On April 25, 2022, the Consumer Financial Protection Bureau (CFPB) announced that it will begin examining nonbank “covered persons” that it has determined pose risks to consumers. The CFPB has had this authority since its inception. The Dodd-Frank Act empowered the CFPB to examine this category of nonbanks, which might include fintech firms that are not otherwise subject to the CFPB’s supervision authority, such as social-media websites that offer payment-processing services to consumers. And in 2013, the CFPB adopted a rule for implementing its authority that requires the agency to follow certain procedures in determining whether a company poses risks to consumers.

What is most striking about the CFPB’s April 25th announcement is not that it will start examining this category of nonbanks; rather, it is the CFPB’s announcement of a new procedural rule that would allow the CFPB to publicly identify a nonbank that it has determined poses risks to consumers before the CFPB has even conducted its examination. The CFPB recognizes that this represents a departure from the strict confidentiality that is a “central principle of the supervisory process.” Nevertheless, the CFPB believes that the “public interest in transparency” justifies disclosing the name of the company and the CFPB’s determination that it poses risks to consumers.

Publicly identifying a company that the CFPB has unilaterally determined poses risks to consumers—before any examination has taken place—could cause serious reputational harm, particularly because the company would be defenseless. Unlike a defendant in a CFPB enforcement action, which could refute charges, assert defenses, and potentially earn a public exoneration, the subject of a CFPB examination has no opportunity to publicly state what the CFPB has gotten wrong—CFPB regulations prohibit the disclosure of confidential supervisory information, including a report of an examination that found no violations.

The new rule is just the latest page from the CFPB’s name-and-shame playbook. Recently, the CFPB has begun singling out entities and individuals in its press materials, suggesting that they have done something wrong, even while declining to charge them in an accompanying enforcement action. The latest example came in the press release accompanying the CFPB’s enforcement action against MoneyGram. In that case, the CFPB charged MoneyGram with violating the Remittance Rule, which became effective in 2013. In its press release, the CFPB specifically identified the company’s CEO despite not charging him in the case. The same press release also named two institutions that had invested in MoneyGram “as early as 2008.” Again, the CFPB didn’t charge those companies with violating the law; rather, it identified them in press materials as merely having invested in a company that, fourteen years later, the CFPB would accuse of violating a subsequently enacted regulation. The CFPB similarly identified in press materials the private-equity backers of charged companies in its separate cases against JPay and LendUp, both brought last year.

The CFPB’s new practice of besmirching companies before it even examines them and identifying, but not charging, individuals and investors associated with entities that the CFPB has merely accused of wrongdoing marks an aggressive turn in the CFPB’s law-enforcement efforts. We expect to see more of this practice considering the CFPB’s new procedural rule.

McGuireWoods has an expert team of attorneys who represent companies in government examinations and investigations, including those initiated by the CFPB. For any questions about this alert, please contact any of its authors.

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