of a registration system created by the Bureau. Details on how to register will be provided in the online system through filing instructions.

II. Background

A. The Bureau and Other Agencies Issue and Obtain Enforcement Actions Against Nonbanks To Protect Consumers

The Bureau administers and enforces Federal consumer financial laws against nonbanks in consumer financial markets. In addition to the Bureau, Congress authorized multiple other Federal and State agencies to enforce Federal consumer financial law, including the CFPA prohibition against unfair, deceptive, or abusive acts or practices (UDAAP) and enumerated statutes including the Truth in Lending Act, the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and other statutes.

Several Federal agencies, most notably the Federal Trade Commission, also enforce section 5 of the Federal Trade Commission Act (FTC Act), which similarly prohibits unfair or deceptive acts or practices (UDAP).

The prohibitions against unfair and deceptive acts or practices in the CFPA were modeled after the same prohibitions in the FTC Act. Furthermore, States across the country began codifying State UDAP statutes modeled after the FTC Act starting in the 1960s and 1970s.

These laws differ

in many respects from each other, but generally they hail from a common consumer protection tradition originating with the FTC Act, similar to the CFPA's prohibition on UDAAP.

See

12 U.S.C. 5481(12), 5552; 12 CFR part 1082; Bureau Interpretive Rule, Authority of States to Enforce the Consumer Financial Protection Act of 2010, 87 FR 31940 (May 26, 2022).

15 U.S.C. 45.

Dee Pridgen,

The Dynamic Duo of Consumer Protection: State and Private Enforcement of Unfair

and Deceptive Trade Practices Laws,

81 Antitrust L.J. 911, 912 (2017).

The Bureau was created in the wake of the 2008 financial crisis, which was caused by a variety of overlapping factors including systemic malfeasance in the mortgage industry.

Since passage of the CFPA, the Bureau has brought more than 250 enforcement actions against nonbanks. When the Bureau issues an order against a covered person (often, but not always, as a consent order), the Bureau often follows up with supervisory or enforcement action to ensure the company's compliance with the order. On numerous occasions, the Bureau has uncovered companies that failed to comply with consent orders that the companies entered into with the Bureau voluntarily.

See

U.S. Fin. Crisis Inquiry Comm'n,

The Financial Crisis Inquiry Report,

at 104-11, 113-18 (2011),

https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

;

See also

the discussion of these issues in the section-by-section discussions of proposed §§ 1092.202(b) and 1092.204(a) below.

Government agencies—including, but not limited to, the Bureau—would also benefit from the proposed public registry. While the orders that would be published under the proposal would already be public, every Federal, State, and local agency with jurisdiction over a covered nonbank will benefit from access to a regularly maintained database providing up-to-date information on relevant public orders that have been issued against such entities. Such information will help agencies to detect risks to consumers, and to coordinate and maintain consistency with the Bureau and other agencies in their enforcement strategies and approaches. Agencies might use the published information to better identify registered nonbanks and determine their legal structure and organization, since the registry would require registered nonbanks to submit and maintain up-to-date identifying information, including legal name and principal place of business. The Bureau also believes that the publication of registration information and information regarding orders will assist other agencies in assessing the potential risks to consumers that may be posed by registered nonbanks and in making their own determinations regarding whether to conduct examinations or investigations, bring enforcement actions against nonbanks, or engage in other regulatory activities. For example, a State regulator attempting to improve its assessments of consumer risk trends among nonbank payday lenders in its State should be able to use the registry to identify what other regulators of the same or similar nonbank providers or products have recently identified in terms of such risks. In addition, the Bureau believes that many agencies would find the published information useful in making other determinations regarding the nonbanks registered under the proposal. For example, an agency may be able to use this information when making determinations regarding an application or license, or to ask relevant questions regarding the information that is published. Thus, the Bureau believes that, with access to a single, public registry of these orders, those similarly tasked with protecting consumers in the markets for consumer financial products and services would obtain many of the same powerful market monitoring benefits that the Bureau anticipates obtaining from this rule.

In developing the proposal, the Bureau considered whether it might be better to use confidential channels, or perhaps a private electronic portal, to exchange this information with other government agencies. However, the Bureau believes that such an approach would be impractical. Not every agency that would be able to use the information would be aware of the need to request access to the information from the Bureau or would necessarily be able to expend the resources to maintain access. The Bureau would need to expend its own resources to establish and maintain such channels. And the Bureau believes that such a system would not achieve the benefits of disclosure to consumers and the public discussed in this section. Publication also would formally align the proposed registration system with Federal government standards calling for publishing information online as open data.

112

See, e.g.,

Open, Public, Electronic, and Necessary Government Data Act, in title II of Public Law No. 115-435 (Jan. 14, 2019).

Consumers may also benefit from the collection and publication of the information collected by the system, including information about orders that are already public. The Bureau believes that, at least in certain cases, publishing information about the entity and its applicable orders in a public registry would potentially help certain consumers make informed decisions regarding their choice of consumer financial products or services. As discussed at section VII below regarding the Bureau's analysis of this proposal under CFPA section 1022(b),

113

the Bureau does not necessarily expect a wide group of consumers to rely routinely on the proposed registry when selecting consumer financial products or services. However, the Bureau believes that the registry would benefit certain consumers if the information in the registry is recirculated, compiled, or analyzed by other users such as consumer advocacy organizations, researchers, or the media. For example, media outlets could use the registry to report which entities have the most government orders enforcing the law against them, which could inform consumers about the most egregious repeat offenders.

113

12 U.S.C. 5512(b).

The proposed registry may also facilitate private enforcement of the Federal consumer financial laws by consumers, to the extent those laws provide private rights of action, where consumers have been harmed by a registered nonbank. The information that would be published under the proposal might be useful in helping consumers understand the identity of a company that has offered or provided a particular consumer financial product or service, and in determining whether to file suit or otherwise make choices regarding how to assert their legal rights. And availability of this information may lead consumers and other persons to report to the Bureau instances of similar conduct for the Bureau to investigate.

Under the proposal, the Bureau would not publish the written statement submitted by a supervised registered entity but would instead treat the written statement as Bureau confidential supervisory information subject to the provisions of its rule on the disclosure of records and information at 12 CFR part 1070. The Bureau does propose to publish the name and title of the attesting executive(s) submitted by the supervised registered entity. The Bureau proposes to disclose this name and title information because it believes publication of this information would be in the public interest—namely, it would help ensure accountability at the entity for noncompliance. The Bureau believes that the publication of the executive's name and title would provide an incentive to pay more attention to covered orders. The Bureau believes that designating an executive as ultimately accountable for ensuring compliance with a covered order will prompt the executive to focus greater attention on ensuring the entity's compliance, and in turn increase the likelihood of compliance. The Bureau believes that publication of this designation will increase the likelihood of these effects. Publication of the designation will identify for other regulators (and the general public) the person at the supervised registered entity who is ultimately responsible for compliance with the covered order, as

well as more general efforts to comply with Federal consumer financial law. Just as the possibility of Bureau scrutiny of the attesting executive's conduct is likely to motivate the executive to devote greater attention to compliance efforts, the additional scrutiny from others outside the Bureau will further promote compliance. Publishing the attesting executive's name and title thus dovetails with the supervisory goals discussed above in section IV(D).

The Bureau also believes that publishing the name and title of the executive who has knowledge and control of the supervised entity's efforts to comply with the covered order would benefit users of the system in other ways. Such information would enable employee whistleblowers, or other consumers who have knowledge and information about violations of the applicable order, to ensure that such information gets to the person who is in charge of such compliance. The Bureau also believes that the public would benefit from understanding the names and titles of the highest-ranking executive who is responsible for compliance with a public order enforcing the law, as this information could help consumers better understand and monitor the conduct of the entities with whom they do business. It would also inform consumers of a person to whom they could direct escalated complaints. Other regulators, especially those that have issued covered orders regarding the supervised entity, would likely benefit from understanding which executive(s) have been tasked with ensuring compliance with their orders. Finally, disclosure of this information would increase transparency regarding how the Bureau processes and verifies information submitted as part of the registration system. The Bureau requests comment on this provision, including whether this requirement would assist users of the NBR system and whether it would unduly interfere with the privacy interests of the attesting executive or other interests of the supervised registered entity.

The Bureau seeks comment on the proposed publication requirements and the above-stated rationales for them. Among other things, the Bureau seeks information on the current state of published information in existing systems or databases about the types of orders addressed in this proposed rule. The Bureau also seeks comment on whether the Bureau should publish less information in the proposed registry, or retain discretion to do so, and whether publication of the names and titles of attesting executives will have the desired effects.

V. Section-by-Section Analysis

Part 1092

Subpart A—General

Section 1092.100 Authority and Purpose

100(a) Authority

Proposed § 1092.100(a) would set forth the legal authority for proposed 12 CFR part 1092, including all subparts. Proposed § 1092.100 would refer to CFPA section 1022(b) and (c) and section 1024(b),

114

which are discussed in section III of the proposal above.

114

12 U.S.C. 5512(b), (c); 12 U.S.C. 5514(b).

100(b) Purpose

Proposed § 1092.100(b) would explain that the purpose of part 1092 is to prescribe rules regarding NBR requirements, to prescribe rules concerning the collection of information from registered entities, and to provide for public release of that information as appropriate.

Section 1092.101 General Definitions

Proposed § 1092.101 would define terms that are utilized elsewhere in proposed part 1092 of the rules. Proposed § 1092.101(a) would define the terms “affiliate,” “consumer,” “consumer financial product or service,” “covered person,” “Federal consumer financial law,” “insured credit union,” “person,” “related person,” “service provider,” and “State” as having the meanings set forth in the CFPA, 12 U.S.C. 5481. Some of these terms would be used only in subpart B.

Proposed § 1092.101(b) would define the term “Bureau” as a reference to the Consumer Financial Protection Bureau.

Proposed § 1092.101(c) would clarify that the terms “include,” “includes,” and “including” throughout part 1092 would denote non-exhaustive examples covered by the relevant provision.

115

See, e.g., Christopher

SmithKline Beecham Corp.,

567 U.S. 142, 162 (2012) (use of “includes” indicates that “the examples enumerated in the text are intended to be illustrative, not exhaustive”).

Proposed § 1092.101(d) would define the term “nonbank registration system” to mean the Bureau's electronic registration system identified and maintained by the Bureau for the purposes of part 1092. Proposed § 1092.101(e) would define the term “nonbank registration system implementation date” to mean, for a given requirement or subpart of part 1092, the date(s) determined by the Bureau to commence the operations of the NBR system in connection with that requirement or subpart. The Bureau seeks comment on how much time entities would need to comply with the requirements of part 1092 and to register with the NBR system. The Bureau currently anticipates that the NBR system implementation date with respect to subpart B would occur sometime after the effective date of the proposed rule, and no earlier than January 2024. The actual NBR system implementation date would depend upon the Bureau's ability to develop and launch the required technical systems that will support the submission and review of applicable filings, and on feedback provided by commenters regarding the time registrants would need to implement this part's requirements. The Bureau would provide advance public notice regarding the NBR system implementation date with respect to subpart B to enable entities subject to subpart B to prepare and submit timely filings to the NBR system.

Section 1092.102 Submission and Use of Registration Information

102(a) Filing Instructions

Proposed § 1092.102(a) would provide that the Bureau shall specify the form and manner for electronic filings and submissions to the NBR system that are required or made voluntarily under part 1092. The Bureau would issue specific guidance for filings and submissions. The Bureau anticipates that its filing instructions may, among other things, specify information that filers must submit to verify that they have authority to act on behalf of the entities for which they are purporting to register. The Bureau proposes to accept electronic filings and submissions to the NBR system only and does not propose to accept paper filings or submissions.

Proposed § 1092.102(a) also would state that the Bureau may provide for extensions of deadlines or time periods prescribed by the proposed rule for persons affected by declared disasters or other emergency situations. Such situations could include natural disasters such as hurricanes, fires, or pandemics, and also could include other emergency situations or undue hardships, including technical problems involving the NBR system. For example, the Bureau could defer deadlines during a presidentially declared emergency or major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121

et seq.

) or a presidentially declared pandemic-related national emergency under the National Emergencies Act (50 U.S.C. 1601

et seq.

). The Bureau would issue guidance regarding such situations. The Bureau seeks comment on the types of

situations that may arise in this context, and about appropriate mechanisms for addressing them.

102(b) Coordination or Combination of Systems

Proposed § 1092.102(b) would provide that in administering the NBR system, the Bureau may rely on information a person previously submitted to the NBR system under part 1092 and may coordinate or combine systems with State agencies as described in CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D). Those statutory provisions provide that the Bureau shall consult with State agencies regarding requirements or systems (including coordinated or combined systems for registration), where appropriate. This proposed section would clarify that the Bureau may develop or rely on such systems as part of maintaining the NBR system and may also rely on previously submitted information. The Bureau seeks comment on the types of coordinated or combined systems that would be appropriate and the types of information that could be obtained from or provided to State agencies.

102(c) Bureau Use of Registration Information

Proposed § 1092.102(c) would provide that the Bureau may use the information submitted to the NBR system under this part to support its objectives and functions, including in determining when to exercise its authority under CFPA section 1024 to conduct examinations and when to exercise its enforcement powers under subtitle E of the CFPA.

The Bureau proposes to establish the NBR system under its registration and market-monitoring rulemaking authorities under CFPA section 1022(b)(1), (c)(1)-(4), and (c)(7), and under its supervisory rulemaking authorities under CFPA section 1024(b)(7)(A), (B), and (C). As discussed in greater detail elsewhere in this preamble, the Bureau intends to use the information submitted under the NBR system to monitor for risks to consumers in the offering or provision of consumer financial products or services, and to support all of its functions as appropriate, including its supervisory, rulemaking, enforcement, and other functions.

Proposed § 1092.102(c) also would provide that part 1092, and registration under that part, would not alter any applicable process whereby a person may dispute that it qualifies as a person subject to Bureau authority. For example, 12 CFR 1090.103 establishes a Bureau administrative process for assessing a person's status as a larger participant under CFPA section 1024(a)(1)(B) and 1024(a)(2) and 12 CFR part 1090. As specified in 12 CFR 1090.103(a), if a person receives a written communication from the Bureau initiating a supervisory activity pursuant to CFPA section 1024, such person may respond by asserting that the person does not meet the definition of a larger participant of a market covered by 12 CFR part 1090 within 45 days of the date of the communication. 12 CFR 1090.103 establishes a process for review and determination by a Bureau official regarding the person's larger participant status. 12 CFR 1090.103(c) provides that, in reaching that determination, the Bureau official shall review the person's affidavit and related information, as well as any other information the official deems relevant.

Under proposed § 1092.102(c), a person may submit such an assertion regarding the person's status as a larger participant under 12 CFR 1090.103 notwithstanding any registration or information submitted to the NBR system under part 1092, including any submission of identifying information or a written statement, or any designation of attesting executive(s) for purposes of proposed subpart B. Submission of such assertions regarding larger participant status to the Bureau under 12 CFR 1090.103, including the Bureau's processes regarding the treatment of such assertions and the effect of any determinations regarding the person's supervised status, would be governed by the provisions of 12 CFR part 1090. The Bureau may use the information provided to the NBR system in connection with making any determination regarding a person's supervised status under 12 CFR 1090.103, along with the affidavit submitted by the person and other information as provided in that section. However, the submission of information to the NBR system would not prevent a person from also submitting other information under 12 CFR 1090.103.

Section 1092.103 Severability

Proposed § 1092.103 would provide that the provisions of the proposed rule are separate and severable from one another, and that if any provision is stayed or determined to be invalid, the remaining provisions shall continue in effect. This is a standard severability clause of the kind that is included in many regulations to clearly express agency intent about the course that is preferred if such events were to occur. The Bureau has carefully considered the requirements of the proposed rule, both individually and in their totality, including their potential costs and benefits to covered persons and consumers. In the event a court were to stay or invalidate one or more provisions of this rule as finalized, the Bureau would want the remaining portions of the rule as finalized to remain in full force and legal effect.

Subpart B—Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders

Section 1092.200 Scope and Purpose

200(a) Scope

Proposed § 1092.200(a) would describe the scope of proposed subpart B. Proposed subpart B would require nonbank covered persons that are subject to certain public agency and court orders enforcing the law to register with the Bureau and to submit copies of the orders to the Bureau and would describe the registration information the Bureau would make publicly available. It would also provide that proposed subpart B would require certain nonbank covered persons that are supervised by the Bureau to prepare and submit an annual written statement. The requirements regarding annual written statements are described in proposed § 1092.204. The Bureau solicits comment on this proposed statement of scope.

200(b) Purpose

Proposed § 1092.200(b) would explain that the purposes of the information collection requirements in proposed subpart B would be to support Bureau functions by monitoring for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services, pursuant to CFPA section 1022(c)(1); to prescribe rules regarding registration requirements applicable to nonbank covered persons, pursuant to CFPA section 1022(c)(7); and to facilitate the supervision of persons described in CFPA section 1024(a)(1), to ensure that such persons are legitimate entities and are able to perform their obligations to consumers, and to assess and detect risks to consumers, pursuant to CFPA section 1024(b).

116

The Bureau solicits comment on this proposed statement of purpose.

116

More detailed discussions of how the proposal would achieve these purposes are contained elsewhere in this preamble.

Section 1092.201 Definitions

Proposed § 1092.201 would define terms used in proposed subpart B. These definitions would supplement the general definitions for the entirety of

part 1092 that would be provided in proposed § 1092.101. The Bureau seeks comment on each of the definitions set forth in proposed subpart B and any suggested clarifications, modifications, or alternatives.

201(a) Administrative Information

Proposed § 1092.201(a) would define the term “administrative information” to mean contact information regarding persons subject to subpart B and other information submitted or collected to facilitate the administration of the NBR system. Administrative information would include information such as date and time stamps of submissions to the NBR system, contact information for nonbank personnel involved in making submissions, filer questions and other communications regarding submissions and submission procedures, reconciliation or correction of errors, information submitted under proposed §§ 1092.202(g) and 1092.203(f),

117

and other information that would be submitted or collected to facilitate the administration of the NBR system.

117

See

discussion in the section-by-section discussion of these provisions below.

Proposed § 1092.204(a) would provide that the Bureau may determine not to publish such administrative information, as discussed below in the section-by-section discussion of proposed § 1092.204(a). The Bureau seeks comment whether any other information that might be collected through the NBR system should also be treated as administrative information.

201(b) Attesting Executive

Proposed § 1092.201(b) would define the term “attesting executive” to mean, with respect to any covered order regarding a supervised registered entity, the individual designated by the supervised registered entity to perform the supervised registered entity's duties with respect to the covered order under proposed § 1092.203. That section would require a supervised registered entity to designate as its “attesting executive” its highest-ranking duly appointed senior executive officer (or, if the supervised registered entity does not have any duly appointed officers, the highest-ranking individual charged with managerial or oversight responsibility for the supervised registered entity) whose assigned duties include ensuring the supervised registered entity's compliance with Federal consumer financial law, who has knowledge of the entity's systems and procedures for achieving compliance with the covered order, and who has control over the entity's efforts to comply with the covered order.

Below, in the section-by-section discussion of proposed § 1092.203, the Bureau proposes requirements regarding attesting executives.

201(c) Covered Law

Proposed § 1092.201(c) would define the term “covered law” to mean one of several types of laws, as described. The proposed term “covered law” would be central to defining which orders and portions of orders would be subject to the requirements of proposed subpart B. Proposed § 1092.201(e) would define the term covered order to include certain orders that impose certain obligations on a covered nonbank based on an alleged violation of a covered law. Thus, the proposed term “covered law” would help determine the application of proposed subpart B's registration requirements. The Bureau believes that requiring registration of covered nonbanks that are subject to covered orders issued under these laws would further the purposes of proposed subpart B.

Under the proposal, a law listed in proposed § 1092.201(c)(1) through (6) would qualify as a covered law only to the extent that the violation of law found or alleged arises out of conduct in connection with the offering or provision of a consumer financial product or service. The Bureau is interested in registering orders that relate to offering or providing consumer financial products or services. The Bureau recognizes that the laws listed in proposed § 1092.201(d)(1) through (6) may apply to a wide range of conduct not involving consumer financial products or services. While the Bureau believes that reporting on such violations could still be probative of risks to consumers in the markets for consumer financial products and services—as misconduct in one line of business is not necessarily cabined to that line of business—the Bureau believes that a more limited definition of covered law strikes the right balance between ensuring that the Bureau remains adequately informed of risks to consumers in the offering or provision of consumer financial products and services and minimizing the potential burden of the reporting requirements on nonbank covered persons. The Bureau seeks comment on whether this definition achieves this balance or should be modified to achieve it.

The proposal lists categories of laws that would constitute “covered laws” to the extent that the violation of law found or alleged arises out of conduct in connection with the offering or provision of a consumer financial product or service. For the reasons discussed above in section IV(C), the Bureau believes that orders issued under the types of covered laws described in the proposal are likely to be probative of risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.

First, proposed § 1092.201(c) would define the term covered law to include a Federal consumer financial law, as that term is defined in proposed § 1092.101(a) and the CFPA.

118

The Bureau is charged with administering, interpreting, and enforcing the Federal consumer financial laws, which include the CFPA itself, 18 enumerated consumer laws (such as the Fair Credit Reporting Act and the Truth in Lending Act),

119

and the laws for which authorities were transferred to the Bureau under subtitles F and H of the CFPA, as well as rules and orders issued by the Bureau under any of these laws.

120

118

See

12 U.S.C. 5481(14).

119

See

12 U.S.C. 5481(12).

120

12 U.S.C. 5481(14).

The Bureau believes that requiring registration of covered nonbanks in connection with certain orders issued under Federal consumer financial laws will further the purposes of proposed subpart B. As discussed in section IV, “to support [the Bureau's] rulemaking and other functions,” Congress mandated that the Bureau “shall monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.”

121

In matters where an agency other than the Bureau has issued or obtained a final, public order concluding that an entity has violated Federal consumer financial law in connection with the offering or provision of a consumer financial product or service, the Bureau will generally have jurisdiction over the conduct that resulted in that order. The Bureau therefore has a clear interest in identifying and understanding the nature of the risks to consumers presented by such conduct, including the risk that the conduct continues outside the particular jurisdiction or in connection with other consumer financial products or services that are offered or provided by the covered nonbank. A pattern of similar alleged or found violations of Federal consumer financial law across multiple nonbank covered persons may indicate a problem

that the Bureau can best address by engaging in rulemaking to clarify or expand available consumer protection to address emerging consumer risk trends, or by using other tools, such as consumer education, to address the identified risks. And, depending on the facts and circumstances, the Bureau may consider bringing its own supervisory or enforcement action in connection with the same or related conduct.

122

Thus, the Bureau believes that violations of the Federal consumer financial laws, and especially repeat violations of such laws, may be probative of risks to consumers and may indicate more systemic problems at an entity or in the relevant market related to offering or provision of consumer financial products or services.

121

12 U.S.C. 5512(c)(1).

122

The Bureau is also proposing to require registration of orders that the Bureau has obtained or issued for violations of Federal consumer financial laws. While the Bureau is of course aware of such orders, collecting all orders for violations of covered laws—including those obtained or issued by the Bureau—within the proposed registry would benefit the Bureau, other regulators, and the general public by providing a single point of reference for such orders. The Bureau would also benefit from receiving the written statements required under proposed § 1092.203 with respect to orders it obtains or issues.

The Bureau seeks comment on including Federal consumer financial laws in the definition of “covered law” and whether it should consider any related inclusions, exclusions, or conditions relating to Federal consumer financial laws.

Second, proposed § 1092.201(c)(2) would define the term “covered law” to include any other law as to which the Bureau may exercise enforcement authority. As explained above in section IV(C), the Bureau may enforce certain laws other than Federal consumer financial laws, such as the Military Lending Act.

123

The Bureau believes that the proposed registry should collect information regarding agency and court orders issued under any law that the Bureau may enforce, where the violation of law found or alleged arises out of conduct in connection with the offering or provision of a consumer financial product or service. By definition, the conduct addressed in such orders will generally fall within the scope of the Bureau's enforcement authority. More generally, in the Bureau's experience, evidence of such conduct could be highly probative of a broader risk that the entity has engaged or will engage in conduct that may violate Federal consumer financial laws. For example, violations of the Military Lending Act may overlap with, or be closely associated with, violations of the CFPA's UDAAP prohibitions

124

or the Truth in Lending Act,

125

among other Federal consumer financial laws. In addition, in the Bureau's experience, a violation of one law within the Bureau's enforcement authority may be indicative of broader inadequacies in an entity's compliance systems that are resulting in or could result in other legal violations, including violations of Federal consumer financial laws. Furthermore, including in the registry orders issued under any law that the Bureau may enforce (where the violation of law found or alleged arises out of conduct in connection with the offering or provision of a consumer financial product or service) would further the Bureau's objective of creating a registry that could serve as a single, consolidated reference tool for use in monitoring for risks to consumers, thereby increasing the Bureau's ability to use the registry to monitor for patterns of risky conduct of nonbank covered persons across entities, industries, and product offerings.

123

10 U.S.C. 987(f)(6) (authorizing Bureau enforcement of the Military Lending Act).

124

15 U.S.C. 5531, 5536(a)(1)(B).

125

15 U.S.C. 1601

et seq.

The Bureau seeks comment on whether it should include the laws described in proposed § 1092.201(c)(2) in the definition of “covered law.” The Bureau also seeks comment on whether it should consider any exclusions from, or revisions to, the description of the laws captured by proposed § 1092.201(c)(2).

Third, proposed § 1092.201(c)(3) would define the term “covered law” to include the prohibition of unfair or deceptive acts or practices under section 5 of the FTC Act, 15 U.S.C. 45, or any rule or order issued for the purpose of implementing that prohibition. The proposal would

not

include within the definition of “covered law” FTC Act section 5's prohibition of “[u]nfair methods of competition in or affecting commerce,” or rules or orders issued solely pursuant to that prohibition.

126

The Bureau expects that entities would be aware in any specific case whether a provision of an applicable order has been issued under FTC Act section 5's prohibition of unfair or deceptive acts or practices (or a rule or order issued for the purpose of implementing that prohibition), as opposed to section 5's prohibition of “[u]nfair methods of competition in or affecting commerce” (or a rule or order issued thereunder), and thus whether the order provision was issued under a “covered law” or not. The Bureau understands that orders issued in connection with violations of FTC Act section 5 routinely distinguish between these two authorities, and that orders issued under FTC Act section 5's prohibition of “[u]nfair methods of competition in or affecting commerce” rarely, if ever, relate to UDAP violations involving the offering or provision of a consumer financial product or service. The Bureau requests comment on whether the proposal should also require registration of orders issued under FTC Act section 5's prohibition of “[u]nfair methods of competition in or affecting commerce,” or rules or orders issued pursuant to that prohibition. The Bureau also seeks comment on whether the proposal should include measures to clarify any matters relating to this proposed distinction between types of FTC Act section 5 order provisions.

126

15 U.S.C. 45(a)(1).

As discussed further in section IV(C) above, the Bureau believes that an order issued under FTC Act section 5's prohibition of unfair or deceptive acts or practices may be probative of violations of Federal consumer financial law, including CFPA sections 1031 and 1036(a)(1)(B).

127

Because the CFPA's prohibition of unfair or deceptive acts or practices is modeled after FTC Act section 5's similar prohibition,

128

conduct that constitutes a UDAP violation under FTC Act section 5 also likely violates the CFPA's UDAAP provisions. The Bureau also believes that FTC Act section 5 unfairness and deception violations related to the offering or provision of consumer financial products or services may indicate more systemic problems at an entity that may impact the offering or provision of consumer financial products or services other than those issues specifically identified in the order. The Bureau would need to know about such findings so that it can assess whether the violation is indicative of a larger and potentially more systemic problem at the covered nonbank, or potentially throughout an entire market. And, as discussed, information about such violations would inform the Bureau's exercise of its various rulemaking, supervisory, enforcement, consumer education, and other functions.

127

12 U.S.C. 5531, 5536(a)(1)(B).

128

See, e.g., Consumer Fin. Prot. Bureau

ITT Educ. Servs.,

219 F. Supp. 3d at 902-04.

“Covered law” under the proposal would include not only FTC Act section 5, but also any rules or orders issued for the purpose of implementing FTC Act section 5's UDAP prohibition.

129

Section 18 of the FTC Act, 15 U.S.C. 57a, authorizes the FTC to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of FTC Act section 5(a)(1).

130

These FTC rules, which are known as “trade regulation rules,” would be covered laws under the proposed definition to the extent the conduct found or alleged to violate such rules relates to the offering or provision of a consumer financial product or service. Violations of these rules generally constitute violations of FTC Act section 5 itself.

131

And the Bureau believes that, like violations of FTC Act section 5 itself, violations of the rules issued under FTC Act section 5, where they arise out of conduct in connection with the offering or provision of consumer financial products or services, would likely be probative of risks to consumers and warrant attention by the Bureau.

129

In certain circumstances, the Bureau may enforce a rule prescribed under the FTC Act by the FTC with respect to an unfair or deceptive act or practice.

See

12 U.S.C. 5581(b)(5)(B)(ii). Such an

FTC rule, where issued by the FTC to implement FTC Act section 5, would be a covered law under the proposed definition.

130

15 U.S.C. 57a(a)(1)(B).

131

15 U.S.C. 57a(d)(3) (“When any rule under subsection (a)(1)(B) takes effect a subsequent violation thereof shall constitute an unfair or deceptive act or practice in violation of section 45(a)(1) of this title, unless the Commission otherwise expressly provides in such rule.”).

The proposed definition of “covered law” would also include orders issued by the FTC itself under FTC Act section 5's UDAP prohibition, as well as by other agencies. The Bureau believes that violations of such orders present similar risks to consumers as those presented by violations of FTC Act section 5 and the rules issued thereunder. The Bureau seeks comment on including the prohibition on unfair or deceptive acts or practices under FTC Act section 5, and rules and orders issued for the purpose of implementing that prohibition, in the definition of “covered law,” and whether it should consider any related inclusions, exclusions, or conditions.

Fourth, proposed § 1092.201(c)(4) would define the term “covered law” to include a State law prohibiting unfair, deceptive, or abusive acts or practices that is identified in appendix A of part 1092. Proposed appendix A provides a list of State statutes that prohibit unfair, deceptive, or abusive acts or practices and that the Bureau has reviewed and proposes to define as a covered law under this provision. As with the other laws described in proposed § 1092.201(c), a State UDAAP law would only qualify as a covered law to the extent the conduct found or alleged to violate the State UDAAP law relates to the offering or provision of a consumer financial product or service. The Bureau has reviewed the State statutes identified in proposed appendix A and as explained below, it believes that requiring registration of covered nonbanks that are subject to covered orders issued under such statutes would likely further the purposes of proposed subpart B.

Proposed appendix A includes State laws of general applicability that prohibit unfair, deceptive, or abusive acts or practices and that might apply to the offering or provision of consumer financial products or services. Although the scope and content of these State laws may vary at the margin, the Bureau believes these statutes cover a core concept of unfairness, deception, or abusiveness that makes violations of them likely probative of risks to consumers in the offering or provision of consumer financial products and services. These statutes may commonly be referred to as “UDAP” or “UDAAP” statutes, or “little FTC Acts,” and are often labeled in State statutes as State “consumer protection acts” or as laws addressing “unfair” or “deceptive” “trade practices.” State or local agencies may use these statutes to bring cases or actions with respect to practices that injure consumers. While these State statutes may also authorize private suits by consumers and other persons, the proposal would only require registration with respect to covered orders issued at least in part in any action or proceeding brought by any Federal agency, State agency, or local agency (as described further below in the section-by-section discussion of proposed § 1092.201(e)(2)).

The Bureau is proposing to list these statutes in appendix A, and thus to include them in the proposed rule's definition of covered law, in part because those statutes are generally analogous to CFPA sections 1031 and 1036(a)(1)(B) and FTC Act section 5.

132

Several of these State statutes specifically provide that “it is the intent of the legislature that in construing [the State statute], the courts will be guided by the interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act,” or words to this effect.

133

Obtaining a better understanding of entities' compliance with State UDAP/UDAAP laws will assist the Bureau in the assessment and detection of risks for the same general reasons described with respect to alleged or found violations of FTC Act section 5. The Bureau believes that entities that have violated one of these State statutes, and especially repeat violators of such statutes, may pose heightened risks to consumers in the offering or provision of consumer financial products and services, including the risk that they have engaged, and may continue to engage, in unfair, deceptive, or abusive acts and practices in violation of CFPA section 1031. And information identifying patterns of such risky conduct across entities, industries, product offerings, or jurisdictions would be highly informative to the Bureau's monitoring work. The Bureau has attempted to identify all of the applicable State UDAP/UDAAP statutes of general applicability in appendix A, but requests comment on whether it has comprehensively done so. The Bureau proposes to include in appendix A all such State statutes and seeks comment on any additions, subtractions, or modifications to the State UDAP/UDAAP statutes of general applicability in appendix A.

132

12 U.S.C. 5531, 5536(a)(1)(B); 15 U.S.C. 45.

133

E.g.,

Mass. Gen. Laws ch. 93A, sec. 2(b); Conn. Gen. Stat. sec. 42-110b(b).

The Bureau is also proposing to include in appendix A, and thus to include in the definition of the term covered law, certain other industry-specific State statutes that prevent unfair, deceptive, or abusive conduct in connection with certain specific consumer financial industries or markets. For example, proposed appendix A would include New York Banking Law section 719(2), regarding prohibited practices by student loan servicers. This State statutory provision prohibits “[e]ngag[ing] in any unfair, deceptive or predatory act or practice toward any person or misrepresent[ing] or omit[ting] any material information in connection with the servicing of a student loan.”

134

The Bureau is proposing to include this New York State law and others like it in appendix A, to the extent that the conduct found or alleged to violate such law relates to the offering or provision of a consumer financial product or service.

134

New York Banking Law sec. 719(2).

As with State UDAP/UDAAP laws of general applicability, the Bureau believes that violation of such industry-specific State statutes that prohibit unfair, deceptive, or abusive acts or practices in connection with consumer financial industries or markets and in connection with the offering or provision of consumer financial products or services would be probative of potential violations of CFPA sections 1031 and 1036, and also of other related risks to consumers within the scope of

the Bureau's jurisdiction. The Bureau believes that omitting these industry-specific statutes from the definition of “covered law” may cause the information submitted to the proposed registry to be incomplete. Among other things, the Bureau understands that many State agencies typically rely upon such industry-specific statutes to enforce prohibitions on conduct by covered nonbanks that is similar to that prohibited under UDAP/UDAAP laws of general applicability. Thus, the Bureau believes registration of orders issued under such State statutes would provide information that is probative of the types of risks the Bureau believes to be associated with orders issued under State UDAP/UDAAP laws of general applicability. The Bureau has attempted to identify applicable State UDAP/UDAAP statutes related to applicable consumer financial industries or markets in appendix A, but requests comment on whether it has comprehensively done so. The Bureau proposes to include in appendix A all such State statutes.

The Bureau proposes to require registration of all orders issued under State laws listed in appendix A, as long as the conduct at issue relates to the offering or provision of a consumer financial product or service, and the order satisfies the definition of “covered order” in proposed § 1092.201(e). The Bureau recognizes that some State UDAP/UDAAP statutes listed in appendix A may prohibit conduct that regulated entities might argue is not prohibited under CFPA sections 1031 and 1036(a)(1)(B). For example, State UDAP/UDAAP statutes modeled after FTC Act section 5 may include provisions that, in addition to prohibiting “unfair” and “deceptive” conduct, also prohibit “unfair methods of competition” in connection with antitrust or anticompetition matters. While it is possible that such orders

might

be less probative than other orders, the Bureau believes that limiting the scope of such covered laws to those involving the offering or provision of consumer financial products and services sufficiently assures that most orders reported will be valuable in effectively monitoring for risks to consumers in the offering or the provision of such products and services. Moreover, the Bureau anticipates that it will not always be the case that an agency or court order will clearly distinguish whether it is issued under State statutory provisions preventing “unfair,” “deceptive,” or “abusive” acts and practices on the one hand, or “anticompetitive” acts or practices on the other—especially in cases where a State statute addresses all of them. Unlike orders issued under FTC Act section 5, it is not clear to the Bureau that orders issued under such State laws routinely distinguish between these two types of authorities. Therefore, attempting to carve out portions of State UDAP/UDAAP statutes that extend beyond the conduct prohibited by CFPA sections 1031 and 1036(a)(1)(B) would be impracticable and risk undermining the effectiveness of the rule. The Bureau thus proposes to define the term “covered law” by listing specific State statutes. Where a State statute is listed in appendix A and otherwise satisfies proposed § 1092.201(c), the Bureau would propose to treat it as a covered law, regardless of whether any specific order issued under that law expressly refers to the State law's prohibition of “unfair,” “deceptive,” or “abusive” acts and practices. In most cases, the Bureau anticipates that violations of the listed State statutes that relate to the offering or provision of a consumer financial product or service will be probative of risks to consumers within the Bureau's jurisdiction. The Bureau seeks comment on this approach, including whether it should further clarify the definition of covered law in this regard, and whether the proposed list at proposed appendix A adequately identifies such State laws.

The Bureau also seeks specific comment on whether to require registration, and to list in appendix A, additional State statutes that prohibit “unconscionable” conduct but do not also contain a specific reference to “unfair,” “deceptive,” or “abusive” conduct.

135

While the Bureau has not included such State laws in appendix A, the Bureau believes that such prohibitions on unconscionable conduct often reach conduct that qualifies as a UDAAP violation subject to the Bureau's jurisdiction under CFPA sections 1031 and 1036(a)(1)(B).

136

Therefore, the Bureau seeks comment regarding whether requiring nonbank covered persons to report violations of such State unconscionability prohibitions, when they relate to the offering or provision of a consumer financial product or service, would significantly assist the Bureau in effectively monitoring for risks to consumers within the Bureau's jurisdiction, or facilitate the Bureau's exercise of its rulemaking and other authorities.

135

See, e.g.,

Kan. Stat. Ann. sec. 50-627.

136

Compare, e.g.,

Kan. Stat. Ann. sec. 50-627(b)(1) (providing that, in determining whether an act or practice is unconscionable, a court shall consider whether “[t]he supplier took advantage of the inability of the consumer reasonably to protect the consumer's interests because of the consumer's physical infirmity, ignorance, illiteracy, inability to understand the language of an agreement or similar factor”),

with

12 U.S.C. 5531(d)(2)(B) (act or practice is abusive if, among other things, it “takes unreasonable advantage of . . . the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service”).

The Bureau has not included laws of tribal governments in appendix A. While the Bureau believes that many orders issued under such laws may be highly probative of risks to consumers and could assist the Bureau in carrying out its market monitoring obligations—as well as assist the Bureau in assembling an effective nonbank registry—the Bureau preliminarily concludes that considerations of administrative efficiency favor focusing on other orders. The Bureau, however, is continuing to consider whether to include tribal UDAP/UDAAP laws in appendix A. The Bureau seeks comment on whether tribal UDAP/UDAAP laws should be included among the list of “covered laws,” and if so, which specific tribal UDAP/UDAAP laws should be included in the list.

Fifth, proposed § 1092.201(c)(5) would include in the definition of the term “covered law” a State law amending or otherwise succeeding a law identified in appendix A, to the extent that such law is materially similar to its predecessor, and the conduct found or alleged to violate such law relates to the offering or provision of a consumer financial product or service.

The Bureau is proposing § 1092.201(c)(5) in order to clarify that appendix A is intended to capture certain future changes made by States to the State laws listed therein. States may make immaterial changes from time to time, including renumbering or amending the statutes listed in appendix A, in a manner that could cause proposed appendix A to become technically “incorrect” or “obsolete” in the view of some regulated entities. Proposed § 1092.201(c)(5) makes clear that is not the Bureau's intent. To the extent the amended or otherwise succeeding law is materially similar to its predecessor, proposed § 1092.201(c)(5) would ensure that it would still qualify as a “covered law.” The definition of covered law thus would capture a successor to a law listed in appendix A if, for example, the conduct found or alleged to violate the successor law would have constituted a violation of the predecessor law were it still in effect. The Bureau seeks comment on all aspects of proposed § 1092.201(c)(5), including whether the Bureau should define successor laws covered by appendix A more broadly or

narrowly than the approach adopted here, and whether regulated entities would benefit from any additional guidance in determining whether a successor law is materially similar to a predecessor law listed in appendix A.

Finally, proposed § 1092.201(c)(6) would include in the definition of the term “covered law” a rule or order issued by a State agency for the purpose of implementing a State law described in proposed § 1092.201(c)(4) or (5), to the extent the conduct found or alleged to violate such regulation relates to the offering or provision of a consumer financial product or service. Various State statutes authorize one or more State agencies to issue regulations implementing the terms of those statutes, thereby authorizing the State agency to further define specific unfair, deceptive, or abusive acts or practices.

137

Proposed § 1092.201(c)(6) would include such State agency regulations within the meaning of the term “covered law.”

137

See, e.g.,

Cal. Fin. Code sec. 90009(c).

The Bureau seeks comment on all aspects of proposed section § 1092.201(c), including whether the types of covered laws proposed are appropriate, whether they may be either overinclusive or underinclusive in light of the Bureau's objectives in this rulemaking, and whether the definition of the term “covered law” may be clarified or strengthened to achieve the purposes of proposed subpart B.

201(d) Covered Nonbank

The proposal would define the term “covered nonbank” to mean a covered person

138

that does not fall into one of five categories. First, the Bureau proposes to exclude from the definition insured depository institutions, insured credit unions, or related persons. The Bureau has considered proposing to collect information about relevant orders in place against such persons under its authority to issue rules mandating collection of information set forth in CFPA section 1022(c)(4)(B)(ii). While the Bureau might at some point consider collecting or publishing the information described in the proposal from such persons, the Bureau believes that there is currently greater need to collect this information from the nonbanks under its jurisdiction. Among other things, the identity and size of all insured depository institutions and insured credit unions is known to the Bureau due to registration regimes maintained by the prudential regulators, which track and make public such information. Also, there are only four prudential regulators, and they regularly publish their consumer financial protection orders. In contrast, comprehensive, readily accessible information is currently lacking about the identity of, and orders issued against, nonbanks subject either to the Bureau's market monitoring authority or to its supervisory authority across the various markets for consumer financial products and services. As a result, there is a unique need to identify nonbanks subject to orders through this proposed registration system. In addition, the proposal would conform with the Bureau's registration authority under CFPA section 1022(c)(7), which states that the Bureau may impose registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.

139

138

As provided in proposed § 1092.101(a), the proposal would define the term “covered person” to have the same meaning as in 12 U.S.C. 5481(6). The proposal would not define “service providers,” as defined in 12 U.S.C. 5481(26), as covered nonbanks

per se.

Entities that are service providers, however, may nevertheless also be covered persons under the CFPA. Among other things, a person that is a service provider shall be deemed to be a covered person to the extent that such person engages in the offering or provision of its own consumer financial product or service.

See

12 U.S.C. 5481(26)(C). And a service provider that acts as a service provider to its covered person affiliate may itself be deemed to be a covered person as provided in 12 U.S.C. 5481(6)(B).

139

An affiliate of an insured depository institution, insured credit union, or related person could be subject to the proposed rule if it is not itself an insured depository institution, insured credit union, or related person.

Second, the proposal would exclude from the definition of the term “covered nonbank” a “State,” as defined in CFPA section 1002(27)—a term that includes “any federally recognized Indian tribe, as defined by the Secretary of the Interior” under section 104(a) of the Federal

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.