CFPB To Track Nonbank Repeat Corporate Offenders Through New Registry, by Richard Perr, Esq., 6-27-2024

The Consumer Financial Protection Bureau (CFPB) has issued a final rule to establish a public registry to deter repeat corporate offenders that have broken consumer financial laws and are subject to federal, state, or local government or court orders. The final rule takes effect September 16.

The Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders Final Rule does not stipulate disclosures related to private litigation, meaning a company does not have to disclose court orders approving settlements with private plaintiffs provided no government agency was involved.

The 486-page final rule specifically applies to orders that enforce certain laws and are issued by or obtained (e.g. sought from the court) by government agencies, such as enforcement orders, according to the rule’s executive summary.

According to the CFPB, the rule requires covered nonbank companies to:
• Register with the CFPB when they have been caught violating consumer law: Generally, covered nonbanks will report certain final agency and court orders and judgments to the CFPB. These orders include consent and stipulated orders brought under consumer protection laws.
• Provide an attestation from a senior executive that the company is not flouting orders: For nonbank companies supervised by the CFPB, the entity subject to an order will provide a written attestation from an executive that confirms compliance with any relevant orders.

Under the rule, covered nonbank entities have certain timeframes to comply with the requirements, including submission of their registrations. More details on submission deadlines can be found here.

Of note, the final rule provides a limited one-time, alternative registration option for covered orders that are published on the Nationwide Multistate Licensing System (NMLS) Consumer Access website. A covered nonbank may alternatively choose to file a special one-time registration for NMLS-published covered orders that were not issued or obtained, at least in part, by the CFPB, according to the rule’s executive summary.

Covered Nonbanks

The final rule applies to certain nonbanks that are “covered persons” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), according to the CFPB executive summary. In general, covered persons participate in offering or providing consumer financial products or services. The rule does not apply to:

• An insured depository institution or insured credit union (e.g., an FDIC-insured bank);
• A person who is a covered person solely due to being a “related person,” as provided in the Dodd-Frank Act (such as controlling shareholders, consultants, and independent contractors, if the person is a covered person only because the person is a “related person” and not a covered person for another reason);
• A State, including federally recognized Indian tribes;
• A natural person;
• Certain motor vehicle dealers;
• A person that qualifies as a covered person under the Dodd-Frank Act only because of conduct excluded from the CFPB’s rulemaking authority, such as certain activities related to charitable contributions.

Covered Orders

 The final rule applies to certain final, written public orders issued by agencies or courts. These orders relate to investigations, matters, or proceedings. An order is covered by the final rule if it:

• Is a final, public order issued by an agency or court;
• Identifies a covered nonbank by name as a party subject to the order;
• Was issued at least in part in any action or proceeding brought by any Federal agency, State agency, or local agency;
• Contains public provisions that impose obligations on the covered nonbank to take certain actions or to refrain from taking certain actions;
• Imposes obligations on the covered nonbank based on an alleged violation of a covered law, which includes Federal consumer financial laws, other laws enforced by the CFPB, and certain unfair, deceptive, or abusive acts or practices laws at both Federal and State levels identified in the final rule; and,
• Has an effective date on or after January 1, 2017. An order is effective on the date specified in the order. If an order does not have an effective date identified, the date of issuance is the effective date. If the issuing agency or a court stays or otherwise suspends an order’s effectiveness, the order’s effective date for purposes of the final rule is delayed until the stay or suspension is lifted.

Takeaways

 Since 2021, the CFPB has dramatically increased its focus on repeat offenders including establishing a Repeat Offender Unit. The registry signifies the latest effort in stopping corporate recidivism. Outside of the registry anticipated to be used by state regulators and other law enforcement agencies to conduct due diligence on financial firms, the same is true for investors, creditors, business partners and members of the public. Financial firms would be wise to tread carefully considering the creation of this new registry now serves as a single repository of corporate offenders for public viewing.

If you need assistance complying with the obligations of the CFPB final rule or with the ever-changing regulatory landscape that defines the financial services industry, please contact the attorneys in Kaufman Dolowich’s Financial Services and Institutions team.