On October 29, 2023, the Consumer Financial Protection Bureau (CFPB) announced the withdrawal of two proposed rulemakings aimed at establishing public registries for nonbank financial institutions. The rescinded proposals included the Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders and the Registry of Supervised Nonbanks That Use Form Contracts To Waive or Limit Consumer Legal Protections. The decision was made after the Bureau assessed the significant compliance costs and operational burdens these rules would impose, alongside a lack of clear consumer benefits.
The initial intention behind these proposals was to enhance the CFPB’s ability to monitor compliance and market activities among nonbank financial firms. The Nonbank Orders Rule would have required entities subject to specific public orders to report those orders to a CFPB registry. It also mandated annual executive attestations of compliance from supervised entities. However, the Bureau found that the potential benefits did not justify the associated costs and paperwork burdens.
Rationale Behind the Withdrawal
The Bureau cited several reasons for withdrawing these initiatives. Among them was the presence of existing state and federal disclosure systems, such as the Nationwide Multistate Licensing System, which already serve similar functions. The CFPB also indicated that reduced agency resources played a role in their decision. The costs and paperwork obligations were deemed excessive compared to the speculative benefits outlined in the original proposals.
As for the Registry of Supervised Nonbanks Using Form Contracts, this proposal sought to require supervised nonbanks to report contract terms that could limit consumer legal protections, such as arbitration clauses. The CFPB concluded that the legislative rulemaking was not necessary at this time, determining that the burdens on nonbanks and the Bureau itself were not warranted by unclear benefits.
Implications for Nonbank Entities
The withdrawal of these registry proposals signals a notable shift in the CFPB’s approach towards nonbank financial entities. With these initiatives now rescinded, nonbank firms will not face new compliance requirements stemming from these specific proposals. Instead, the Bureau is expected to concentrate its supervisory efforts on targeted, risk-based examinations, rather than implementing broad public registration measures.
Nonbank entities are encouraged to continue monitoring the CFPB’s priorities, as the focus shifts back to tailored oversight. The CFPB’s recent actions indicate a preference for regulatory approaches that balance oversight with the operational capabilities of the firms it regulates, ensuring that consumer protections remain intact without imposing unnecessary burdens.
