CFPB Proposes Rule Narrowing Nonbank Supervisory Authority Under CFPA

On August 26, 2025, the CFPB published a notice of proposed rulemaking to narrow the scope of its authority to designate nonbanks for supervision under the Consumer Financial Protection Act (CFPA). The proposal follows earlier announcements by the Bureau that it would reassess its use of this authority (previously discussed here).

The proposal would establish a standard definition of “risks to consumers with regard to the offering or provision of consumer financial products or services.” The CFPB explained that the new rule is intended to ensure consistency, provide clarity to institutions, and align the designation process with Congress’s original intent.

The proposed rule would adopt the following standards:

• High likelihood of significant harm. “Risks to consumers” would be limited to conduct presenting a high likelihood of substantial consumer harm, rather than speculative or immaterial harms.
• Direct connection to consumer financial products or services. The Bureau would only exercise supervisory authority over conduct that is directly tied to a consumer financial product or service, excluding tangential or indirect activities.
• Reduced scope of designation. The Bureau acknowledged that fewer nonbank entities are likely to be designated under this narrower framework, noting that it has exercised this authority fewer than twenty times since adopting designation procedures in 2013.
• No effect on small depositories. The proposal would not alter supervision of insured depository institutions or credit unions with $10 billion or less in assets, which are outside the designation authority.

Comments on the proposal are due by September 25, 2025.

Putting It Into Practice: This proposal reflects the Bureau’s continued recalibration of its supervisory reach under new leadership. By moving to a defined standard, the CFPB is signaling that it will limit designations to conduct tied to significant consumer harm and directly connected to financial products or services. Nonbank institutions, particularly fintech companies, should expect fewer designations but more predictability in how the standard is applied. Market participants should continue monitoring this rulemaking closely and consider submitting comments ahead of the September 25^th deadline to help shape the final contours of the supervisory framework.