Banks and Consumer Advocacy Groups Unite to Oppose CFPB Plan to Cut Nonbank Oversight

The Consumer Financial Protection Bureau’s plan to reduce its oversight of nonbanks has created an unusual alliance between two groups that rarely agree: bank trade associations and consumer advocates, according to a recent American Banker report. 

The united front the banking groups and consumer advocates have established is the latest twist in a developing story that contains major implications for how much regulatory oversight nonbanks, including companies that often serve subprime borrowers, stand to face from the CFPB in the near future.

The bureau’s strategy to reduce its supervision of nonbanks applies to organizations operating in several sectors, including auto lending, debt collecting, and consumer credit reporting. 

Banking groups contend that the CFPB’s proposed lack of oversight on nonbank entities may create an uneven playing field in the financial services ecosystem.

“When nonbanks are allowed to operate with lighter or fragmented oversight, it distorts markets, undermines fair competition, and risks harm to consumers,” representatives from the Bank Policy Institute and the Consumer Bankers Association wrote in a joint letter on the proposed rule, as reported by American Banker.

Banking groups indicate that the CFPB’s plan to end oversight of nonbanks will weaken fair competition.

Limited oversight of nonbanks may erode the ability of responsible companies to compete and allow nonbanks to engage in behaviors that harm consumers, the representatives added.

The bureau itself has acknowledged that its newly proposed strategy isn’t without its shortcomings.

“Firms may be more likely to engage in conduct that could be said to present some probability of harm to consumers,” the CFPB said in its proposed rule. 

Recent Actions Underscore a Larger Trend

Nonbanks may have initially been elated to hear of the bureau’s proposal. But, in a topsy-turvy year for the agency, nonbanks may want to wait before adjusting their strategies.

And groups opposing the bureau’s plan to cut supervision of nonbanks may not want to expend too much energy at the moment fighting it.

The CFPB recently abandoned plans to monitor both Apple and U.S. Bank. The agency cut short its oversight of those companies, which stemmed from separate issues the bureau found within Apple and U.S. Bank’s practices, years before it originally intended to.

And the CFPB may just be getting started in peeling back its monitoring programs.

A new report reveals that many people who work for the bureau expect it to soon bring an end to all of its nonpublic, pending enforcement actions.

Congress passed a bill over the summer that cut nearly half of the agency’s funding. If the CFPB continues to lose resources, nonbanks may not be the only institutions in a position to shift to operating outside of the bureau’s reach.

Amanda Fischer, Policy Director and Chief Operating Officer for Better Markets, assessed the CFPB’s decision to scrap its plans to monitor Apple and U.S. Bank in a recent report.

“I think it’s part of a wider trend that the bureau has initiated since the inauguration, which is to indiscriminately allow the financial services industry to escape any sort of ongoing bureau oversight,” she said.