Proposed Rule2025-16352
Legal Standard Applicable to Supervisory Designation Proceedings
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 26, 2025
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (Bureau or CFPB) is proposing to adopt a standard definition of "risks to consumers with regard to the offering or provision of consumer financial products or services" that will bind the Bureau in proceedings to designate nonbank covered persons for Bureau supervision. This will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies.
Full Text
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<title>Federal Register, Volume 90 Issue 163 (Tuesday, August 26, 2025)</title>
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[Federal Register Volume 90, Number 163 (Tuesday, August 26, 2025)]
[Proposed Rules]
[Pages 41520-41523]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-16352]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 90, No. 163 / Tuesday, August 26, 2025 /
Proposed Rules
[[Page 41520]]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1091
[Docket No. CFPB-2025-0018]
RIN 3170-AB45
Legal Standard Applicable to Supervisory Designation Proceedings
AGENCY: Consumer Financial Protection Bureau.
ACTION: Proposed rule; request for comment.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
proposing to adopt a standard definition of ``risks to consumers with
regard to the offering or provision of consumer financial products or
services'' that will bind the Bureau in proceedings to designate
nonbank covered persons for Bureau supervision. This will ensure that
the Bureau acts within the bounds of its statutory authority and
provide clarity to institutions about the standard the Bureau applies.
DATES: Comments must be received on or before September 25, 2025.
ADDRESSES: You may submit responsive information and other comments,
identified by Docket No. CFPB-2025-0018, by any of the following
methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments. A brief summary of
this document will be available at <a href="https://www.regulations.gov/docket/CFPB-2025-0018">https://www.regulations.gov/docket/CFPB-2025-0018</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#35070507007150465c525b54415c5a5b6641545b515447517b65677875565345571b525a43"><span class="__cf_email__" data-cfemail="24161416116041574d434a45504d4b4a7750454a404556406a74766964474254460a434b52">[email protected]</span></a>. Include
Docket No. CFPB-2025-0018 in the subject line of the message.
<bullet> Mail/Hand Delivery/Courier: Comment Intake--Legal Standard
Applicable to Supervisory Designation Proceedings, c/o Legal Division
Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW,
Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include the agency name and docket
number. Additionally, where the Bureau has asked for specific comment
on a topic, commentors should seek to highlight the topic to which its
comment is applicable. Because paper mail is subject to delay,
commenters are encouraged to submit comments electronically. In
general, all comments received will be posted without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. All submissions, including attachments and other
supporting materials, will become part of the public record and subject
to public disclosure. Proprietary information or sensitive personal
information, such as account numbers or Social Security numbers, or
names of other individuals, should not be included. Submissions will
not be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700. If you require this document in
an alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#d2919482908d93b1b1b7a1a1bbb0bbbebba6ab92b1b4a2b0fcb5bda4"><span class="__cf_email__" data-cfemail="682b2e382a37290b0b0d1b1b010a0104011c11280b0e180a460f071e">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
Section 1024(a)(1)(C) of the Consumer Financial Protection Act of
2010 (CFPA) authorizes the Bureau to supervise a nonbank covered person
that the Bureau has reasonable cause to determine, by order, after
notice to the covered person and a reasonable opportunity for such
covered person to respond, 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. 12 U.S.C. 5514(a)(1)(C).\1\
The Bureau has existing procedures at 12 CFR part 1091 that govern the
process by which the Bureau provides notice and a reasonable
opportunity to respond. The Bureau has separately requested public
comment on amendments to that process. 90 FR 20401 (May 14, 2025).
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\1\ The Bureau must base such reasonable-cause determinations on
complaints collected by the Bureau under 12 U.S.C. 5493(b)(3), or on
information collected from other sources. 12 U.S.C. 5514(a)(1)(C).
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The Bureau has not, to date, issued a rule addressing the meaning
of ``risks to consumers'' in the context of section 1024(a)(1)(C).
Instead, the Bureau has issued orders in individual cases. The Bureau
has three independent concerns about this status quo. First, the ad hoc
nature of individual orders creates a danger that the Bureau's
application of ``risks to consumers'' may not be consistent between
orders. Second, because the applicability of the precedents in past
orders to new contexts can be unclear, and also because the agency may
depart from an existing precedent in a later case, the status quo
creates uncertainty for institutions facing potential designation about
what standard the Bureau will apply to their case. Third, without a
binding framework on the meaning of ``risks to consumers,'' the Bureau
may not conform to the best reading of section 1024(a)(1)(C) in
individual cases. The proposed rule is intended to address these issues
by binding the Bureau to a standard that is consistent, foreseeable,
and based on the best reading of section 1024(a)(1)(C).
II. Legal Authority
Section 1024(b)(7) of the CFPA authorizes the Bureau to ``prescribe
rules to facilitate supervision'' of the nonbank covered persons
described in section 1024(a). 12 U.S.C. 5514(b)(7). Additionally,
section 1022(b)(1) provides, in relevant part, that the Bureau's
Director ``may 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.'' 12 U.S.C. 5512(b)(1). The Bureau issues this
proposed rule based on its authority under section 1024(b)(7) and
section 1022(b)(1).
III. Discussion of Proposal
The proposed rule would explain that, for purposes of section
1024(a)(1)(C) of the CFPA, ``conduct that poses risks to consumers with
regard to the offering or provision of consumer financial products or
services'' consists of conduct that: (a) presents a high likelihood of
significant harm to consumers; and (b) is directly connected to the
offering or provision of a consumer financial product or service as
defined in section 1002 of the CFPA.
In the Bureau's preliminary view, Congress would not have expected
it to expend its supervisory resources on issues that are speculative
in likelihood
[[Page 41521]]
or trivial in impact. Although some prior orders have adopted a broad
approach to the phrase ``risks to consumers'' under section
1024(a)(1)(C), asserting that it can include even immaterial potential
harms, the Bureau proposes to reconsider this approach.\2\ The context
of section 1024(a)(1)(C) indicates that Congress intended the Bureau to
be squarely focused on serious conduct.
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\2\ See, e.g., Google Payment Corp., File No. 2024-CFPB-SUP-
0001, at 16-17 (Nov. 8, 2024), <a href="https://files.consumerfinance.gov/f/documents/cfpb_Publication-Redacted-Decision-and-Order-Designating-Google-Payment-for-Su_6EZQyMz.pdf">https://files.consumerfinance.gov/f/documents/cfpb_Publication-Redacted-Decision-and-Order-Designating-Google-Payment-for-Su_6EZQyMz.pdf</a>, withdrawn (May 7, 2025), <a href="https://files.consumerfinance.gov/f/documents/cfpb_gpc-withdrawal_2025-05.pdf">https://files.consumerfinance.gov/f/documents/cfpb_gpc-withdrawal_2025-05.pdf</a>.
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In addition, the Bureau proposes to find that the phrase ``with
regard to the offering or provision of consumer financial products or
services'' requires a direct connection to a statutorily defined
``consumer financial product or service.'' It is essential that the
Bureau focus only on the specific categories of products and services
that Congress charged the Bureau with overseeing.
The Bureau requests comment on all aspects of this standard. The
Bureau specifically requests comment on whether ``risks to consumers''
must be potential violations of law in the context of section
1024(a)(1)(C).
IV. Proposed Effective Date of Final Rule
The Bureau proposes that the final rule take effect 30 days after
publication in the Federal Register, consistent with the Administrative
Procedure Act, 5 U.S.C. 553(d). However, if the final rule is
determined to be a ``major rule'' as defined in the Congressional
Review Act, 5 U.S.C. 804(2),\3\ the Bureau proposes that it take effect
60 days after publication in the Federal Register, consistent with 5
U.S.C. 801(a)(3)(A).
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\3\ A major rule is a rule that the that Office of Information
and Regulatory Affairs finds has resulted in or is likely to result
in: (A) an annual effect on the economy of $100,000,000 or more; (B)
a major increase in costs or prices for consumers, individual
industries, Federal, State, or local government agencies, or
geographic regions; or (C) significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with
foreign-based enterprises in domestic and export markets. 5 U.S.C.
804(2).
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V. Consumer Financial Protection Act Section 1022(b)(2) Analysis
In developing this proposed rule, the Bureau has considered its
potential benefits, costs, and impacts in accordance with section
1022(b)(2)(A) of the CFPA. 12 U.S.C. 5512(b)(2)(A).
There are generally limited data with which to quantify potential
costs, benefits, and impacts of the proposed rule. The Bureau conducted
a limited number of supervisory designation proceedings under the
existing rules, but the Bureau does not have quantitative data
regarding the costs to respondents or other impacts of those
proceedings. The Bureau also does not have quantitative data to predict
most of the impacts of the changes made by this rule relative to the
current state of affairs based on the broad understanding of ``risks to
consumers'' drawn from prior orders, which is the comparison that is
relevant for this analysis.
In light of these data limitations, the analysis below generally
provides a qualitative discussion of the benefits, costs and impacts of
the proposed rule. General economic principles and the Bureau's
experience and expertise in consumer financial markets, together with
the limited data that are available, provide insight into these
benefits, costs, and impacts.
In evaluating the benefits, costs, and impacts of the proposed
rule, the Bureau considers the impacts against a baseline that includes
the legal and procedural framework that currently exists regarding
supervisory designation proceedings for nonbank covered persons.
The proposed rule would apply to covered persons as defined in the
CFPA, which are generally persons that engage in offering or providing
a consumer financial product or service. There is a large population of
firms potentially affected by this proposed rule.\4\ The Bureau does
not currently have access to comprehensive data on the number of
nonbank covered persons subject to supervisory authority. To establish
an estimate of the population of nonbank covered entities potentially
subject to the proposed rule, the Bureau uses publicly available data
from the 2022 Economic Census (the most recent version currently
available), which provides counts of firms by North American Industry
Classification System (NAICS) industry codes. Based on the 2022
Economic Census data for NAICS codes that align with financial
services,\5\ the Bureau estimates there are approximately 154,430
entities in these covered industries. It should also be noted that this
estimate does not include other nonbank covered entities not
categorized in one of the enumerated industries, e.g., if consumer
financial services are not their primary business activity. To date,
the Bureau has exercised its supervisory authority under existing 12
CFR part 1091 over fewer than twenty covered entities.\6\
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\4\ The procedures in the existing 12 CFR part 1091 are only to
assess whether a nonbank covered person will be made subject to the
Bureau's supervisory authority based on a determination under
section 1024(a)(1)(C) of the CFPA, 12 U.S.C. 5514(a)(1)(C). In
general, there is no reason to make a determination under section
1024(a)(1)(C) with respect to a nonbank covered entity subject to
the Bureau's supervisory authority under some other provision of
section 1024(a) of the CFPA, 12 U.S.C. 5514(a). However, this is
possible. Therefore, the Bureau does not exclude from its analysis
nonbank covered entities that may be subject to supervision under a
separate provision of section 1024(a).
\5\ The relevant NAICS codes examined are 5222 (Nondepository
credit intermediation); 5223 (Activities related to credit
intermediation); 523920 (Portfolio management); 523930 (Investment
advice); 532112 (Passenger car leasing); 532120 (Truck, utility
trailer, and recreational vehicle rental and leasing); 5313
(Activities related to real estate); 561450 (Consumer reporting);
and 561440 (Debt collection).
\6\ The Bureau's designations of Google Payment Corp., which
formerly provided a peer-to-peer payment product, and World
Acceptance Corp., which is an installment lender, have been publicly
disclosed. The Bureau is currently reconsidering its approach to
publication of designation orders. 90 FR 20401 (May 14, 2025).
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The Bureau expects that under the proposed rule it will be less
likely to designate any particular entity for supervision, all other
factors being equal. This would reduce the costs of supervision for
entities that might otherwise have been designated. The proposed rule
also could influence behavior for entities that would otherwise have
seen themselves as being on the margin of being designated or not.
Because supervision is costly for entities, entities on the margin of
being designated may be more likely to avoid conduct that could be seen
as posing risks to consumers, and thus may spend more on compliance
reviews in order to avoid being designated. Under the proposed rule,
firms will have more clarity as to what conduct might trigger
supervision, potentially lowering compliance review costs. At the same
time, firms may be more likely to engage in conduct that could be said
to present some probability of harm to consumers, but does not rise to
the level of a high likelihood of significant harm. To the extent this
occurs, it would impose costs on consumers and may provide some
benefits to firms, depending on the nature of the conduct. Given that
the Bureau has exercised the supervisory authority that the proposed
rule would clarify in only a limited number of cases, and given the
many other factors incentivizing compliance with Federal consumer
financial laws, including private litigation and State and Federal
enforcement actions, the aggregate impact of these effects on entities
on the margin of being designated is likely to be small. The Bureau
requests comments that provide additional data
[[Page 41522]]
on estimates of behavioral changes as a result of this proposed rule,
including impacts on consumers and the population of entities
potentially subject to this rule.
To the extent that some entities would be designated under the
current understanding of ``risks to consumers,'' but would not be under
the proposed rule, the proposed rule would reduce the direct costs of
supervision to those entities. The Bureau has previously estimated the
cost of compliance with supervisory activity based on reported average
exam length and labor costs incurred by firms to participate in
supervisory exams.\7\ This calculation results in an estimate of
approximately $27,000 in labor costs to comply with a supervisory
examination. The Bureau recognizes that this estimate reflects national
average labor costs and are thus subject to variability with respect to
specific firms' realized costs. Furthermore, the Bureau recognizes that
the staffing estimates are assessments for an average firm's needs and
may also be subject to variability with respect to specific firms'
requirements. The Bureau requests comments that provide additional data
on estimates of staffing requirements and costs for compliance with
supervisory activities.\8\ Because the Bureau has exercised the
supervisory authority that the proposed rule would clarify in a limited
number of cases, and because the Bureau does not conduct exams of all
supervised entities each year, it is unlikely that the proposed rule
would reduce the aggregate number of exams by much more than one exam
per year across the entire economy.
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\7\ For an estimate of the length of examination, see Office of
the Inspector General of the Board of Governors of the Federal
Reserve System and the CFPB, ``The Bureau Can Improve Its Risk
Assessment Framework for Prioritizing and Scheduling Examination
Activities'' (Mar. 25, 2019) at 13, available at <a href="https://oig.federalreserve.gov/reports/bureau-risk-assessment-framework-mar2019.pdf">https://oig.federalreserve.gov/reports/bureau-risk-assessment-framework-mar2019.pdf</a>.
\8\ The Bureau has previously estimated the cost of compliance
with supervisory activity based on reported average exam lengths,
which would average one supervisory examination per year and require
one-tenth of a full-time equivalent attorney and one full-time
compliance officer. Furthermore, the Bureau estimates that
supervisory examinations would last for 8 weeks on average, with an
additional two weeks of preparation. Using the national average
hourly labor cost of $84.84 for attorneys and $38.55 for compliance
officers, the Bureau estimates that the direct labor costs for a
supervisory examination would total approximately $19,000 (See U.S.
Bureau of Labor Statistics, National Occupational Employment and
Wage Estimates United States, May 2023, <a href="https://www.bls.gov/oes/current/oes-nat.htm">https://www.bls.gov/oes/current/oes-nat.htm</a>). Assuming that wages represent approximately
70.4% of the total labor costs using the estimate of total
compensation for private employees (See U.S. Bureau of Labor
Statistics, Employer Costs for Employee Compensation: Private
Industry Database, March 2024, <a href="https://www.bls.gov/web/ecec/ecec-private-dataset.xlsx">https://www.bls.gov/web/ecec/ecec-private-dataset.xlsx</a>), this results in an estimate of approximately
$27,000 in labor costs to comply with a supervisory examination.
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The proposed rule would not have an impact on insured depository
institutions or insured credit unions with $10 billion or less in
assets as described in section 1026(a) of the CFPA. See 12 U.S.C.
5512(b)(2)(A)(ii), 5516(a). Nor would the proposed rule have a unique
impact on rural consumers. 12 U.S.C. 5512(b)(2)(A)(ii).
VI. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) generally requires an agency
to conduct an initial regulatory flexibility analysis (IRFA) and a
final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. 5 U.S.C. 601 et seq. The Bureau
also is subject to certain additional procedures under the RFA
involving the convening of a panel to consult with small business
representatives before proposing a rule for which an IRFA is required.
5 U.S.C. 609.
The number of entities that will be subject to supervisory
designation proceedings is small, and within that group the number that
would be small entities is likely to be either none or in the single
digits each year, representing a very small fraction of small entities
in the relevant consumer finance markets.
Accordingly, the Acting Director hereby certifies that this
proposed rule, if adopted, would not have a significant economic impact
on a substantial number of small entities. Thus, neither an IRFA nor a
small business review panel is required for this proposal. The Bureau
requests comment on the analysis above.
VII. Executive Order 12866
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select those regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; and distributive
impacts). Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as any regulatory action that is likely to result
in a rule that may: (1) have an annual effect on the economy of $100
million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues arising out of legal
mandates, or the President's priorities. The Office of Information and
Regulatory Affairs within the Office of Management and Budget (OMB) has
determined that this action is a ``significant regulatory action''
under Executive Order (E.O.) 12866 as amended. Accordingly, OMB has
reviewed this action.
Section 1 of E.O. 12866 states that ``Federal agencies should
promulgate only such regulations as are required by law, are necessary
to interpret the law, or are made necessary by compelling public need,
such as material failures of private markets. . . .'' The Bureau
requests comment on the application of that standard to this
rulemaking.
List of Subjects in 12 CFR Part 1091
Administrative practice and procedure, Consumer protection, Credit,
Trade practices.
Authority and Issuance
As discussed above, the Bureau proposes to amend 12 CFR part 1091
as follows:
PART 1091--PROCEDURES FOR SUPERVISORY DESIGNATION PROCEEDINGS
0
1. The authority citation for part 1091 continues to read as follows:
Authority: 12 U.S.C. 5512(b)(1), 5514(a)(1)(C), 5514(b)(7).
0
2. Add subpart E, consisting of Sec. 1091.501, to read as follows:
Subpart E--Scope of Designation Authority
Sec. 1091.501 Legal Standard Applicable to Proceedings.
For purposes of 12 U.S.C. 5514(a)(1)(C), conduct that poses risks
to consumers with regard to the offering or provision of consumer
financial products or services consists of conduct that:
(a) Presents a high likelihood of significant harm to consumers;
and
(b) Is directly connected to the offering or provision of a
consumer
[[Page 41523]]
financial product or service as defined in 12 U.S.C. 5481.
Russell Vought,
Acting Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-16352 Filed 8-25-25; 8:45 am]
BILLING CODE 4810-AM-P
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