Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders
Federal RegisterJul 8, 2024
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CONSUMER FINANCIAL PROTECTION BUREAU
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:
Consumer Financial Protection Bureau.
ACTION:
Final rule.
SUMMARY:
Under the Consumer Financial Protection Act of 2010 (CFPA), the Consumer Financial Protection Bureau (Bureau or CFPB) is issuing this final rule to require certain types of nonbank covered persons subject to certain final public orders obtained or issued by a government agency in connection with the offering or provision of a consumer financial product or service to report the existence of the orders and related information to a Bureau registry. The Bureau is also requiring certain supervised nonbanks to file annual reports regarding compliance with registered orders.
DATES:
Effective date:
This rule is effective on September 16, 2024.
Implementation dates:
For implementation dates, see § 1092.206.
FOR FURTHER INFORMATION CONTACT:
George Karithanom, Regulatory Implementation and Guidance Program Analyst, Office of Regulations, 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 Final Rule
The Bureau is adopting this final rule to establish and maintain a registry that will collect information about certain publicly available agency and court orders and facilitate the Bureau's supervision of certain companies. In this way, the Bureau will more effectively be able to monitor and to reduce the risks to consumers posed by entities that violate consumer protection laws. The final rule also authorizes the Bureau to consolidate this information in an online registry for use by the public and other regulators.
The final rule requires 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 imposing obligations based on violations of certain consumer protection laws. Those entities will 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 intends to publish this information on its website and potentially in other forms.
The Bureau will also require certain nonbanks subject to the Bureau's supervisory authority under section 1024(a) of the Consumer Financial Protection Act of 2010 (CFPA)
1
annually to identify an executive (or executives) responsible for and knowledgeable of the firm's efforts to comply with the orders identified in the registry. The supervised nonbank entity will also be required to submit on an annual basis a written statement signed by the applicable executive regarding the entity's compliance with each order in the registry.
1
12 U.S.C. 5514(a).
Nonbanks that are subject to an order published on the Nationwide Multistate Licensing System's Consumer Access website (except for orders issued or obtained at least in part by the Bureau) may elect to comply with a one-time registration option in lieu of complying with the rule's notification and written-statement requirements with respect to that order.
Nonbank registrants will have to register with the Bureau starting after an applicable implementation date for the registry specified in the rule. Different implementation dates are specified for larger participants, other supervised nonbanks, and other nonbanks not subject to Bureau supervision. Details on how to register will be provided through filing instructions.
II. Background
A. The Bureau and Other Agencies Take 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 has authorized multiple other Federal and State agencies to enforce Federal consumer financial laws, 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.
2
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).
3
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.
4
Many State UDAP statutes contain rules of construction requiring State courts to use interpretations of the FTC Act by the Federal courts and the FTC as a guide to interpreting their State UDAP statutes.
5
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.
2
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).
3
15 U.S.C. 45.
4
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).
5
See, e.g.,
Ariz. Rev. Stat. Ann. sec. 44-1522(C) (courts “may use as a guide” FTC and Federal court interpretations of the FTC Act); Fla. Stat. sec. 501.204(2) (expressing the intent of the legislature that “due consideration and great weight” be given to interpretations of the FTC Act when interpreting Florida's State UDAP statute).
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.
6
Since passage of the CFPA, the Bureau has brought nearly 350 enforcement actions against nonbanks. When the Bureau issues an order against a covered person (often, but not always, as a consent order), or brings an action in a court of law that results in an 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.
7
6
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
S. Rep. No. 111-176, at 11 (2010) (“Th[e] financial crisis was precipitated by the proliferation of poorly underwritten mortgages with abusive terms, followed by a broad fall in housing prices as those mortgages went into default and led to increasing foreclosures.”).
7
See, e.g., RMK Financial Corp. d/b/a Majestic Home Loan or MHL,
CFPB No. 2023-CFPB-0002 (Feb. 27, 2023);
CFPB
v.
American Advisors Group,
No. 21-cv-01674-JLS-JDEx (C.D. Cal. Oct. 25, 2021);
Discover Bank,
CFPB No. 2020-BCFP-0026 (Dec. 22, 2020);
Bureau of Consumer Fin. Prot.
v.
Encore Capital Grp.,
No. 3:20-cv-01750-GPC-KSC (S.D. Cal. Oct. 16, 2020);
Sec. Nat'l Automotive Acceptance Co.,
CFPB No. 2017-CFPB-0013 (Apr. 26, 2017);
Military Credit Servs., LLC,
CFPB No. 2016-CFPB-0029 (Dec. 20, 2016).
B. Congress Instructed the Bureau To Monitor Markets for Consumer Financial Products and Services
Congress established the Bureau to regulate (among other things) the offering and provision of consumer financial products and services under the Federal consumer financial laws, and it granted the Bureau authority to ensure that the Bureau could achieve that mission.
8
But it also understood that the Bureau could not fully and effectively achieve that mission unless it developed a clear window into the markets for and persons involved in offering and providing such products and services. To that end, 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.”
9
8
See
12 U.S.C. 5511.
9
See
12 U.S.C. 5512(c)(1).
Notably, Congress directed the Bureau to engage in such monitoring “to support its rulemaking
and other functions,”
10
instructing the Bureau to use monitoring to inform all of its work. Congress separately described the Bureau's “primary functions” as “conducting financial education programs”; “collecting, investigating, and responding to consumer complaints”; “collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets”; “supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law”; “issuing rules, orders, and guidance implementing Federal consumer financial law”; and “performing such support activities as may be necessary or useful to facilitate the other functions of the Bureau.”
11
Put simply, Congress envisioned that the Bureau would use its market-monitoring work to inform its activities, all with the express purpose of “ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.”
12
10
Id.
(emphasis added).
11
12 U.S.C. 5511(c).
12
12 U.S.C. 5511(a).
To achieve these ends, Congress took care to ensure that the Bureau had the tools necessary to effectively monitor for risks in the markets for consumer financial products and services. It granted the Bureau authority “to gather information from time to time regarding the organization, business conduct, markets, and activities of covered persons and service providers.”
13
In particular, Congress authorized the Bureau to “require covered persons and service providers participating in consumer financial services markets to file with the Bureau, under oath or otherwise, in such form and within such reasonable period of time as the Bureau may prescribe
by rule
or order, annual or special reports, or answers in writing to specific questions,” that would furnish the Bureau with such information “as necessary for the Bureau to fulfill the monitoring . . . responsibilities imposed by Congress.”
14
13
12 U.S.C. 5512(c)(4)(A).
14
12 U.S.C. 5512(c)(4)(B)(ii) (emphasis added).
To assist the Bureau in allocating resources to perform its monitoring, Congress also identified a non-exhaustive list of factors that the Bureau may consider, including “likely risks and costs to consumers associated with buying or using a type of consumer financial product or service”;
15
“understanding by consumers of the risks of a type of consumer financial product or service”;
16
“the legal protections applicable to the offering or provision of a consumer financial product or service, including the extent to which the law is likely to adequately protect consumers”;
17
“rates of growth in the offering or provision of a consumer financial product or service”;
18
“the extent, if any, to which the risks of a consumer financial product or service may disproportionately affect traditionally underserved consumers”;
19
and “the types, number, and other pertinent characteristics of covered persons that offer or provide the consumer financial product or service.”
20
15
12 U.S.C. 5512(c)(2)(A).
16
12 U.S.C. 5512(c)(2)(B).
17
12 U.S.C. 5512(c)(2)(C).
18
12 U.S.C. 5512(c)(2)(D).
19
12 U.S.C. 5512(c)(2)(E).
20
12 U.S.C. 5512(c)(2)(F).
Congress also anticipated that the insights the Bureau would gain from such market monitoring should at times become available to a wider audience than just Bureau employees. Not only did Congress mandate that the Bureau “publish not fewer than 1 report of significant findings of its monitoring . . . in each calendar year,” but it also instructed that the Bureau may make non-confidential information available to the public “as is in the public interest.”
21
Congress gave the Bureau discretion to determine the format of publication, authorizing the Bureau to make the information available “through aggregated reports or other appropriate formats designed to protect confidential information in accordance with [specified protections in this section].”
22
These instructions regarding public release of market-monitoring information align with one of the Bureau's “primary functions” mentioned above—to “publish[ ] information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets.”
23
21
12 U.S.C. 5512(c)(3).
22
12 U.S.C. 5512(c)(3)(B).
23
12 U.S.C. 5511(c)(3).
The Bureau takes its market-monitoring obligations seriously, and it has incorporated valuable insights gained to date from such monitoring in conducting the multiple functions assigned to it under the CFPA, including its supervisory and enforcement efforts, as well as its rulemaking, consumer education, and other functions.
24
As discussed in further detail below, this final rule seeks to continue and build upon that commitment by creating an order registry to accomplish a number of goals, with a particular focus on
monitoring for risks to consumers related to repeat offenders of consumer protection law. A public registry of agency and court orders issued or obtained in connection with violations of law will help the Bureau and the broader public monitor trends concerning corporate recidivism relating to consumer protection law, including areas where prior violations of law are indicia of risk to consumers.
24
See, e.g.,
CFPB Semiannual Regulatory Agenda, 87 FR 5326, 5328 (Jan. 31, 2022) (“The Bureau's market monitoring work assists in identifying issues for potential future rulemaking work.”); Payday, Vehicle, and Certain High-Cost Installment Loans, 82 FR 54472, 54475, 54488, 54498 (Nov. 17, 2017) (citing information obtained through Bureau market-monitoring efforts); Arbitration Agreements, 82 FR 33210, 33220 (July 19, 2017) (same).
See also, e.g.,
Consumer Fin. Prot. Bureau,
Buy Now, Pay Later: Market trends and consumer impacts
(Sept. 2022),
https://files.consumerfinance.gov/f/documents/cfpb_buy-now-pay-later-market-trends-consumer-impacts_report_2022-09.pdf
(publishing information obtained through Bureau market-monitoring efforts); Consumer Fin. Prot. Bureau,
Consumer Credit Trends: Credit Card Line Decreases
(June 2022),
https://files.consumerfinance.gov/f/documents/cfpb_credit-card-line-decreases_report_2022-06.pdf
(same); Consumer Fin. Prot. Bureau,
Data Point: Checking Account Overdraft at Financial Institutions Served by Core Processors
(Dec. 2021),
https://files.consumerfinance.gov/f/documents/cfpb_overdraft-core-processors_report_2021-12.pdf
(same).
More generally, entities subject to such public orders relating to the offering or provision of consumer financial products and services may pose ongoing risks to consumers in the markets for those products and services. A broad collection of such public orders will shed light on how laws are being enforced across consumer protection laws, jurisdictions, and markets, and help identify trends and potential gaps in enforcement. Both heightened enforcement and the absence of enforcement could possibly provide information regarding risks to consumers—the former as evidence that government agencies with various jurisdictions have identified the need to enforce consumer protection laws, and the latter as potential evidence of less risk to consumers, or perhaps of inattention by regulatory agencies. A centralized, up-to-date repository of such public orders will provide valuable market-based insight that the Bureau could use both to identify concerning trends in these markets that it otherwise might miss and to decide which of several different policy tools would best address the consumer risks presented by these trends. In short, the information sought will significantly increase the Bureau's ability to identify, understand, and ultimately prevent harm in the markets for consumer financial products and services. These and other core goals of the information the Bureau will collect are discussed further below at part IV.
Consistent with an approach suggested by commenters, the Bureau is adopting a one-time registration option for nonbanks that are identified by name as a party subject to an order that is published on the Nationwide Multistate Licensing System (NMLS) Consumer Access website,
www.NMLSConsumerAccess.org
(except for orders issued or obtained by the Bureau). Such nonbanks may choose to submit certain information to the Bureau in lieu of complying with the other ongoing requirements of the final rule with respect to the order. The information provided to the Bureau in connection with such orders will notify the Bureau about the nonbank and the relevant order and will enable the Bureau to follow up with the NMLS's operator and any applicable agency as appropriate.
C. Congress Authorized the Bureau To Supervise Certain Nonbank Covered Persons
One of the Bureau's key responsibilities under the CFPA is the supervision of very large banks, thrifts, and credit unions, and their affiliates, and certain nonbank covered persons. Congress has authorized the Bureau to supervise certain categories of nonbank covered persons under CFPA section 1024.
25
Congress provided that the Bureau “shall require reports and conduct examinations on a periodic basis” of nonbank covered persons subject to its supervisory authority for purposes of “assessing compliance with the requirements of Federal consumer financial law”; “obtaining information about the activities and compliance systems or procedures of such person[s]”; and “detecting and assessing risks to consumers and to markets for consumer financial products and services.”
26
Pursuant to the CFPA, the Bureau implements a risk-based supervision program under which it prioritizes nonbank covered persons for supervision in accordance with its assessment of risks posed to consumers.
27
In making prioritization determinations, the Bureau considers several factors, including “the asset size of the covered person,”
28
“the volume of transactions involving consumer financial products or services in which the covered person engages,”
29
“the risks to consumers created by the provision of such consumer financial products or services,”
30
“the extent to which such institutions are subject to oversight by State authorities for consumer protection,”
31
and “any other factors that the Bureau determines to be relevant to a class of covered persons.”
32
CFPA section 1024(b)(7)(A)-(C) further authorizes the Bureau to prescribe rules to facilitate supervision and assessing and detecting risks to consumers, as well as to ensure that supervised nonbanks “are legitimate entities and are able to perform their obligations to consumers.”
33
25
12 U.S.C. 5514.
26
12 U.S.C. 5514(b)(1).
27
12 U.S.C. 5514(b)(2).
28
12 U.S.C. 5514(b)(2)(A).
29
12 U.S.C. 5514(b)(2)(B).
30
12 U.S.C. 5514(b)(2)(C).
31
12 U.S.C. 5514(b)(2)(D).
32
12 U.S.C. 5514(b)(2)(E).
33
12 U.S.C. 5514(b)(7)(A)-(C).
Under CFPA section 1024(b)(7)(A)-(C), the Bureau is requiring that certain supervised nonbanks annually submit a written statement regarding the company's compliance with any outstanding registered orders. The statement must be signed by a designated senior executive. In the written statement, the attesting executive must generally describe the steps the executive has undertaken to review and oversee the company's activities subject to the applicable order for the preceding calendar year. The executive must then provide an attestation regarding the company's compliance with the order.
The required written statement will assist the Bureau in achieving each of the statutory objectives listed in CFPA section 1024(b)(7)(A)-(C). Therefore, each of those objectives provides a distinct, independently sufficient basis for the final rule's written-statement requirements.
34
34
For a more extended discussion of these matters,
see
part IV(D) and the section-by-section discussion of § 1092.204 below.
First, requiring submission of an annual written statement will facilitate Bureau supervision and the Bureau's assessment and detection of risks to consumers. In particular, as part of the Bureau's risk-based supervision program, the Bureau considers supervised nonbanks' compliance record regarding consumer protection law when prioritizing supervisory resources. The annual written statement, including the steps taken by the executive to review and oversee activity related to the order, will provide the CFPB valuable information in understanding how compliance is managed at the supervised entity. The requirement will also provide valuable information in connection with other aspects of the Bureau's supervisory work and will assist the Bureau's monitoring efforts. For example, in 2022 the Bureau announced that it was increasing its supervisory focus on repeat offenders, particularly those which violate agency or court orders.
35
As part of that focus, it created a Repeat Offender Unit within its supervision program focused on: (i) reviewing and monitoring the activities of repeat offenders; (ii) identifying the root cause of recurring violations; (iii) pursuing and recommending solutions and remedies that hold entities accountable for failing to consistently comply with Federal consumer financial law; and (iv) designing a model for order review and monitoring that reduces the occurrences
of repeat offenses.
36
The Repeat Offender Unit is tasked more generally with enhancing detection of repeat offenses, developing processes for rapid review and response designed to address root causes of violations, and recommending corrective actions designed to stop recidivist behavior.
37
The Bureau believes that the annual written statement will greatly facilitate that work, among other things.
35
See
Consumer Fin. Prot. Bureau,
Supervisory Highlights: Issue 28, Fall 2022,
at 2-3 (Nov. 2022),
https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-28_2022-11.pdf.
36
Id.
37
Id.
at 3.
Second, the final rule's written-statement requirements will help ensure the company providing the statement is a legitimate entity and is able to perform its obligations to consumers. Information regarding a company's compliance with outstanding orders is probative of whether the company is willing and able to satisfy its legal obligations and of whether the company treats potential sanctions for repeat violations of relevant consumer protection laws as a mere cost of doing business. The written-statement requirements will also provide an incentive for supervised nonbanks to perform their obligations to consumers by requiring supervised nonbanks to specify which individual executives are responsible for achieving compliance with particular orders. Publication of the identity of this executive as intended by the Bureau will enhance the incentive.
III. Legal Authority
The Bureau is issuing this final rule pursuant to its authority under the CFPA. This section includes a general discussion of several CFPA provisions on which the Bureau relies in this rulemaking. Additional description of these authorities, and the final rule's reliance on them, is also contained in part II above and part IV below as well as in the section-by-section analysis.
A. CFPA Section 1022(b)
CFPA section 1022(b)(1) authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.”
38
Among other statutes, the CFPA—
i.e.,
title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)—is a Federal consumer financial law.
39
Accordingly, in issuing the final rule, the Bureau is exercising its authority under CFPA section 1022(b) to prescribe rules that carry out the purposes and objectives of the CFPA and prevent evasions thereof. CFPA section 1022(b)(2) prescribes certain standards for rulemaking that the Bureau must follow in exercising its authority under section 1022(b)(1).
40
For a discussion of the Bureau's standards for rulemaking under CFPA section 1022(b)(2), see part VIII below.
38
12 U.S.C. 5512(b)(1).
39
See
12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the provisions of title X of the Dodd-Frank Act).
40
See
12 U.S.C. 5512(b)(2).
B. CFPA Section 1022(c)(1)-(4) and (7)
The provisions of the final rule that (1) require nonbank covered persons to inform the Bureau that they have an applicable order entered against them, (2) provide basic identifying and administrative information and information regarding the orders (including copies of the orders), and (3) authorize publication of this information, are authorized under CFPA sections 1022(c)(1) through (4) and 1022(c)(7), as well as CFPA section 1022(b).
41
41
12 U.S.C. 5512(b), (c)(1)-(4), (c)(7).
CFPA sections 1022(c)(1)-(4) authorize the Bureau to prescribe rules to collect information from covered persons for purposes of monitoring for risks to consumers in the offering or provision of consumer financial products or services. The Bureau is collecting this information to monitor, on an ongoing basis, both individual and market-wide compliance with consumer protection laws and orders for alleged violations of those laws. The Bureau considers violations of consumer protection laws probative of “risks to consumers in the offering and provision of consumer financial products or services.”
42
In particular, the Bureau believes that entities subject to public orders enforcing the law relating to the offering or provision of consumer financial products and services may pose heightened and ongoing risks to consumers in the markets for those products and services. It further believes that monitoring for such orders will allow the Bureau to track specific instances of, and more general developments regarding, potential corporate recidivism, which presents special risks to consumers for reasons discussed in greater detail below. The Bureau also believes that enforcement trends, as shown by public orders enforcing the law across consumer protection laws, jurisdictions, and markets, will potentially shed light on risks to consumers in the offering or provision of consumer financial products or services. Heightened enforcement could indicate areas where numerous regulators have identified risk of harm to consumers. Conversely, the absence of enforcement in other areas could indicate less risk to consumers, or perhaps a lack of attention by regulators that shows a need for further monitoring.
42
12 U.S.C. 5512(c)(1).
More specifically, in order to support its rulemaking and other functions, section 1022(c)(1) of the CFPA requires the Bureau to monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in the markets for such products or services.
43
As discussed further below at part IV(B), section 1022(c)(2) of the CFPA authorizes the Bureau to allocate resources to perform the monitoring required by section 1022 by considering “likely risks and costs to consumers associated with buying or using a type of consumer financial product or service,” “understanding by consumers of the risks of a type of consumer financial product or service,” “the legal protections applicable to the offering or provision of a consumer financial product or service, including the extent to which the law is likely to adequately protect consumers,” “rates of growth in the offering or provision of a consumer financial product or service,” “the extent, if any, to which the risks of a consumer financial product or service may disproportionately affect traditionally underserved consumers,” and “the types, number, and other pertinent characteristics of covered persons that offer or provide the consumer financial product or service.”
44
Section 1022(c)(4)(A) of the CFPA authorizes the Bureau to conduct the monitoring required by section 1022 by “gather[ing] information from time to time regarding the organization, business conduct, markets, and activities of covered persons and service providers.”
45
The Bureau is authorized to gather this information by, among other things, requiring covered persons participating in consumer financial services markets to file annual or special reports, or answers in writing to specific questions, that furnish information “as necessary for the Bureau to fulfill the monitoring . . . responsibilities imposed by Congress.”
46
The Bureau
may require such information to be filed “in such form and within such reasonable period of time as the Bureau may prescribe by rule or order.”
47
43
12 U.S.C. 5512(c)(1) (“In order to support its rulemaking and other functions, 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.”).
44
12 U.S.C. 5512(c)(2)(A)-(F).
45
12 U.S.C. 5512(c)(4)(A).
46
12 U.S.C. 5512(c)(4)(B)(ii) (“In order to gather information described in subparagraph (A), the
Bureau may . . . require covered persons and service providers participating in consumer financial services markets to file with the Bureau, under oath or otherwise, in such form and within such reasonable period of time as the Bureau may prescribe by rule or order, annual or special reports, or answers in writing to specific questions, furnishing information described in paragraph (4), as necessary for the Bureau to fulfill the monitoring, assessment, and reporting responsibilities imposed by Congress.”).
47
12 U.S.C. 5512(c)(4)(B)(ii).
Section 1022(c)(7)(A) of the CFPA further authorizes the Bureau to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”
48
Section 1022(c)(7)(B) provides that, “[s]ubject to rules prescribed by the Bureau, the Bureau may publicly disclose registration information to facilitate the ability of consumers to identify covered persons that are registered with the Bureau.”
49
The Bureau interprets section 1022(c)(7)(B) as authorizing it to publish registration information required by Bureau rule under section 1022(c)(7)(A) so that consumers may identify the nonbank covered persons on which the Bureau has imposed registration requirements.
48
12 U.S.C. 5512(c)(7)(A).
49
12 U.S.C. 5512(c)(7)(B).
Finally, CFPA section 1022(c)(3) authorizes the Bureau to publicly release information obtained pursuant to CFPA section 1022, subject to limitations specified therein.
50
Specifically, section 1022(c)(3) states that the Bureau “may make public such information obtained by the Bureau under [section 1022] as is in the public interest, through aggregated reports or other appropriate formats designed to protect confidential information in accordance with [specified protections in section 1022].”
51
Information submitted to the Bureau's registry is protected by, among other things, CFPA section 1022(c)(8), which states that “[i]n collecting information from any person, publicly releasing information held by the Bureau, or requiring covered persons to publicly report information, the Bureau shall take steps to ensure that proprietary, personal, or confidential consumer information that is protected from public disclosure under [the Freedom of Information Act, 5 U.S.C. 552(b),] or [the Privacy Act of 1974, 5 U.S.C. 552a,] or any other provision of law, is not made public under [the CFPA].”
52
The Bureau's registry is designed to not collect any protected proprietary, personal, or confidential consumer information, and thus, the Bureau will not publish, or require public reporting of, any such information.
50
See
12 U.S.C. 5512(c)(3).
51
12 U.S.C. 5512(c)(3)(B).
52
12 U.S.C. 5512(c)(8). In the remainder of this preamble, the Bureau refers to information protected from disclosure under CFPA section 1022(c)(8) as “protected proprietary, personal, or confidential consumer information.”
See the introduction to the section-by-section analysis of § 1092.202 for a discussion of certain comments received by the Bureau about the discussion in the Bureau's proposed rule
53
of the Bureau's authorities under CFPA section 1022(b)(1)-(4) and (7).
53
See
88 FR 6088 (Jan. 30, 2023). For further discussion of the Bureau's proposed rule, see part V(C) below.
C. CFPA Section 1024(b)
As explained above, section 1024(b) of the CFPA authorizes the Bureau to exercise supervisory authority over certain nonbank covered persons.
54
Section 1024(b)(1) requires the Bureau to periodically require reports and conduct examinations of persons subject to its supervisory authority to assess compliance with Federal consumer financial law, obtain information about the activities and compliance systems or procedures of persons subject to its supervisory authority, and detect and assess risks to consumers and to markets for consumer financial products and services.
55
Section 1024(b)(2) requires that the Bureau exercise its supervisory authority over nonbank covered persons under section 1024(b)(1) based on its assessment of risks posed to consumers in the relevant product markets and geographic markets, and taking into consideration, as applicable: “(A) the asset size of the covered person; (B) the volume of transactions involving consumer financial products or services in which the covered person engages; (C) the risks to consumers created by the provision of such consumer financial products or services; (D) the extent to which such institutions are subject to oversight by State authorities for consumer protection; and (E) any other factors that the Bureau determines to be relevant to a class of covered persons.”
56
54
The nonbank covered persons over which the Bureau has supervisory authority are listed in section 1024(a)(1) of the CFPA. They include covered persons that: offer or provide origination, brokerage, or servicing of loans secured by real estate for use by consumers primarily for personal, family, or household purposes, or loan modification or foreclosure relief services in connection with such loans; are larger participants of a market for consumer financial products or services, as defined by Bureau rule; the Bureau has reasonable cause to determine, by order, that the covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; offer or provide private education loans; or offer or provide payday loans. 12 U.S.C. 5514(a)(1).
55
12 U.S.C. 5514(b)(1) provides: “The Bureau shall require reports and conduct examinations on a periodic basis of persons described in subsection (a)(1) for purposes of—(A) assessing compliance with the requirements of Federal consumer financial law; (B) obtaining information about the activities and compliance systems or procedures of such person; and (C) detecting and assessing risks to consumers and to markets for consumer financial products and services.”
56
12 U.S.C. 5514(b)(2).
Section 1024(b)(7) of the CFPA in turn identifies three independent sources of Bureau rulemaking authority. First, section 1024(b)(7)(A) requires the Bureau to prescribe rules to facilitate the supervision of nonbank covered persons subject to the Bureau's supervisory authority and assessment and detection of risks to consumers.
57
Second, section 1024(b)(7)(B) authorizes the Bureau to require nonbank covered persons subject to its supervisory authority to “generate, provide, or retain records for the purposes of facilitating supervision of such persons and assessing and detecting risks to consumers.”
58
As explained below in the introduction to the section-by-section analysis of § 1092.204, the Bureau interprets this section as authorizing it to require nonbank covered persons subject to its supervisory authority to “generate”—
i.e.,
create
59
—reports regarding their activities and then “provide” them to the Bureau.
57
12 U.S.C. 5514(b)(7)(A) (“The Bureau shall prescribe rules to facilitate supervision of persons described in subsection (a)(1) and assessment and detection of risks to consumers.”).
58
12 U.S.C. 5514(b)(7)(B) (“The Bureau may require a person described in subsection (a)(1), to generate, provide, or retain records for the purposes of facilitating supervision of such persons and assessing and detecting risks to consumers.”).
59
See Generate, Webster's Third New International Dictionary
(1981) (defining “generate” as “to bring into existence”).
The third source of authority, CFPA section 1024(b)(7)(C), authorizes the Bureau to prescribe rules regarding nonbank covered persons subject to its supervisory authority “to ensure that such persons are legitimate entities and are able to perform their obligations to consumers.”
60
The Bureau interprets this section as authorizing it to prescribe substantive rules to ensure that supervised entities are willing and able to comply with their legal, financial,
and other obligations to consumers, including those imposed by Federal consumer financial law. The term “obligations” encompasses “anything that a person is bound to do or forbear from doing,” including duties “imposed by law, contract, [or] promise.”
61
The Bureau construes the phrase “legitimate entities” as encompassing an inquiry into whether an entity takes seriously its duty to “[c]omply[ ] with the law.”
62
Legitimate entities do not presume they will break the law and treat the risk of enforcement actions for violations of legal obligations as a mere cost of doing business. Instead, legitimate entities work in good faith to have protocols in place aimed at ensuring compliance with their legal obligations and detecting and appropriately addressing any legal violations that the entity may commit.
60
12 U.S.C. 5514(b)(7)(C) (“The Bureau may prescribe rules regarding a person described in subsection (a)(1), to ensure that such persons are legitimate entities and are able to perform their obligations to consumers. Such requirements may include background checks for principals, officers, directors, or key personnel and bonding or other appropriate financial requirements.”).
61
Obligation, Black's Law Dictionary
(11th ed. 2019).
62
Legitimate, Black's Law Dictionary
(11th ed. 2019) (defining “legitimate” as “[c]omplying with the law; lawful”);
see also Legitimate, Webster's Second New International Dictionary
(1934) (defining “legitimate” as “[a]ccordant with law or with established legal forms and requirements; lawful”);
Legitimate, Webster's Third New International Dictionary
(1981) (similar).
While each of the three subparagraphs of section 1024(b)(7) discussed above operates as independent sources of rulemaking authority, the subparagraphs also overlap in several respects, such that a particular rule may be (and, in the case of this final rule, is) authorized by more than one of the subparagraphs. For example, rules requiring the generation, provision, or retention of records generally will be authorized under both subparagraphs 1024(b)(7)(A) and (B). That is so because subparagraph 1024(b)(7)(B) makes clear that the Bureau's authority under subparagraph 1024(b)(7)(A) to prescribe rules to facilitate supervision and assessment and detection of risks to consumers extends to requiring covered persons subject to the Bureau's supervisory authority “to generate, provide or retain records for the purposes of facilitating supervision of such persons and assessing and detecting risks to consumers.”
63
63
12 U.S.C. 5514(b)(7)(B);
see also, e.g., Barton
v.
Barr,
140 S. Ct. 1442, 1453 (2020) (“redundancies . . . in statutory drafting” may reflect “a congressional effort to be doubly sure”);
Atlantic Richfield Co.
v.
Christian,
140 S. Ct. 1335, 1350 n.5 (2020) (concluding that “Congress employed a belt and suspenders approach” in statute);
Marx
v.
Gen. Revenue Corp.,
568 U.S. 371, 383-85 (2013) (statutory language is “not . . . superfluous if Congress included it to remove doubt” about an issue).
See the introduction to the section-by-section analysis of § 1092.204 below for a discussion of certain comments received by the Bureau about the proposal's discussion of the Bureau's authorities under CFPA section 1024(b).
IV. Why the Bureau Is Issuing This Final Rule
A. Overview
The Bureau is issuing this final rule to require nonbanks to report certain public agency and court orders because the Bureau believes that not only the Bureau, but also consumers, the public, and other potential users of the Bureau's registry will benefit from the creation and maintenance of a central public repository for information regarding certain public orders that have been imposed upon nonbank covered persons.
Agency and court orders are not suggestions. They are legally binding orders intended to prevent and remedy violations of the law. When an agency issues such an order, or seeks a court order, it typically has determined that the problems at the applicable entity are sufficiently serious to merit the expenditure of that agency's limited resources and perhaps the attention of the courts.
By establishing an effective registry for collecting public orders enforcing the law across different sectors of entity misconduct, the final rule will allow the Bureau to more effectively monitor for potential risks to consumers arising from both individual instances and broader patterns of recidivism. Persons that are subject to one or more orders that would require registration under the final rule may pose greater risks to consumers than others. And the existence of multiple orders may serve as a particular “red flag” with respect to risks to consumers and as a signal of potential recidivism. The existence of multiple orders may also indicate broader problems at the entity that pose related risks to consumers—including lack of sufficient controls related to the offering and provision of consumer financial products and services, inadequate compliance management systems and processes, and an unwillingness or inability of senior management to comply with laws subject to the Bureau's jurisdiction.
The Bureau also concludes that collecting information regarding public agency and court orders enforcing the law will help it identify broader trends related to risks to consumers in the offering and provision of consumer financial products and services. For example, collecting this information would inform the Bureau about enforcement activity across geographic or product markets with respect to particular consumer protection laws, increases and decreases over time in such activity, and many other relevant matters. Notably, by studying how laws are being enforced across consumer protection laws, jurisdictions, and markets, the Bureau will be able to identify indications of risks to consumers. For example, the existence of enforcement activity in multiple jurisdictions among certain products, services, or features, or related to certain legal requirements, or concerning certain consumer risks, could indicate areas of heightened consumer risk that warrant further attention by regulators. Or such enforcement activity might be an indication of appropriate attention by other regulators, which might be an indication that applicable nonbanks are subject to adequate oversight, or that risk to consumers in certain areas may otherwise be reduced. By contrast, the absence of enforcement activity in certain areas could potentially indicate less risk to consumers or could be evidence of less attention by regulators and a need to increase monitoring activities. The Bureau thus concludes that obtaining information regarding such orders will enable it to better monitor risks to consumers in the offering or provision of consumer financial products and services, including developments in the markets for such products and services, under its authority at CFPA section 1022(c).
64
64
12 U.S.C. 5512(c).
As described further below, the Bureau intends to make a registry of these orders publicly available. The Bureau anticipates that publishing such a registry will, among other things, allow other regulators at the Federal, State, and local level tasked with protecting consumers to realize many of the same market-monitoring benefits that the Bureau anticipates obtaining from this rule. Publication will also facilitate the ability of consumers to identify the covered persons that are registered with the Bureau. In addition, publication will enhance the ability of investors, research organizations, firms conducting due diligence, and the media to locate, review, and monitor orders enforcing the law.
The final rule also will assist the Bureau's supervisory work by collecting additional information in the form of a written statement from certain entities that are subject to the Bureau's supervision and examination authority. As explained in greater detail below, requiring certain supervised entities to designate a senior executive officer with knowledge of, and control over, the entity's efforts to comply with each relevant order, and requiring that
executive to submit the information required to be contained in the written statement, will facilitate Bureau supervision efforts by providing important information about the entity, helping to prioritize the Bureau's supervisory activities, and otherwise assisting the Bureau's supervisory work. These requirements will also help ensure that the relevant entities are “legitimate” and “are able to perform their obligations to consumers” under CFPA section 1024(b)(7)(C), in part by incentivizing entities who might otherwise not take seriously their obligations to instead endeavor to comply with consumer protection laws and by highlighting the designated senior executive whose duties include ensuring such compliance.
65
65
12 U.S.C. 5514(b)(7)(C).
General Comments Received
This section discusses certain general comments received by the Bureau regarding the proposal.
Various industry, consumer advocate, and other commenters generally agreed with the Bureau's statements in the proposal about the need for a new Bureau registry for nonbank entities that are subject to the Bureau's jurisdiction and that are subject to certain agency and court orders. A consumer advocate commenter stated that the registry would be immensely useful for the Bureau and other Federal and State regulators alike, and agreed that the proposed registry would advance a wide variety of statutory objectives, streamline regulatory processes, and create efficiencies that will result in greater consumer protection. An industry commenter stated that the proposed registry would help to compile and track violations and provide a basis from which to initiate risk-based supervision of nonbanks. Industry and consumer advocate commenters stated that the proposed registry would appropriately respond to a dearth of information about nonbank financial companies, including their number and type and the practices they engage in. Consumer advocate commenters stated that the proposal would, among other things, help unify efforts across regulators, help regulators and policymakers develop additional reforms to consumer protection, and help prevent future financial crises.
Other commenters objected to the Bureau's proposal on various grounds, as discussed elsewhere in this preamble. Among other things, commenters stated the proposed registry would be duplicative of the NMLS and overly burdensome for registered entities.
Industry commenters stated that the Bureau should either not finalize the proposal, or should carefully consider not finalizing the proposal, in light of the Fifth Circuit's decision in
Consumer Financial Protection Bureau (CFPB)
v.
Community Financial Services Association of America
66
and the U.S. Supreme Court's grant of the petition for certiorari in that case.
67
66
See Cmty. Fin. Servs. Ass'n of Am., Ltd.
v.
CFPB,
51 F.4th 616 (5th Cir. 2022).
67
No. 22-448 (U.S. argued Oct. 3, 2023).
A consumer advocate commenter stated that the Bureau should clarify in the final rule the monetary penalties it will seek for each day of non-compliance, and that these penalties should be large. In the commenter's view, the failure to register as required under the final rule also should be an aggravating factor when assessing monetary penalties against the entity for other violations.
Response to General Comments Received
The Bureau agrees with commenters regarding the need for a new Bureau registry for nonbank entities that are subject to the Bureau's jurisdiction and that are subject to certain agency and court orders. The final rule will establish a valuable Bureau registry that will provide the Bureau and other users with important information regarding such companies and the orders they are subject to. Comments objecting to the proposal are addressed elsewhere in this preamble.
With respect to comments addressing the U.S. Court of Appeals for the Fifth Circuit's decision regarding the constitutionality of the Bureau's funding structure, the Supreme Court has reversed that decision, holding that the Bureau's funding structure does not violate the Appropriations Clause.
68
68
See CFPB
v.
Cmty. Fin. Servs. Ass'n of Am., Ltd.,
601 U.S. 416 (2024).
The Bureau declines the consumer advocate commenter's suggestion to establish special rules or remedies for violation of the rule. The final rule is a Federal consumer financial law under the CFPA.
69
Violation of the final rule would be an independent violation of Federal consumer financial law subject to enforcement as provided in the CFPA, and applicable remedies under law, including potential civil money penalties.
70
69
See
12 U.S.C. 5481(14) (defining term “Federal consumer financial law” as including “any rule . . . prescribed by the Bureau” under the CFPA).
70
Violation of the final rule may also violate 12 U.S.C. 5536(a)(2), which provides that it shall be unlawful for “any covered person or service provider to fail or refuse, as required by Federal consumer financial law, or any rule or order issued by the Bureau thereunder—[¶ ] (A) to permit access to or copying of records; [¶ ] (B) to establish or maintain records; or [¶ ] (C) to make reports or provide information to the Bureau.”
B. Why the Bureau Is Issuing a Rule To Monitor for Risks Associated With Certain Agency and Court Orders
Requiring registration and submissions regarding certain agency and court orders as provided in the final rule will assist the Bureau in monitoring for risks to consumers in the offering or provision of consumer financial products or services, in accordance with CFPA section 1022(c).
71
The final rule's requirements to submit and update information regarding such agency and court orders related to the provision or offering of consumer financial products or services will provide important support for a variety of Bureau functions.
71
12 U.S.C. 5512(c).
As the principal Federal regulator responsible for administering the Federal consumer financial laws, the Bureau's ability to effectively identify and monitor for potential risks to consumers arising out of apparent violations of core Federal and State consumer laws is important to the Bureau achieving its statutory purposes and objectives. Such information will help the Bureau satisfy its statutory obligation to monitor for risks to consumers in the markets for consumer financial products and services.
72
For example, the registry will enable the Bureau to better identify an increase in the number of orders in a particular product market, in a particular geographic market, addressing similar consumer risks, or with other common features. The Bureau will be able to use this information to identify areas of heightened consumer risk that warrant further attention, as well as areas that are receiving adequate attention from other regulators. By contrast, the absence of enforcement activity in certain areas could indicate less risk to consumers, or it potentially could be evidence of less attention by regulators and a need to increase monitoring and other supervisory or regulatory activities. Over time, the Bureau's collection and review of information under the final rule will better enable the Bureau to evaluate, assess, and understand the relationship between such matters and the consumer risk that is related to covered orders. Thus, this information would help to inform and prioritize the Bureau's other market-monitoring efforts, including research regarding particular markets and the
risks to consumers presented in such markets.
73
72
See
12 U.S.C. 5512(c)(1).
73
See
12 U.S.C. 5511(c)(3) (identifying as one of the “primary functions of the Bureau . . . collecting, researching, monitoring, and publishing information relevant to the functioning of markets for consumer financial products and services to identify risks to consumers and the proper functioning of such markets”).
Likewise, the Bureau's rulemaking efforts will benefit from information about such orders, so that the Bureau might, for example, consider drafting rules to address identified consumer risks.
74
The Bureau's consumer response function will be informed by increased monitoring of risks and trends, as the Bureau could direct resources or investigate risks in a certain area or on a certain topic.
75
And the Bureau may choose to direct its consumer education efforts toward educating consumers about risks identified via the registry.
76
74
See
12 U.S.C. 5511(c)(5) (identifying as one of the “primary functions of the Bureau . . . issuing rules, orders, and guidance implementing Federal consumer financial law”).
75
See
12 U.S.C. 5511(c)(2) (identifying as one of the “primary functions of the Bureau . . . collecting, investigating, and responding to consumer complaints”);
see also
Consumer Fin. Prot. Bureau,
Consumer Response Annual Report: January 1-December 31, 2021,
at 5-8 (Mar. 2022),
https://files.consumerfinance.gov/f/documents/cfpb_2021-consumer-response-annual-report_2022-03.pdf
(describing the Bureau's consumer-complaint process and how the Bureau uses complaint information).
76
See
12 U.S.C. 5511(c)(1) (identifying as one of the “primary functions of the Bureau . . . conducting financial education programs”).
The information that the Bureau will obtain under the final rule will also be valuable to the Bureau in exercising its supervisory and enforcement functions.
77
Among other things, the information may be informative when the Bureau makes determinations whether a covered person is engaging, or has engaged, in conduct that poses risk to consumers with regard to the offering or provision of consumer financial products or services under CFPA section 1024(a)(1)(C), such that the Bureau may determine to subject the covered person to Bureau supervision under that provision.
78
The information contained in the registry may also be relevant in assessing civil penalties for violations of Federal consumer financial laws, given that Congress has provided that such penalties should take into account an entity's “history of previous violations” and “such other matters as justice may require.”
79
77
See
12 U.S.C. 5511(c)(4) (identifying as one of the “primary functions of the Bureau . . . supervising covered persons for compliance with Federal consumer financial law, and taking appropriate enforcement action to address violations of Federal consumer financial law”). Part IV(D) and the section-by-section discussion of § 1092.204 below contain additional discussion of how the final rule will facilitate the Bureau's supervisory efforts.
78
See
12 U.S.C. 5514(a)(1)(C) (authorizing Bureau orders subjecting nonbanks to supervision based upon consumer complaints “or information from other sources”); 12 CFR part 1091 (Bureau procedural rule to establish supervisory authority over certain nonbank covered persons based on risk determination).
79
See
12 U.S.C. 5565(c)(3)(D), (E). The Bureau may consider certain matters identified in orders collected under the final rule to be relevant under these provisions.
Furthermore, there is a heightened likelihood that entities that are subject to public orders enforcing the law and relating to the offering or provision of consumer financial products and services may pose risks to consumers in the markets for those products and services, and risk of consumer harm is a significant factor that weighs heavily in the Bureau's decisions regarding the general allocation of its resources. Knowledge of whether a covered person has engaged in previous violations of consumer financial protection laws is valuable information that the Bureau considers when evaluating the risk of consumer harm. In the Bureau's experience, entities that have previously been subject to enforcement actions, including those brought by local, State, and other Federal authorities, present an increased risk of committing violations of laws subject to the Bureau's jurisdiction, and thus causing the additional consumer harm associated with such violations. Prior enforcement actions are also likely to be a good indication of continuing risks to consumers present in a particular market for consumer financial products or services. Because the orders that would be covered by the final rule are regularly issued, modified, and terminated, the Bureau needs to collect this information regularly and on a timely basis in order to stay abreast of developments.
Although referrals from and other information provided by other agencies have been valuable to the Bureau's work, the Bureau currently often relies on other agencies to take proactive steps to contact it. As discussed in part IV(E) below, under the final rule, nonbanks that are subject to agency and court orders that are published on the NMLS Consumer Access website will have an option to notify the Bureau and provide information that will flag the relevant order and nonbank for the Bureau's attention. Having access to targeted information regarding relevant orders entered against nonbanks, whether such orders are listed on the Bureau's own registry or available through the NMLS, will significantly increase the Bureau's ability to monitor markets so that the Bureau can identify, better understand, and ultimately, prevent further consumer harm, particularly from repeat offenders.
Recidivism—whether in the form of a company that repeatedly violates the law and as a result becomes subject to multiple orders, or in the form of a company that violates the orders to which it is subject—poses particular risks to consumers. Companies that repeatedly violate the law do more than just deprive consumers of protections in the marketplace; these companies may also charge their customers more in order to cover the costs of any fines or other costs resulting from the company's legal violations. In other words, consumers may end up subsidizing corporate malfeasance. When government orders fail to deter future misconduct by a company, that company's operations are more likely to present risk to consumers. Thus, the existence of multiple orders may be highly probative of heightened risks to consumers in the markets for consumer financial products and services, including the risk of noncompliance with laws subject to the Bureau's jurisdiction.
Collecting information about such public orders across markets and agencies as provided in the final rule will improve the Bureau's efforts to determine where entities, either as a group or individually, are repeatedly violating the law. The Bureau particularly needs to be made aware of entities that become subject to multiple orders, or that are found to be out of compliance with existing orders, as well as of trends in such developments. Systematic or repeat violations of the law may indicate broader problems within a market for consumer financial products and services. Such problems might include lack of sufficient controls related to the offering and provision of certain consumer financial products and services, inadequate compliance management systems and processes within a set of market participants, and an unwillingness or inability of senior management at certain entities to comply with Federal consumer financial laws. The registry established in the final rule will provide a valuable mechanism to help ensure that the Bureau is rapidly made aware of such repeat offenders across a range of markets and enforcement agencies.
The Bureau believes that the registry will be especially useful with respect to the particular nonbank markets that are subject to the Bureau's supervision and examination authority under CFPA section 1024(a). In those markets, the Bureau will be able to take account of
risks identified through the registry in conducting its risk-based supervisory prioritization and enforcement work. The existence of an order that would require registration under the final rule would be probative of a potential need for supervisory examination, to the extent that the nonbank is subject to the Bureau's supervision and examination authorities. Under CFPA section 1024(b)(2), the Bureau is required to exercise its supervisory authority in a manner designed to ensure that such exercise, with respect to persons described in CFPA section 1024(a), is based on the assessment by the Bureau of the risks posed to consumers in the relevant product markets and geographic markets and taking into consideration the factors enumerated at CFPA section 1024(b)(2)(A)-(E).
80
80
12 U.S.C. 5514(a), (b)(2).
Depending upon the circumstances, the Bureau may consider the existence of an order requiring registration under the final rule to be a risk factor under these provisions for covered persons subject to the rule. CFPA section 1024(b)(2)(C) refers to “the risks to consumers created by the provision of such consumer financial products or services.”
81
The existence of one or more orders that would require registration under the final rule would be probative of such risks to consumers because it indicates that an entity may not be willing or able to ensure compliance with the law. CFPA section 1024(b)(2)(D) provides that the Bureau shall also take into account “the extent to which such institutions are subject to oversight by State authorities for consumer protection.”
82
The existence of one or more orders issued or obtained by the types of State agencies described in the final rule in connection with violations of law would provide important and directly relevant information regarding the extent to which nonbanks are subject to oversight by State authorities for consumer protection. CFPA section 1024(b)(2)(E) provides that the Bureau shall also take into account “any other factors that the Bureau determines to be relevant to a class of covered persons.”
83
For the classes of covered persons subject to the final rule, the Bureau believes that the existence of an order that would require registration under the final rule would be a relevant factor under this statutory provision for the Bureau to take into consideration when exercising its supervisory authorities under CFPA section 1024. Thus, for the reasons described above, the existence of such orders would be relevant information in prioritizing and scoping the Bureau's supervisory activities under CFPA section 1024(b) with respect to the markets subject to that provision.
81
12 U.S.C. 5514(b)(2)(C).
82
12 U.S.C. 5514(b)(2)(D).
83
12 U.S.C. 5514(b)(2)(E).
In crafting the final rule's requirements to register and submit certain agency and court orders, the Bureau has considered (among others) the factors listed at CFPA section 1022(c)(2), to the extent relevant here to the allocation of Bureau resources to perform market monitoring. For example, the Bureau considered the “likely risks and costs to consumers associated with buying or using a type of consumer financial product or service.”
84
As discussed above, the Bureau believes companies that violate the law, especially repeatedly, generally pose more risk to consumers. The final rule will assist the Bureau in identifying and evaluating such risks—and their associated costs—across companies, industries, products, and regions.
84
12 U.S.C. 5512(c)(2)(A).
The Bureau also considered the “understanding by consumers of the risks of a type of consumer financial product or service.”
85
The Bureau is concerned that consumers currently may not adequately understand risks posed by certain institutions, including risks arising from recidivism. With a clear window into nationwide trends and gaps in nonbank covered persons' compliance with consumer protection laws, the Bureau can target its various functions—including consumer education—to ensure that consumers understand the risks and associated costs of such conduct on their use of certain consumer financial products or services.
85
12 U.S.C. 5512(c)(2)(B).
The Bureau further considered “the legal protections applicable to the offering or provision of a consumer financial product or service, including the extent to which the law is likely to adequately protect consumers.”
86
The final rule will enhance the Bureau's ability to effectively assess whether and to what extent the orders themselves, as well as other relevant laws, in practice adequately protect consumers. Information collected in connection with the final rule will aid the Bureau in better understanding how effectively the nation's consumer protection laws operate in practice, which should assist the Bureau in determining (among other things) how best to allocate its resources to ensure consumers are adequately protected from unlawful conduct.
86
12 U.S.C. 5512(c)(2)(C).
The Bureau also considered “rates of growth in the offering or provision of a consumer financial product or service.”
87
Commenters expressed concern about a dearth of information regarding nonbank financial companies and stated that nonbanks may be obtaining an increased market share in certain markets for consumer financial products and services. The Bureau likewise believes that at least in certain markets, there has been rapid growth in consumer offerings by nonbanks. The Bureau intends to use the information obtained under the final rule in assessing and monitoring the rates of such growth and any associated risks, as evidenced by information regarding relevant consumer protection orders issued against nonbanks.
87
12 U.S.C. 5512(c)(2)(D).
The Bureau also considered “the extent . . . to which the risks of a consumer financial product or service may disproportionately affect traditionally underserved consumers.”
88
The Bureau generally is concerned that traditionally underserved communities may be disproportionately the target of consumer protection violations—particularly, unfair, deceptive, or abusive acts or practices—in the offering or provision of consumer financial products or services. The information collected should provide the Bureau with robust nationwide data to identify and evaluate the extent to which this is the case.
88
12 U.S.C. 5512(c)(2)(E).
Finally, the Bureau considered “the types, number, and other pertinent characteristics of covered persons that offer or provide the consumer financial product or service.”
89
For the reasons discussed, law violator status—and especially repeat law violator status—is a highly pertinent characteristic. The Bureau believes that risks to consumers posed by law violators warrant market monitoring. In particular, it will provide greater visibility into nonbank covered persons' compliance with consumer protection laws in the offering or provision of consumer financial products and services, in addition to more generally aiding the Bureau's overall understanding of nonbank covered persons and the products or services they provide.
89
12 U.S.C. 5512(c)(2)(F).
As discussed further below in part IV(E), the Bureau is adopting a modification to the proposed rule in order to provide an option for one-time registration of orders published on the NMLS Consumer Access website (except for orders issued or obtained by
the Bureau). The Bureau will be notified regarding such orders and the nonbank entities that are subject to them, and, using the information provided by the nonbank via the registry, will be able to obtain additional information from applicable Federal, State, and local authorities, including through the NMLS. Thus, the Bureau will have access to a comprehensive collection of relevant orders and entities, accessible either through the Bureau's registry or via the Bureau's existing access to NMLS and its ability to reach out to other agencies.
The Bureau has concluded that alternative means of collecting the information subject to the final rule would be inadequate.
90
For example, the Bureau considered requesting the information on an ad hoc basis from entities that are subject to relevant orders through a Bureau order issued pursuant to CFPA section 1022(c)(4)(B)(ii).
91
However, the Bureau concludes this alternative would be inadequate. There is no existing comprehensive list of covered persons subject to Bureau regulation, so the Bureau would be unable to issue a standing order to such entities to produce information. It is not clear how the Bureau would obtain this information without issuing a rule. Also, the Bureau wishes to collect information that changes over time—for example, information regarding new orders and changes to orders, as well as with respect to changes in registration information. An order that required submission of information at a single point in time—assuming that the Bureau could identify the entities to which such an order should be addressed—would be inadequate to capture such changes in information. While the Bureau might issue frequently recurring orders under its market-monitoring authority, such an approach would be less reliable and predictable for all parties than a rule-based approach.
90
For additional discussion of comments received in connection with other alternative means of collecting this information, see the section-by-section discussion of §§ 1092.202(b) and 1092.203(a) below.
91
12 U.S.C. 5512(c)(4)(B)(ii).
The Bureau further considered using its supervisory and examination authority to obtain information solely from entities that are subject to that authority. However, there is no existing comprehensive list of nonbank entities subject to Bureau supervision, so the Bureau would be unable to issue a standing order to such entities to produce such information. Moreover, the Bureau has concluded that collecting information from a wider range of covered persons, including those that are not subject to the Bureau's supervisory and examination authority, is appropriate to achieve its market-monitoring objectives.
C. Why the Bureau Has Identified Orders Issued Under the Types of Laws Described in the Proposal as Posing Particular Risk
The final rule prescribes registration requirements with reference to certain types of “covered laws” that served as the basis for an applicable order. As discussed herein, the Bureau concludes 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.
92
92
See also
the discussion of the definition of the term “covered law” in the section-by-section discussion of § 1092.201(c) below.
First, the Bureau is requiring registration in connection with orders issued under the Federal consumer financial 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. As explained above, numerous Federal and State agencies besides the Bureau have authority to enforce Federal consumer financial laws. In matters where an agency other than the Bureau has issued or obtained a final public order concluding that a covered person has violated Federal consumer financial law, the Bureau also will generally have jurisdiction over the conduct that resulted in that order. Requiring registration of such orders will facilitate effective market monitoring by providing the Bureau a tool to identify and understand the nature of the risks to consumers presented by the conduct addressed in those orders, including the risk that the conduct might continue unabated outside of the particular jurisdiction that issued the order. For example, such information may inform the Bureau's supervisory or enforcement activities, as the Bureau may consider bringing its own action in connection with the same or related conduct. Or the conduct may be probative of a more systemic problem with one or more entities' overall willingness or capacity to comply with Federal consumer financial law across different product lines or aspects of their operations. Likewise, requiring registration of orders involving Federal consumer financial law will facilitate effective market monitoring by ensuring that the Bureau can quickly and effectively identify patterns of similar conduct across multiple nonbank covered persons. The identification of such patterns may indicate a problem that the Bureau could best address by engaging in rulemaking to clarify or expand available consumer protections to address emerging consumer risk trends. It may also prompt the Bureau to use other tools, such as consumer education, to address the identified risks.
Second, the Bureau is requiring registration of orders in connection with a violation of any other law as to which the Bureau may exercise enforcement authority, to the extent such violation arises out of conduct in connection with the offering or provision of a consumer financial product or service. The Bureau may enforce certain laws other than Federal consumer financial laws, as that term is defined in CFPA section 1002(14).
93
The Bureau concludes that the registry should collect information regarding 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, the Bureau concludes that evidence of such conduct could be probative of a broader risk that the entity has engaged or will engage in conduct that may violate Federal consumer financial law. For example, violations of the Military Lending Act, as to which the Bureau has enforcement authority, may overlap with, or be closely associated with, violations of the CFPA's UDAAP prohibitions
94
or the Truth in Lending Act,
95
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 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) will further the Bureau's objective of creating a cross-market registry that could serve as a 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.
93
See, e.g.,
10 U.S.C. 987(f)(6) (authorizing Bureau enforcement of the Military Lending Act). As the Bureau has explained in an interpretive rule, it also has authority to supervise nonbanks subject to its supervision regarding risks to consumers arising from conduct that violates the Military Lending Act.
See
Bureau Interpretive Rule, Examinations for Risks to Active-Duty Servicemembers and Their Covered Dependents, 86 FR 32723 (June 23, 2021). In this rulemaking, however, the Bureau does not need to rely on the authority described in that interpretive rule. Instead, to the extent that the final rule would collect information regarding orders issued under laws described in § 1092.201(c)(2) for the purpose of facilitating the Bureau's supervisory activities, the Bureau would do so because the Bureau believes such orders may be probative of a broader risk that an entity has engaged or will engage in conduct that may violate Federal consumer financial law.
94
15 U.S.C. 5531, 5536(a)(1)(B).
95
15 U.S.C. 1601
et seq.
Third, the Bureau is requiring registration in connection with orders issued under the prohibition on 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, 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. In matters where a government agency has reached a determination that an entity has violated section 5 of the FTC Act in connection with the offering or provision of a consumer financial product or service, the Bureau has reason to be concerned that the entity poses heightened risks to consumers in financial markets. For one thing, the conduct resulting in the order may have violated Federal consumer financial law. CFPA section 1031, for example, authorizes the Bureau to take action “to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.”
96
And CFPA section 1036(a)(1)(B) provides that “[i]t shall be unlawful” for a covered person “to engage in any unfair, deceptive, or abusive act or practice.”
97
Congress modeled the CFPA's prohibition of unfair or deceptive acts or practices after the similar prohibition in section 5 of the FTC Act.
98
Therefore, violations of FTC Act section 5 in connection with the provision or offering of a consumer financial product or service are highly probative of a heightened risk that UDAAP violations subject to the Bureau's jurisdiction have occurred or are occurring.
96
12 U.S.C. 5531(a).
97
12 U.S.C. 5536(a)(1)(B).
98
See
15 U.S.C. 45;
see also, e.g., Consumer Fin. Prot. Bureau
v.
ITT Educ. Servs., Inc.,
219 F. Supp. 3d 878, 902-04 (S.D. Ind. 2015).
Moreover, the high probative value of such orders is not simply a function of the likelihood that underlying conduct could violate Federal consumer financial law. The Bureau concludes that, where an entity has engaged in conduct prohibited under FTC Act section 5 in connection with offering or providing a consumer financial product or service, there is a significant risk that upon closer inspection of the entity's activities it has engaged in other acts or omissions that either violate Federal consumer financial law or otherwise present risks to consumers in the consumer financial markets. For example, inadequacies in compliance systems are not likely limited to a particular Federal or State consumer protection law, and compliance-system inadequacies that result in FTC Act section 5 violations indicate a heightened risk of similar inadequacies related to the prevention of violations of Federal consumer financial laws. And, as described above, a registry of orders is particularly useful because a core purpose of the Bureau's monitoring efforts is to analyze patterns of risky conduct across entities, industries, product offerings, and jurisdictions. Such patterns would help the Bureau identify risks to consumers that warrant further action, such as more monitoring, increased supervisory attention in the case of supervised persons, regulation, or consumer education.
Fourth, the Bureau is requiring registration in connection with orders issued under State laws prohibiting unfair, deceptive, or abusive acts or practices that are identified in appendix A to part 1092, 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.
99
State UDAP/UDAAP laws are generally modeled after—or otherwise prohibit conduct similar to that prohibited by—FTC Act section 5 or CFPA sections 1031 and 1036(a)(1)(B).
100
Therefore, violations of State UDAP/UDAAP law in connection with the provision or offering of a consumer financial product or service are similarly highly probative of a heightened risk that UDAAP violations subject to the Bureau's jurisdiction have occurred or are occurring. In addition, violations of State UDAP/UDAAP law may be probative of the existence of violations of other laws within the Bureau's jurisdiction.
101
99
The Bureau is adopting a final version of appendix A to part 1092 with certain changes to the version in the proposal. For a discussion of these changes to the proposal, see the section-by-section discussion of § 1092.201(c) below.
100
15 U.S.C. 45; 12 U.S.C. 5531.
See
Request for Information on Payday Loans, Vehicle Title Loans, Installment Loans, and Open-End Lines of Credit, 81 FR 47781, 47783 (July 22, 2016) (“In the 1960s, States began passing their own consumer protection statutes modeled on the [Federal Trade Commission] Act to prohibit unfair and deceptive practices.”);
see also
Cal. Fin. Code sec. 90009(c)(3) (providing that “the term `abusive' shall be interpreted consistent with Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010”); Michael Greenfield,
Unfairness Under Section 5 of the FTC Act and Its Impact on State Law,
46 Wayne L. Rev. 1869, 1899 (2000) (noting that “the state statutes actually were drafted and promoted by the Federal Trade Commission, which, one supposes, had a special interest in uniform, nationwide interpretation of the standards”).
101
To take just one example, UDAAP violations in connection with debt-collection efforts may also violate the Fair Debt Collection Practices Act's prohibition against unfair, deceptive, or abusive debt-collection practices.
See
15 U.S.C. 1692d-1692f.
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—namely, that (i) conduct that violates State UDAP/UDAAP prohibitions commonly also violates laws under the Bureau's jurisdiction; and (ii) the Bureau believes that evidence of such conduct may be highly probative of a broader risk that the entity has engaged or will engage in similar conduct that may violate laws within the Bureau's jurisdiction, either as a result of a willingness to violate such laws or a lack of sufficient protections in place to prevent violations. Registration of State UDAP/UDAAP orders will facilitate effective market monitoring by ensuring that the Bureau can quickly and effectively identify patterns of risky conduct across entities, industries, consumer financial product or service offerings, and jurisdictions. The Bureau could then decide which Bureau functions are best suited to address the consumer risks raised by the orders.
102
102
For discussion of the final rule's requirements with respect to State laws amending or otherwise succeeding a law identified in appendix A, and rules or orders issued by State agencies for the purpose of implementing State UDAP/UDAAP
laws,
see
the section-by-section discussion of § 1092.201(c) below.
D. Why the Bureau Is Requiring Supervised Nonbanks To Designate Attesting Executives and Submit Written Statements
The final rule will also require certain entities that are subject to the Bureau's supervision and examination authority to annually submit a written statement signed by a designated attesting executive regarding each covered order to which they are subject. In the written statement, the attesting executive will be required to (i) generally describe the steps that the executive has undertaken to review and oversee the entity's activities subject to the applicable covered order for the preceding calendar year, and (ii) attest whether, to the executive's knowledge, the entity during the preceding calendar year has identified any violations or other instances of noncompliance with any of the obligations that were imposed in a public provision of the covered order by the applicable agency or court based on a violation of a covered law. The final rule further requires that the entity designate as the attesting executive for each covered order its highest-ranking duly appointed senior executive officer (or, if the entity does not have any duly appointed officers, the highest-ranking individual charged with managerial or oversight responsibility for the entity) whose assigned duties include ensuring the 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. The Bureau intends to publish the name and title of that executive in the public registry.
The Bureau concludes these requirements will serve two sets of distinct purposes relating to its exercise of its supervisory and examination authorities under CFPA section 1024.
First, the Bureau concludes the final rule's requirements that certain supervised entities (which are referred to in the rule as “supervised registered entities”) designate attesting executives and provide written statements will facilitate the Bureau's supervision efforts, including its efforts to assess compliance with the requirements of Federal consumer financial law, obtain information about supervised entities' activities and compliance systems or procedures, and detect and assess risks to consumers and to markets for consumer financial products and services.
103
As discussed, the existence of one or more covered orders involving a supervised registered entity already raises red flags regarding the entity's compliance with Federal consumer financial law and the overall risk posed by such entity to consumers in the offering or provision of consumer financial products and services. Submission of a written statement regarding either compliance or noncompliance with such an order will provide the Bureau with important additional information regarding risks to consumers that may be associated with the order and the applicable supervised registered entity's compliance systems and procedures. Covered orders frequently contain provisions aimed at ensuring an entity's future legal compliance, such as reporting requirements, recordkeeping requirements, and provisions requiring the entity to obtain the issuing agency's nonobjection before adopting or amending relevant policies and procedures. An entity's sustained compliance with such provisions may mitigate the continuing risks to consumers presented by the entity and thus reduce the potential need for current supervisory activities. By contrast, an entity's noncompliance with the terms of an order may indicate a heightened need for current supervisory activities. And if an entity is committing significant or repeated violations of a covered order, or it is failing to take appropriate steps to address such violations and prevent their recurrence, that may indicate that the entity lacks the protocols and institutional commitment necessary to ensure compliance with legal obligations aimed at protecting consumers and ultimately with the Federal consumer financial laws. Entities that fail to comply with orders enforcing the law may be at greater risk of violating one or more laws within the Bureau's jurisdiction. Submission of the proposed written statements will enable the Bureau to conduct additional supervisory reviews or to otherwise investigate the matter in order to identify any such violations and related risks.
103
See
12 U.S.C. 5514(b)(1), (7)(A)-(B). As explained in the “legal authority” section, 12 U.S.C. 5514(b)(7)(A) authorizes the Bureau to prescribe rules to facilitate Bureau supervision and the assessment and detection of risks to consumers, and 12 U.S.C. 5514(b)(7)(B) authorizes the Bureau to require supervised registered entities to “generate”—
i.e.,
create—reports regarding their activities (including the required written statements) and then “provide” them to the Bureau.
As a result, the final rule's written statements will be particularly relevant when prioritizing the Bureau's supervisory activities under CFPA section 1024(b). As discussed above at part III(C) and below in the section-by-section discussion of § 1092.204, CFPA section 1024(b)(2) requires that the Bureau exercise its authority under CFPA section 1024(b)(1) in a manner designed to ensure that such exercise, with respect to persons described in section 1024(a), is based on the assessment by the Bureau of certain identified risks.
104
For the reasons discussed above, the final rule's written statements will inform the Bureau's risk-based prioritization of its supervisory program under CFPA section 1024(b)(2). The Bureau anticipates that the written statements would be particularly helpful in assessing, among other things, “the risks to consumers created by the provision of . . . consumer financial products or services” and “the extent to which such institutions are subject to oversight by State authorities for consumer protection.”
105
104
12 U.S.C. 5514(a), (b)(2).
105
12 U.S.C. 5514(b)(2)(C)-(D).
See
additional discussion of the factors for risk-based supervisory prioritization in part IV(B) above.
The final rule's written-statement requirements also will improve the Bureau's ability to conduct its supervisory and examination activities with respect to the supervised nonbank, when it does choose to exercise its supervisory authority. The Bureau exercises its supervisory authority with respect to supervised nonbanks for certain purposes, including assessing compliance with the requirements of Federal consumer financial law, obtaining information about the activities and compliance systems or procedures of supervised nonbanks, and detecting and assessing risks to consumers and markets for consumer financial products and services.
106
Assessing whether entities have adequate compliance management systems in place is a long-standing and standard component of the Bureau's examination process, and that assessment depends in part on understanding with whom certain responsibilities lie and how a compliance program is carried out.
107
The Bureau concludes a supervised nonbank's written statements as required under the proposal will provide important information relevant
to all of these statutory purposes. As explained below, a supervised nonbank's failure to comply with a relevant order under a covered law could indicate that the entity more generally lacks the will or ability to comply with its legal obligations, including its obligations under Federal consumer financial law. Such noncompliance may also indicate that the entity generally lacks adequate compliance systems or procedures, which in turn would create risks to consumers and to the markets for consumer financial products and services that the entity participates in. Conversely, written statements indicating that the entity had not identified any instances of noncompliance with a relevant order would also provide the Bureau with similarly useful information about the entity's efforts to comply with such orders and the entity's compliance systems and procedures related to the entity's offering and provision of consumer financial products and services. Thus, in cases where the Bureau determines to exercise its supervisory authorities with respect to a supervised nonbank required to submit written statements under the proposal, the Bureau would expect those written statements to be of value in conducting its examination work. For example, the Bureau may use the written statements in determining what information to require from a supervised nonbank, in determining the content of supervisory communications and recommendations, or in making other decisions regarding the use of its supervisory authority.
108
106
12 U.S.C. 5514(b)(1).
107
See
CFPB Supervision and Examination Manual at CMR 1 (“To maintain legal compliance, an institution must develop and maintain a sound compliance management system . . . that is integrated into the overall framework for product design, delivery, and administration across their entire product and service lifecycle.”).
108
As explained below in the section-by-section discussion of § 1092.204(e), the Bureau is requiring supervised registered entities to maintain records to support their written statements. That recordkeeping requirement will further facilitate the Bureau's supervisory and examination activities because it will ensure the availability of records for the Bureau to review regarding the matters addressed in the written statements.
Second, the final rule's written-statement requirements will help ensure that supervised registered entities “are legitimate entities and are able to perform their obligations to consumers.”
109
As discussed in part VIII below, the Bureau believes that most supervised registered entities subject to covered orders endeavor in good faith to comply with consumer protection laws and, accordingly, have put in place some manner of systems and procedures to help achieve such compliance. But the Bureau also expects that other supervised registered entities will not take their legal obligations seriously, including their obligations under Federal consumer financial law.
110
The final rule's written-statement requirements will provide information that would help the Bureau assess in which category a particular entity falls. If, after reviewing a written statement, the Bureau concludes that an entity is not working in good faith to comply with its legal obligations, that conclusion might provide grounds for prioritizing the entity for supervisory examinations to assess its compliance with Federal consumer financial law. The Bureau expects that the risk of such increased supervisory scrutiny will provide an incentive for some entities to improve their compliance efforts so that they can submit a written statement that is less likely to result in increased scrutiny from the Bureau. Thus, by making it more difficult to quietly disregard the law, the Bureau concludes that the written-statement requirement will likely motivate at least a few supervised entities with substandard compliance practices to enhance their compliance efforts and comply with their legal obligations, including their obligations under Federal consumer financial law. The Bureau likewise believes that the final rule's requirement to designate an attesting executive with knowledge of the entity's systems and procedures for achieving compliance with the covered order and with control over the efforts to comply with the covered order will likely provide an incentive to pay more attention to the entity's legal obligations.
109
12 U.S.C. 5514(b)(7)(C). As explained in the “legal authority” section above, 12 U.S.C. 5514(b)(7)(A), (B), and (C) provide independent sources of rulemaking authority.
110
As explained above, in several cases, the Bureau has found that entities have violated prior orders that the Bureau has issued or obtained.
See supra
note 7.
To be clear, the final rule does not establish any minimum procedures or otherwise specify the steps the attesting executive must take in order to review and oversee the supervised registered entity's activities. Nor does the final rule establish any minimum level of compliance management or expectation for compliance systems and procedures at such entities, or purport to impose any restrictions on the manner in which supervised registered entities address such matters. However, as explained above, the Bureau expects that most supervised registered entities will be at least somewhat hesitant to repeatedly report the absence of good faith efforts to comply with covered orders. Also, the rule will require supervised registered entities to identify, on an annual basis, a high-level executive with knowledge and responsibility regarding an entity's efforts to comply with a covered order, which will facilitate any Bureau supervisory efforts related to the order or the matters addressed therein.
The Bureau is finalizing its preliminary findings that requiring certain supervised nonbanks to designate attesting executives and to submit written statements relating to compliance with reported orders will facilitate the Bureau's supervisory efforts and better ensure that supervised registered entities are legitimate entities and are able to perform their obligations to consumers.
E. Why the Bureau Is Adopting an Option for One-Time Registration of Orders Published on the NMLS Consumer Access Website
The Bureau received multiple comments on the proposal stating that the proposed registry was redundant with existing registries and other published information, and in particular with the NMLS. See the section-by-section analysis of § 1092.203 below for a discussion of these comments and the Bureau's response. Some consulting parties expressed similar concerns during the Bureau's interagency consultation process, as discussed in part V below. In light of those comments and concerns, the Bureau is adopting a one-time registration option for orders that are published on the NMLS Consumer Access website, which may be exercised at the election of the covered nonbank. Nonbanks that exercise this option may submit a one-time registration regarding certain agency and court orders that are published on the NMLS Consumer Access website maintained at
www.NMLSConsumerAccess.org
(except for orders issued or obtained by the Bureau), in lieu of complying with other requirements of the rule with respect to the order. Such nonbanks will be required to submit certain limited information to the Bureau's nonbank registry regarding the order to enable the Bureau to identify the relevant nonbank and order and otherwise coordinate the nonbank registry with the NMLS. Upon exercising this option and submitting the required information about the relevant order, a nonbank will have no further obligation under subpart B to provide information to, or update information provided to, the Bureau's nonbank registry regarding the order.
The one-time registration option established in the final rule will ensure that the Bureau is informed regarding risks to consumers in the offering or provision of consumer financial products and services, including developments in markets for such
products and services, in a manner that promotes coordination and cooperation with the States while reducing potential burden on the companies that are required to register. This option is not available for orders that are issued or obtained at least in part by the Bureau itself.
The one-time registration option is consistent with § 1092.102(b), which provides that in administering the nonbank registry, the Bureau may rely on information a person previously submitted to the nonbank registry under part 1092 and may coordinate or combine systems in consultation 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. As § 1092.102(b) makes clear, the Bureau may develop or rely on such systems as part of maintaining the nonbank registry and may also rely on previously submitted information.
F. Why the Bureau Intends To Publish Certain Information Collected Under the Registration Requirements
The Bureau intends to publish a registry that contains certain information about nonbanks and orders collected under the rule. However, the Bureau is reserving the option not to publish information based on operational considerations, such as resource constraints.
111
111
For additional discussion regarding the Bureau's discretion not to publish information under § 1092.205(a), see the section-by-section discussion of that provision below.
While the orders subject to the rule will already be public, information about the orders may not be readily accessible in a comprehensive and collected manner, and some of the information submitted to the registry may not be readily available to the public. The Bureau intends to publish this information because it believes publication will provide benefits to the general public, other regulators, and to consumers, and would be consistent with Federal Government efforts to make government data assets publicly available.
112
The Bureau has authority to publish the registration information under CFPA section 1022(c)(3)(B), which authorizes it to publish information obtained under section 1022 “as is in the public interest,”
113
and under CFPA section 1022(c)(7)(B), which authorizes the Bureau to “publicly disclose registration information to facilitate the ability of consumers to identify covered persons that are registered with the Bureau.”
114
As discussed further in the section-by-section discussion of § 1092.205(a) below, the Bureau finds that, except under certain circumstances, it will be in the public interest to publish certain information collected by the nonbank registry.
112
See also
the discussion of these issues in the section-by-section discussion of § 1092.205 below.
113
12 U.S.C. 5512(c)(3)(B).
114
12 U.S.C. 5512(c)(7)(B).
A variety of Federal regulators, including the prudential regulators, as well as State attorneys general and other State agencies, all have authority to issue orders to address legal violations in the provision or offering of consumer financial products or services. Consequently, similar conduct may be addressed through separate orders, by separate regulators, or across separate lines of business. Again, the orders that would be published under the proposal would already be public. But such orders, while public, are currently subject to distinct publication regimes. The distinct enforcement and publication regimes for the various agencies with authority over nonbank covered persons make it more difficult for the Bureau, consumers, and other interested parties to identify entities that engage in misconduct and repeatedly violate the law. The final rule will address that issue by creating a registry of orders that relate to offering or providing consumer financial products or services and the nonbanks that are subject to them. The registry will enable users of the nonbank registry to become better informed about those orders and nonbanks and promote transparency in the markets for consumer financial products and services.
The Bureau recognizes that much public information about such orders already exists. In particular, some information is available to potential users through the NMLS Consumer Access website, which is owned and operated by the State Regulatory Registry LLC, which is a wholly owned subsidiary of the Conference of State Bank Supervisors. In addition, the applicable Federal and State regulators generally each publish their own orders enforcing consumer financial law; thus, potential users may be able to access some of this information by means of the various websites and other databases maintained by individual agencies or other multiagency websites. And still other information is published and maintained by private actors.
As discussed in part IV(E) above and in the section-by-section discussion of § 1092.203 below, the Bureau is adopting a one-time registration option with respect to orders that are published on the NMLS Consumer Access website,
www.NMLSConsumerAccess.org
(except for orders issued or obtained by the Bureau). This option will reduce burden on eligible entities that are subject to the rule, help avoid confusion, and promote coordination with the States in exercising the Bureau's nonbank registration authorities by leveraging information already gathered and published by the States. The Bureau intends to publish certain limited information collected under this one-time registration option for the purposes of informing users of the registry of particular orders published on the NMLS Consumer Access website and the applicable nonbanks subject to them. The Bureau's registry will alert users of the NMLS that orders have been issued against nonbanks subject to the Bureau's jurisdiction in connection with the offering or provision of consumer financial products or services. Where an order has been registered with the Bureau's registry under the option discussed in part IV(E) above, users may also refer to the NMLS for additional information about that order, to the extent consistent with any terms of use or other conditions of access that the NMLS's operator may impose.
The Bureau is authorizing the establishment of its own public registry in order to provide access to a new centralized and publicly available database containing information about applicable nonbanks and the orders to which they are subject, specifically in connection with the offering and provision of consumer financial products and services. While certain State regulators provide information about certain public enforcement actions through the NMLS, including in some cases publishing related orders on the NMLS Consumer Access website, such information does not extend to all of the orders and all of the agencies that are addressed by the final rule, including orders issued by Federal agencies. It is also limited to only certain industry sectors. Therefore, there appears to be limited collective information regarding all of the orders that have been issued by multiple regulators to particular entities across multiple product markets and geographic markets related to consumer financial products and services. To the Bureau's knowledge, there is currently no public government registry at the Federal or State level for the collection
of information about such orders across the entities subject to the Bureau's jurisdiction (though privately maintained databases may exist). No government agency appears to maintain a publicly available repository of such orders and other related information with respect to particular entities as they relate to consumer financial products and services. The Bureau believes that consumers would benefit from a registry that is maintained by the Federal Government for the purpose of providing information regarding such orders.
The Bureau believes that there will be significant value in creating a public repository of information related to public agency and court orders that impose obligations based on violations of consumer protection laws, and the nonbanks under the Bureau's jurisdiction that are subject to them.
115
Publication of certain data collected pursuant to this rule is in the public interest in a variety of ways. By improving public transparency, the Bureau intends to mitigate recidivism and more effectively deter unlawful behavior. Providing better tools to monitor repeat law violators and corporate recidivism is in the public interest. Researchers will be able to use published information to better understand the markets regulated by the Bureau and the participants in those markets, and their efforts may result in more thorough understanding and promote compliance with the law. Non-government entities will likewise be able to use published information in conducting their work and in identifying potential issues and risks affecting consumers in the markets for consumer financial protection and services. Industry can use a public registry as a convenient source of information regarding regulator actions and trends across jurisdictions, helping industry actors to better understand legal risks and compliance obligations. A public registry will also provide potential investors, contractual partners, financial firms, and others that are conducting due diligence on a registered nonbank a consolidated source of information regarding public orders. Establishing a source for public data on entity lawbreaking and recidivism will promote tracking and awareness of such matters by consumer groups, trade associations, firms conducting due diligence, the media, and other parties.
115
See also
the discussion of these issues in the section-by-section discussions of §§ 1092.202(b) and 1092.205(a) below.
Government agencies—including, but not limited to, the Bureau—will also benefit from the public registry. While the orders that the Bureau intends to publish under the rule will 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 can use the published information to better identify registered nonbanks and determine their legal structure and organization, since the registry will (subject to the option for NMLS-published covered orders) require registered nonbanks to submit and maintain up-to-date identifying information, including legal name and principal place of business. Also, 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 Bureau's 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 public Bureau 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.
116
116
As described in part V below, certain consulting parties confirmed to the Bureau during the interagency consultation process that they would find the registry useful in conducting their own operations, while certain other consulting parties stated that they would not.
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 likely 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 registry with Federal Government standards calling for publishing information online as open data.
117
117
See, e.g.,
Open, Public, Electronic, and Necessary Government Data Act, in title II of Public Law 115-435 (Jan. 14, 2019).
Consumers may also benefit from the collection and publication of the information collected by the registry, including information about orders that are already public. At least in certain cases, publishing information about the entity and its applicable orders in a public registry as intended by the Bureau will potentially help certain consumers make informed decisions regarding their choice of consumer financial products or services. As discussed at part VIII below, the Bureau does not necessarily expect a wide group of consumers to rely routinely on the Bureau's registry when selecting consumer financial products or services. However, the Bureau believes that the registry will 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 can use the registry to report which entities have the most government orders enforcing the law against them, which would inform consumers about such repeat offenders.
Publication of the registry as intended by the Bureau will 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. Such publication will 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 could lead consumers and other persons to report to the Bureau instances of similar conduct for the Bureau to investigate.
Under the final rule, the Bureau will not publish the written statement submitted by a supervised registered entity but will 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 intend to publish the name and title of the attesting executive(s) submitted by the supervised registered entity. The Bureau intends to disclose this name and title information because it concludes that, except as described in the section-by-section discussion of § 1092.205 below, publication of this information will be in the public interest. In particular, it will help ensure accountability at the entity for noncompliance. The Bureau concludes that the publication of the executive's name and title will provide an incentive to pay more attention to covered orders. The Bureau believes that designating an attesting executive will prompt that executive to focus greater attention on ensuring the entity's compliance with a covered order, and in turn increase the likelihood of compliance. Publication of this designation as intended by the Bureau will increase the likelihood of these effects. Such publication of the designation will identify for other regulators (and the general public) the highest-ranking executive at the supervised registered entity who has control over the entity's efforts to comply with the covered order and otherwise satisfies the rule's designation requirements. 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 part IV(D).
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, as intended by the Bureau, will benefit users of the registry in other ways. For example, publishing this information may help certain consumers better understand and monitor the conduct of the entities with whom they do business, including how the company assigns responsibility for compliance with Federal consumer financial law. Researchers, media, and other users of the information may be able to detect trends or patterns associated with such information. Publication as intended by the Bureau may also help whistleblowers and consumers better understand the operations and structure of the supervised entity, such as to which department or division of the company to direct whistleblowing complaints, information about violations, or requests for information with respect to the covered order in order to ensure that their complaint, information, or request is being sent to the appropriate part of the organization. Clients or other companies that do business with the entity will also have a better understanding of which areas of the company are affected by a covered order and who is responsible for compliance with it.
Publishing such name and title information will also facilitate coordination and communication regarding the order between the Bureau, other government agencies, and the nonbank entity. Other regulators, especially those that have issued orders regarding the supervised entity, would likely benefit from understanding which executive(s) have been tasked with ensuring compliance with their orders. And disclosure of this information would increase transparency regarding how the Bureau processes and verifies information submitted as part of the registry.
V. Summary of Rulemaking Process
A. Consultation With Other Agencies in Exercising the Authorities Relied Upon in the Proposal and Final Rule
One of the authorities cited as a basis for components of the Bureau's proposed rule and final rule is CFPA section 1022(c)(7), which provides that the “Bureau may prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”
118
Congress provided that “[i]n developing and implementing registration requirements under [section 1022(c)(7)], the Bureau shall consult with State agencies regarding requirements or systems (including coordinated or combined systems for registration), where appropriate.”
119
CFPA section 1024(b)(7)—the statutory basis for the written-statement requirement—includes a similar consultation provision.
120
118
12 U.S.C. 5512(c)(7)(A).
119
12 U.S.C. 5512(c)(7)(C).
120
12 U.S.C. 5514(b)(7)(D) (“In developing and implementing requirements under this paragraph, the Bureau shall consult with State agencies regarding requirements or systems (including coordinated or combined systems for registration), where appropriate.”).
Accordingly, the Bureau has consulted with State agencies, including State agencies involved in supervision of nonbanks and State agencies charged with law enforcement, in crafting the proposal's and final rule's registration requirements and system. In developing the proposal and this final rule, the Bureau considered the input it received from State agencies, including concerns expressed regarding possible duplication between any registration system the Bureau might build and existing registration systems.
In addition, before proposing a rule under the Federal consumer financial laws, including CFPA sections 1022(b)-(c) and 1024(b), and during the applicable comment process, the Bureau must consult with appropriate prudential regulators or other Federal agencies regarding consistency with prudential, market, or systemic objectives administered by such agencies.
121
In developing the proposal and this final rule, the Bureau consulted with prudential regulators and other Federal agencies and considered the input it received.
121
12 U.S.C. 5512(b)(2)(B) (“In prescribing a rule under the Federal consumer financial laws . . . the Bureau shall consult with the appropriate prudential regulators or other Federal agencies prior to proposing a rule and during the comment process regarding consistency with prudential, market, or systemic objectives administered by such agencies . . . .”).
The Bureau also consulted with Tribal governments regarding this rulemaking pursuant to CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D).
122
In addition, the Bureau consulted with tribal governments in accordance with applicable Bureau policy.
123
In developing this final rule, the Bureau considered the input of Tribal governments, including concerns tribal governments expressed regarding maintaining Tribal sovereignty.
122
See
12 U.S.C. 5512(c)(7)(C), 5514(b)(7)(D) (requiring consultation with “State agencies”);
see also
12 U.S.C. 5481(27) (term “State” includes “any federally recognized Indian tribe, as defined by the Secretary of the Interior under” 25 U.S.C. 5131(a)).
123
See
Consumer Fin. Prot. Bureau,
Policy for Consultation with Tribal Governments, https://files.consumerfinance.gov/f/201304_cfpb_consultations.pdf.
Each of the Bureau's outreach efforts is discussed in turn below.
B. Pre-Proposal Outreach
The Bureau received feedback from external stakeholders in developing the
notice of proposed rulemaking. The following is a summary of that effort.
1. State Agencies and Tribal Governments
As required by CFPA sections 1022(c)(7) and 1024(b)(7),
124
the Bureau consulted with State agencies and Tribal governments, including agencies involved in supervision of nonbanks and agencies charged with law enforcement, in crafting the proposed registration requirements and registry. Among other meetings, the Bureau's consultation efforts included presentations to State and Tribal governments on October 13, October 20, October 27, November 3, November 10, November 17, and November 21, 2022, explaining proposals then under consideration and requesting feedback. In addition, on October 31, 2022, Bureau staff met with State financial regulators and staff of the Conference of State Bank Supervisors to discuss technical questions to better understand whether and how the Bureau could combine or coordinate its proposed registry with the NMLS.
125
In developing its proposed rule, the Bureau considered the input it received from State agencies and Tribal governments. This input included concerns State agencies expressed regarding possible duplication between any registration system the Bureau might build and existing registration systems. This input also included concerns Tribal governments expressed regarding maintaining Tribal sovereignty.
124
12 U.S.C. 5512(c)(7)(C); 12 U.S.C. 5514(b)(7)(D).
125
In addition to the listed meetings, the Bureau participated in other meetings with one or more representatives of State financial regulators regarding the Bureau's proposed registry, including meetings in August and September 2022.
2. Federal Regulators
Before proposing a rule under the Federal consumer financial laws, including CFPA sections 1022(c) and 1024(b), the Bureau must consult with appropriate prudential regulators or other Federal agencies regarding consistency with prudential, market, or systemic objectives administered by such agencies.
126
In developing this proposal, the Bureau consulted with prudential regulators and other Federal agencies and considered the input it received.
126
12 U.S.C. 5512(b)(2)(B).
C. Notice of Proposed Rulemaking
On December 12, 2022, the Bureau issued its proposed rule to establish a public registration system for nonbank covered persons subject to certain agency and court orders. The proposal was published in the
Federal Register
on January 30, 2023, and the public comment period closed on March 31, 2023.
127
The Bureau received more than 60 comments on the proposal during the comment period. Commenters included individual consumers, consumer advocate commenters, tribes, the U.S. Small Business Administration Office of Advocacy (SBA Office of Advocacy), industry, and others, including a joint comment letter from State regulators.
127
88 FR 6088 (Jan. 30, 2023).
In addition, the Bureau also received three
ex parte
communications, one from a journalist commenter, one from a consumer advocate commenter, and another from an industry commenter.
128
Summaries of those
ex parte
communications are available on the public docket for this rulemaking.
129
The Bureau also received a joint comment letter from Members of Congress related to the proposed rule, which is also available on the public docket.
128
See
CFPB,
Policy on Ex Parte Presentations in Rulemaking Proceedings,
82 FR 18687 (Apr. 21, 2017).
129
See https://www.regulations.gov/docket/CFPB-2022-0080.
Relevant information received via comment letters, as well as
ex parte
submissions, is discussed above in part IV, as well as the section-by-section analysis and subsequent parts of this document, as applicable. The Bureau considered all comments it received regarding the proposal, made certain modifications, and is adopting the final rule set forth herein. Comments regarding the Bureau's impact analyses are discussed in parts VIII and IX below.
D. Further Outreach
Before finalizing a proposed rule under the Federal consumer financial laws, including CFPA sections 1022(c) and 1024(b), the Bureau must consult with appropriate prudential regulators or other Federal agencies regarding consistency with prudential, market, or systemic objectives administered by such agencies.
130
In developing this final rule, the Bureau consulted with prudential regulators and other Federal agencies and considered the input it received.
130
12 U.S.C. 5512(b)(2)(B).
As required by CFPA sections 1022(c)(7) and 1024(b)(7),
131
the Bureau also consulted with State agencies and Tribal governments, including agencies involved in supervision of nonbanks and agencies charged with law enforcement, in crafting the registration requirements and system.
132
Among other meetings, the Bureau's consultation efforts included presentations to State agencies and Tribal governments on February 21, 22, and 23, 2024, explaining proposals then under consideration and requesting feedback, as well as a meeting between representatives of the Bureau and State agencies on April 18, 2024. In developing the final rule, the Bureau considered the public comments it received from tribes and via a joint comment letter from State regulators, as well as the input it received from State agencies and Tribal governments during the consultation process.
131
12 U.S.C. 5512(c)(7)(C); 12 U.S.C. 5514(b)(7)(D).
132
As explained above, during the rulemaking process for issuing rules under the Federal consumer financial laws, Bureau policy is to consult with appropriate Tribal governments.
See https://files.consumerfinance.gov/f/201304_cfpb_consultations.pdf.
In interagency consultations, several consulting parties reasserted issues that had been raised in the comment letters. Those comments are addressed elsewhere in the applicable sections of this preamble.
Consistent with an approach suggested by commenters, including in a joint comment letter submitted by a group of State regulators, the Bureau is adopting a one-time registration option for nonbanks to submit certain information about orders published on the NMLS Consumer Access website (except for orders issued or obtained by the Bureau), in lieu of complying with the other requirements of the rule with respect to such orders.
133
133
See part IV(E) and the section-by-section discussion of § 1092.203 below.
Consulting partners also raised certain additional issues that the Bureau addresses in this section. During consultation, some consulting parties expressed concerns with aspects of the final rule and stated that they would not use the information collected by the Bureau and potentially published as provided in the rule.
134
However, other consulting parties expressed general support for the Bureau's adoption of the final rule, and confirmed to the Bureau during the interagency consultation process that they would find the registry useful in conducting their own operations.
134
For further discussion regarding the final rule's approach to authorizing publication of registry information by the Bureau, including the ability of other agencies to use such information, see part IV(F) and the section-by-section discussion of § 1092.205 below.
The Bureau satisfied all applicable statutory requirements with respect to interagency consultations, including CFPA sections 1022(c)(7) and
1024(b)(7). As described in this section, the Bureau engaged in oral and written discussions with State regulators as it developed the proposal, during the notice-and-comment process, and before finalizing the rule. Throughout the consultation process, it has solicited the views of State regulators regarding the combination and coordination of systems as well as other matters relating to both the proposal and the final rule. Some consulting parties sought further engagement with the Bureau on aspects of the rulemaking, which the Bureau granted.
The Bureau also offered the States an opportunity to give specific, concrete feedback on the proposed registry, including providing feedback regarding how that system might be combined or further coordinated with other registration systems, as contemplated by CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D).
Certain consulting parties raised questions about the one-time registration option for NMLS-published covered orders in § 1092.203, stating that any final rule should strike reporting and registration requirements for any violations of State consumer financial laws, rules, and agency orders. As discussed in part IV(E) above and the section-by-section discussion of § 1092.203 below, the Bureau concluded that the option provided under § 1092.203 is an appropriate means of furthering the purposes of the final rule, including the final rule's provisions restricting the availability of that option to “NMLS-published covered orders” as that term is defined at § 1092.201(k). For discussion of the application of the final rule to State laws and orders, see the section-by-section discussions of § 1092.201(c) and (d) below.
Certain consulting parties urged the Bureau to exempt from its rule any nonbank entity meeting the Small Business Administration's definition of “small business” because, in the consulting parties' view, the rule would be overly expansive and particularly burdensome for small nonbank entities not subject to Bureau supervision. As explained in parts VIII and IX below, however, the Bureau has determined that the rule will not impose significant burdens on a substantial number of small entities. The Bureau thus declines to exempt all small businesses from the rule's requirements. As explained below, however, entities with less than $5 million in annual receipts resulting from offering or providing all consumer financial products and services described in CFPA section 1024(a)
135
are not subject to the requirements imposed in § 1092.204 of the rule.
135
12 U.S.C. 5514(a).
One consulting party asserted that the final rule's treatment of Tribal instrumentalities or entities wholly owned by tribes was inconsistent with the treatment proposed by the Bureau in its 2023 proposed rule regarding registration of nonbanks that use certain terms and conditions.
136
The Bureau disagrees with the consulting party's characterization of its other proposal. The present final rule does not adopt a different or narrower approach to issues related to tribally affiliated entities than the Bureau proposed in its other proposed rule. That proposed rule, like the present final rule, did not propose to exempt entities that are not part of the tribe itself from its proposed registration requirements. As discussed further in the section-by-section discussion of § 1092.201(d) below, the Bureau declines to provide an express exemption from the final rule for Tribal instrumentalities or entities wholly owned by tribes because the Bureau does not choose to use this rulemaking as the vehicle for determining the circumstances under which tribally affiliated entities qualify as part of the tribe itself. As discussed in the section-by-section discussion of §§ 1092.202(g) and 1092.204(f) below, the Bureau believes that the voluntary good-faith filing option established in those sections of the final rule provides a satisfactory mechanism for tribally affiliated entities to avoid the risk of an enforcement action where they decide not to register an order or submit a written statement based on a good-faith belief that they are not a covered nonbank or a supervised registered entity, such as on the grounds that they qualify as part of a federally recognized tribe and thus as a “State.”
136
See
Registry of Supervised Nonbanks That Use Form Contracts To Impose Terms and Conditions That Seek To Waive or Limit Consumer Legal Protections, 88 FR 6906, 6937-38 (Feb. 1, 2023).
Consulting parties also expressed concerns, including confidentiality and privacy concerns, regarding the notifications of non-registration provided for in §§ 1092.202(g) and 1092.204(f) of the final rule. As discussed in the section-by-section discussion of those sections below, the option to file notifications of non-registration under these provisions is voluntary and does not impose any mandatory process or other obligation on tribes or any other persons. Nor would a decision not to file a voluntary good-faith notification change or enlarge the coverage of the rule. Certain consulting parties stated that the Bureau should adopt a more informal mechanism for submitting such notifications, such as via electronic mail or regular mail to a designated Bureau representative. The Bureau does not believe that eliminating the voluntary option to file notifications of non-registration via the nonbank registry under §§ 1092.202(g) and 1092.204(f), or soliciting separate communications from persons that may wish to notify the Bureau of the type of information that would be submitted to the Bureau under those sections of the final rule, would improve the confidentiality or privacy of those communications. Nor would such an informal approach enhance the efficiency or effectiveness of the nonbank registry. Instead, such an approach would add complexity to the process of notifying the Bureau about issues relevant to the registry and thus deter the submission of relevant information to the Bureau. The Bureau concludes that a system-based approach to such matters will be more efficient and effective in accomplishing the purposes of the final rule. Nor is it clear that it would be less burdensome for either a tribe or the Bureau to engage in such informal and ad hoc communications than it would be for the tribe to submit a succinct electronic notification of non-registration under §§ 1092.202(g) and 1092.204(f) via the nonbank registry.
A consulting party stated that the Bureau should specify whether or not, in what level of detail, and how the Bureau intends to make registry information publicly available. For discussions addressing these matters, see part IV(F) and the section-by-section discussion of § 1092.205(a) regarding the information the Bureau intends to publish under § 1092.205(a) of the final rule.
See the section-by-section discussion of §§ 1092.201(d), 1092.202(g), and 1092.204(f) below for additional discussion of issues related to tribes and the notifications of non-registration provided for in the final rule.
VI. Section-by-Section Analysis
Part 1092
Subpart A—General
Section 1092.100 Authority and Purpose
Proposed Rule
Proposed § 1092.100(a) would have set forth the legal authority for proposed 12 CFR part 1092, including all subparts. Proposed § 1092.100 would have referred to CFPA sections 1022(b)
and (c) and 1024(b),
137
which were discussed in section III of the proposal.
137
12 U.S.C. 5512(b), (c); 12 U.S.C. 5514(b).
Proposed § 1092.100(b) would have explained that the purpose of part 1092 is to prescribe rules regarding nonbank registration requirements, to prescribe rules concerning the collection of information from registered entities, and to provide for public release of that information as appropriate.
Comments Received and Final Rule
The Bureau solicited comment on proposed § 1092.100 and did not receive any comments specifically regarding proposed § 1092.100. See part III above for a general discussion of several CFPA provisions on which the Bureau relies in this rulemaking. The Bureau is finalizing § 1092.100 as proposed, with minor technical changes.
Section 1092.101 General Definitions
Section 1092.101(a)
Proposed § 1092.101(a) would have defined 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. The Bureau solicited comment on this proposed provision and received no comments. The Bureau is finalizing § 1092.101(a) as proposed.
Section 1092.101(b)
Proposed § 1092.101(b) would have defined the term “Bureau” as a reference to the Consumer Financial Protection Bureau. The Bureau solicited comment on this proposed definition and received no comments on this proposed definition. The Bureau is finalizing § 1092.101(b) as proposed.
Section 1092.101(c)
Proposed § 1092.101(c) would have clarified that the terms “include,” “includes,” and “including” throughout part 1092 would denote non-exhaustive examples covered by the relevant provision.
138
The Bureau solicited comment on proposed § 1092.101(c). No commenters addressed proposed § 1092.101(c). The Bureau is finalizing § 1092.101(c) as proposed. As used in the final rule, these terms should not be construed more restrictively than the ordinary usage of such terms so as to exclude any other thing not referred to or described.
139
138
See, e.g., Christopher
v.
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”).
139
See
12 U.S.C. 5301(18)(A) (similarly defining the term “including” for purposes of the Dodd-Frank Act by reference to 12 U.S.C. 1813).
Section 1092.101(d)
Proposed § 1092.101(d) would have defined 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. The Bureau solicited comment on this proposed definition and received no comments on the proposed definition.
The Bureau is finalizing § 1092.101(d) as proposed, with minor revisions to change this term to “nonbank registry,” which as adopted in the final rule means “the Bureau's electronic registry identified and maintained by the Bureau for the purposes of part 1092.” The Bureau is adopting the revised definition for stylistic reasons, with no change in meaning from the term “nonbank registration system” that was used in the proposed rule. The Bureau is also adopting corresponding changes to the proposed rule to use the term “nonbank registry” instead of the term “nonbank registration system” throughout the final rule, including at §§ 1092.102(a) through (c); 1092.201(a); 1092.202(b), (c), (f), (g); 1092.204(d), (f); and 1092.205(a), (c) of the final rule.
Section 1092.101(e)
Proposed § 1092.101(e) would have defined 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 nonbank registration (NBR) system in connection with that requirement or subpart. The Bureau anticipated that the nonbank registration system implementation date with respect to proposed subpart B would occur sometime after the effective date of the final rule and no earlier than January 2024. The Bureau explained that the actual nonbank registration system implementation date would depend, in significant part, upon the Bureau's ability to develop and launch the required technical systems that would support the submission and review of applicable filings, and on feedback provided by commenters regarding the time registrants would need to implement proposed part 1092's requirements. The Bureau proposed to provide advance public notice regarding the nonbank registration 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. No comments addressed this proposal.
The Bureau is finalizing § 1092.101(e) largely as proposed with two revisions as follows.
First, for stylistic reasons, the Bureau is adopting a revision to change this term to “nonbank registry implementation date” (without any change in meaning). This revision corresponds with the Bureau's adoption of the term “nonbank registry” in § 1092.101(d) as discussed above. The Bureau is also adopting corresponding changes to the proposed rule to use the term “nonbank registry implementation date” instead of the term “nonbank registration system implementation date” throughout the final rule, including at §§ 1092.202(b) and 1092.204(a) of the final rule.
Second, the final rule provides that the definition of the term “nonbank registry implementation date” in § 1092.101(e) means, for a given requirement or subpart of part 1092, or
a given person or category of persons,
the date(s) determined by the Bureau to commence the operations of the nonbank registry in connection with that requirement or subpart. Thus, the final rule clarifies that the nonbank registry implementation date may be different for different persons or categories of persons.
Also, in connection with this change, the Bureau is adopting a new section of the final rule at § 1092.206 that specifies the nonbank registry implementation date in connection with the requirements of subpart B for three different categories of covered persons subject to the final rule. While the proposal would have provided for a separate later determination by the Bureau of the “nonbank registration system implementation date,” the Bureau concludes that specifying the nonbank registry implementation date in the final rule will provide registrants and the Bureau with more information and certainty regarding the timing of the launch of the registry and the requirements imposed under the final rule. Section 1092.206 of subpart B establishes different nonbank registry implementation dates for covered nonbanks that are larger participants in supervised markets, other supervised nonbanks, and other covered nonbanks for registrations under subpart B. For further information, see the section-by-section analysis of § 1092.206 below.
Section 1092.102 Submission and Use of Registration Information
Section 1092.102(a) Filing Instructions
Proposed Rule
Proposed § 1092.102(a) would have provided 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 explained that it would issue specific guidance for filings and submissions. The Bureau anticipated 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 proposed to accept electronic filings and submissions to the NBR system only and did not propose to accept paper filings or submissions.
Proposed § 1092.102(a) also would have stated 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. The Bureau explained in the proposal that 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 stated that it would issue guidance regarding such situations.
Comments Received and Final Rule
The Bureau did not receive comments specifically about proposed § 1092.102(a). The Bureau is finalizing § 1092.102(a) as proposed.
140
140
See the section-by-section discussion of § 1092.101(d) above regarding the Bureau's adoption of the revised term “nonbank registry.”
Section 1092.102(b) Coordination or Combination of Systems
Proposed Rule
Proposed § 1092.102(b) would have provided that in administering the NBR system, the Bureau may rely on information a person previously submitted to the NBR system under part 1092. This proposed section would have clarified, for example, that the registration process for proposed subpart B may take account of information previously submitted, such as in a prior registration under subpart B or, if applicable, a registration of nonbanks that use certain terms and conditions and related information under subpart C.
Proposed § 1092.102(b) also would have provided that in administering the NBR system, the Bureau may coordinate or combine systems in consultation 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. The Bureau sought 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.
Comments Received
In connection with proposed § 1092.102(b), the Bureau sought comment on the types of coordinated or combined systems that would be appropriate under CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D) and the types of information that could be obtained from or provided to State agencies. For a discussion of certain comments related to this topic, and the Bureau's response thereto, see the section-by-section discussion of § 1092.203.
A consumer advocate commenter agreed that the Bureau, in administering the NBR system, should rely on information an entity previously submitted to the registry under part 1092 and coordinate or combine systems with State agencies, as provided in proposed § 1092.102(b). The commenter stated that not only would this provision allow for more efficient implementation of the registry by avoiding duplicative or redundant efforts but would also reflect the importance of this registry to both Federal and State regulators, and that the Bureau should consider coordination with existing State consumer financial protection agencies.
Response to Comments Received
As required by CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D) and described in part V, the Bureau has consulted with State agencies on requirements and systems related to the nonbank registry. The Bureau also intends to continue to consult with State agencies in implementing the nonbank registry. Under § 1092.203, with respect to any NMLS-published covered order, a covered nonbank that is identified by name as a party subject to the order may elect to comply with the one-time registration option described in that section in lieu of complying with the requirements of §§ 1092.202 and 1092.204. As discussed in the section-by-section discussion of § 1092.203, the Bureau is adopting this option partly in recognition of the statutory mandates to consult with State agencies regarding combined or coordinated systems for registration in CFPA sections 1022(c)(7)(C) and 1024(b)(7)(D).
Final Rule
For the reasons discussed above, the Bureau is finalizing § 1092.102(b) as proposed.
141
141
See the section-by-section discussion of § 1092.101(d) above regarding the Bureau's adoption of the revised term “nonbank registry.”
Section 1092.102(c) Bureau Use of Information
Proposed Rule
Proposed § 1092.102(c) would have provided 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 proposed 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). The Bureau explained in its proposal that it intended 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. The Bureau stated that it may, among other things, rely on the information submitted under part 1092 as it considers whether to initiate supervisory activity at a particular entity, in determining the frequency and nature of its supervisory activity with respect to particular entities or markets, in prioritizing and scoping its supervisory, examination, and enforcement activities, and otherwise in assessing and detecting risks to consumers. In particular, the Bureau
explained that it could consider this information in developing its risk-based supervision program and in assessing the risks posed to consumers in relevant product markets and geographic markets and the factors described in 12 U.S.C. 5514(b)(2) with respect to particular covered persons, and for enforcement purposes.
142
142
See, e.g.,
12 U.S.C. 5514(b)(2)(C), (D), (E) (providing that in prioritizing examinations the Bureau shall consider “the risks to consumers created by the provision of such consumer financial products or services,” “the extent to which such institutions are subject to oversight by State authorities for consumer protection,” and “any other factors that the Bureau determines to be relevant to a class of covered persons”);
see also, e.g.,
12 U.S.C. 5565(c)(3)(D), (E) (providing that in determining the amount of civil money penalties the Bureau shall consider “the history of previous violations” and “such other matters as justice shall require”).
Proposed § 1092.102(c) also would have provided 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. As an example of such a process, the Bureau cited in the proposal 12 CFR 1090.103, which establishes a Bureau administrative process for assessing a person's status as a larger participant under CFPA section 1024(a)(1)(B) and (2) and 12 CFR part 1090. The Bureau explained that, under proposed § 1092.102(c), a person could dispute its status as a larger participant under 12 CFR 1090.103 notwithstanding any registration or information submitted to the NBR system under part 1092. Submission of such a dispute regarding larger participant status to the Bureau under 12 CFR 1090.103, including the Bureau's processes regarding the treatment of such disputes 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 explained that it could 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 have prevented a person from also submitting other information under 12 CFR 1090.103.
Comments Received and Final Rule
The Bureau received no comments on proposed § 1092.102(c) and is finalizing it as proposed.
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See the section-by-section discussion of § 1092.101(d) above regarding the Bureau's adoption of the revised term “nonbank registry.”
Section 1092.102(d) Calculation of Time Periods
The Bureau is finalizing § 1092.102(d), which the Bureau did not propose, to clarify how dates and time periods prescribed in part 1092 are calculated.
In calculating dates and time periods, the day of the event that triggers the time period is excluded. Every day, including intermediate Saturdays, Sundays, and Federal holidays, is included. If any provision of part 1092 would establish a deadline for an action that is a Saturday, Sunday, or Federal holiday, the deadline is extended to the next day that is not a Saturday, Sunday, or Federal holiday. The clarifications for calculation of dates and time periods apply to all such calculations in subpart B.
Section 1092.103 Severability
Proposed Rule
Proposed § 1092.103 would have provided 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. As the Bureau stated in the proposal, 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 explained that it 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. The Bureau further explained that in the event a court were to stay or invalidate one or more provisions of the proposed rule as finalized, the Bureau would have wanted the remaining portions of the rule as finalized to remain in full force and legal effect.
Comments Received and Final Rule
The Bureau received no comments on proposed § 1092.103. It is finalizing proposed § 1092.103 with revisions to clarify that applications of provisions are also severable. The Bureau has carefully considered the requirements of the final rule, both individually and in their totality, including their potential costs and benefits to covered persons and consumers. The Bureau intends that, if any provision of this rule, or any application of a provision, is stayed or determined to be invalid, the remaining provisions or applications are severable and shall continue in effect.
Subpart B—Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders
Section 1092.200 Scope and Purpose
Proposed Rule
Proposed § 1092.200(a) and (b) would have described the scope and purpose of proposed subpart B. Proposed subpart B would have required nonbank covered persons that are subj
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