CFPB kills two Biden-era nonbank registries, citing costs

• Key Insight: The rescission of the two nonbank registries is in line with the Trump administration’s deregulatory posture.
• What’s at Stake: Nonbank technology companies are no longer a target of the CFPB.
• Supporting Data: Acting CFPB Director Russ Vought claimed the registries were redundant and not cost effective. 

The Consumer Financial Protection Bureau is rescinding two Biden-era rules that required nonbanks to register and report violations of local and state court orders, and to provide the agency with terms and conditions of arbitration clauses. 

The CFPB said it expects to publish a final rule in the Federal Register on Wednesday that will rescind a nonbank registry that went live a year ago under former CFPB Director Rohit Chopra. 

The intention to roll back yet another Biden-era regulation would benefit Big Tech firms and digital payment app providers that were a major area of focus under Chopra. The former director had targeted what he called “corporate recidivists,” who repeatedly broke the law with few additional sanctions. The rule had nonbank technology firms in its sights including Apple, Google, Meta, Paypal, Rakuten, Samsung and Square. Nonbanks supervised by the CFPB were required to register earlier this year but the CFPB has made it clear that it was not going to continue the past policy.

Acting Director Russ Vought said that it finalized the rescission of the nonbank registry rule based on concerns about costs. Vought has said that the CFPB “will not prioritize enforcement or supervision” of nonbanks — even though nonbanks were major contributors to the 2008 financial crisis. 

The bureau announced in April that it would not enforce the nonbank registry rule and was considering rescinding it. In May, it published a proposal and requested comments on the purported benefits and costs of the rule.

“The costs the rule imposes on regulated entities, which may be passed on to consumers, are not justified by the speculative and unquantified benefits to consumers,” the final rule states, adding that the benefits of the registry “are speculative and likely minimal.” The CFPB said the information is already available publicly and is potentially redundant. The CFPB also claims that “consumers are unlikely to use the registry as a comparison-shopping tool.”

More specifically, the CFPB said it does not believe the nonbank registry is “a necessary tool to effectively monitor and reduce potential risks to consumers,” from bad actors. The agency claims that enforcement actions and consent orders are already publicly available. 

The registry required certain nonbanks to report state enforcement orders and for an executive to attest to ongoing compliance with such orders. The rescission of the registry is effective upon its publication in the Federal Register. 

Trade groups praised the elimination of the registry by claiming it was duplicative of the CFPB’s consumer complaint portal and of the Nationwide Multistate Licensing System operated by the Conference of State Bank Supervisors. 

“Since the CFPB issued its rule creating this nonbank registry more than a year ago, the [Online Lenders Alliance] has repeatedly raised our serious concerns about what we felt was more of a ‘name and shame’ scheme and a beneficial resource to trial attorneys rather than a useful tool for consumers and regulators,” the group said in a press release. 

In addition, the bureau plans to formally withdraw a 2023 proposed rule that would have required nonbanks to provide information about consumer contracts, including certain terms and conditions, which the bureau also had planned to make publicly available to the consternation of nonbank financial firms. 

Experts claimed the CFPB under Chopra had sought to force nonbanks to provide information on mandatory arbitration clauses even though the CFPB’s 2017 arbitration rule was rescinded by Congress. Richard Horn, a founder of the law firm Garris Horn LLP, has said that a vast database on contract terms and conditions would have had a major economic impact on financial firms. 

“These are great moves by the CFPB,” said Horn, a former CFPB senior counsel and special advisor. “These registries would have been unnecessarily burdensome, and exposed companies to substantial new legal and reputational risk.”

The CFPB had issued the nonbank registry rule under its authority from the Consumer Financial Protection Act that authorized the agency to 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.”

The Trump administration has been trying to eliminate the CFPB. Earlier this month, Vought said he expects the CFPB to be shut down in two to three months, and also claimed that the agency wants to “weaponize the tools of financial laws against basically small mom-and-pop lenders and other small financial institutions.”

Vought was sued in February by the National Treasury Employees Union over his plan to fire up to 90% of the bureau’s employees. The lawsuit is ongoing.