The CFPB on Aug. 26, 2025, issued a proposed rule to adopt a legal standard applicable to supervisory designation proceedings. Specifically, the CFPB is proposing to adopt a standard definition of "risks to consumers with regard to the offering or provision of consumer financial products or services" that will bind the agency in proceedings to designate nonbank covered persons for agency supervision.
Background
Section 1024(a)(1)(C) of the Consumer Financial Protection Act (CFPA) authorizes the CFPB to supervise a nonbank covered person that it has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond, is engaging or has engaged in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. 12 U.S.C. Section 5514(a)(1)(C).
The CFPB has existing procedures at 12 C.F.R. Part 1091 that govern the process by which the agency provides notice and a reasonable opportunity to respond. On May 14, 2025, the CFPB separately requested public comment to rescind prior amendments made to that process, which Holland & Knight previously reported on. The amendments to be rescinded "provided for public release of final decisions and orders by the Director and made other changes to the CFPB's procedures for designating nonbank covered persons for supervision."
The CFPB expressed its concern that entities exercising the right to contest supervisory designation would be subject to a public decision and order "asserting that the entity 'is engaging, or has engaged, in conduct that poses risks to customers.'" In consideration of businesses' concern over public reputation, the CFPB highlighted that the amendments could improperly persuade entities to consent to designation "even when they have good arguments that designation is unwarranted" and has requested comment on "the impact of public release on supervised entities and the supervisory process."
The CFPB's Proposal
Prior to now, the CFPB has not issued a rule addressing the meaning of "risks to consumers" in the context of Section 1024(a)(1)(C). Instead, the agency has issued orders in individual cases.
The CFPB states that it has three independent concerns about this status quo. First, "the ad hoc nature of individual orders creates a danger" that the agency's application of "risks to consumers" may result in inconsistency between orders. Second, "the status quo creates uncertainty for institutions facing potential designation about what standard the Bureau will apply to their case" because the applicability of precedents from past orders to new contexts "can be unclear" and also because the agency "may depart from an existing precedent in a later case." Third, the CFPB "may not conform to the best reading of section 1024(a)(1)(C) in individual cases" without a binding framework on the meaning of "risks to consumers." Accordingly, the proposed rule is intended to address these issues by binding the agency to a standard "that is consistent, foreseeable, and based on the best reading of Section 1024(a)(1)(C)."
The proposed rule would explain that, for purposes of CFPA Section 1024(a)(1)(C), "conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services" consists of conduct that 1) presents a high likelihood of significant harm to consumers and 2) is directly connected to the offering or provision of a consumer financial product or service as defined in CFPA Section 1002.
In the agency's preliminary view, "Congress would not have expected it to expend its supervisory resources on issues that are speculative in likelihood or trivial in impact." While characterizing some prior CFPB orders as having adopted a broad approach to the phrase "risks to consumers" under Section 1024(a)(1)(C), in which the agency asserted that it can include even immaterial potential harms, the CFPB now proposes to reconsider this approach. The CFPB also points to the context of Section 1024(a)(1)(C) as indicating that Congress intended the CFPB "to be squarely focused on serious conduct."
With respect to the phrase "with regard to the offering or provision of consumer financial products or services," the CFPB concludes that this requires a direct connection to a statutorily defined "consumer financial product or service."
This proposed standard reiterates the Trump Administration's view that the agency should focus on only the specific categories of products and services that Congress charged the CFPB with overseeing. According to the CFPB, the creation of such standard "will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies."
Comments Solicited
The CFPB requests comments on all aspects of this standard and specifically requests comments on whether "risks to consumers" must be potential violations of law in the context of Section 1024(a)(1)(C). Comments must be received on or before Sept. 25, 2025 (30 days after publication in the Federal Register).
Proposed Effective Date
The CFPB proposes that the final rule take effect 30 days after publication in the Federal Register, consistent with the Administrative Procedure Act, 5 U.S.C. Section 553(d). However, if the final rule is determined to be a "major rule" as defined in the Congressional Review Act, 5 U.S.C. Section 804(2), the CFPB proposes that it take effect 60 days after publication in the Federal Register.
Visit Holland & Knight's resource center, CFPB Dispatch: Legal Updates and Insights, to stay on top of the latest CFPB developments.
