September 15, 2025
Director Vought
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, D.C. 20552
RE: Legal Standard Applicable to Supervisory Designation Proceedings, Docket No. CFPB-2025-0018, RIN 3170-AB41
Dear Director Vought:
Thank you for the opportunity to comment on the proposed rule. The National Community Reinvestment Coalition (NCRC) opposes the Consumer Financial Protection Bureau’s proposed rule¹ limiting the definition of “conduct that poses risks to consumers” for supervisory designation proceedings. Instead, we urge the Agency to adopt the “Dormant Authority” standard developed in 2022.
NCRC is a network of more than 700 community-based organizations dedicated to creating opportunities for all Americans to build wealth and attain quality of life. Our member organizations work directly with consumers who depend on robust oversight of nonbank financial companies to ensure fair access to financial services.
The Proposed Rule Creates Dangerous Consumer Protection Gaps
Decreased Oversight of Nonbank Financial Institutions
The proposed requirement for “high likelihood of significant harm” would substantially reduce supervisory actions against nonbank financial institutions. The CFPB has acknowledged that this rule would make it less likely for entities to be designated for supervision². This reduction in oversight comes precisely when nonbank lending and financial services have expanded rapidly, often without adequate consumer protections.
NCRC’s research consistently demonstrates emerging discrimination patterns in nonbank lending that require early intervention. Under the proposed standard, discriminatory practices that affect individual consumers moderately but create systemic market-wide harm could escape supervision entirely. The rule would essentially require waiting until discrimination reaches crisis levels before taking action.
Inadequate Protection Against Low-Likelihood, High-Impact Harms
The “high likelihood” threshold proposed by the Agency ignores that some of the most devastating consumer harms result from lower-probability events with severe consequences. Data breaches, predatory lending collapses, and fraudulent schemes often have catastrophic individual impacts even when they don’t meet artificial likelihood thresholds.
For example, a nonbank that maintains inadequate cybersecurity practices creating a low but high impact risk of major data breaches would escape supervision under this rule, despite the potential for significant consumer harm when breaches occur.
Widespread Minor Harms Escaping Scrutiny
The rule’s focus on “significant harm” to individuals fails to account for practices that generate small but deceptive fees across large consumer populations. A nonbank charging numerous consumers small, hidden, or deceptive fees might avoid supervision because individual harm appears minimal, even when cumulative harm across all consumers is substantial.
NCRC’s analysis of fee structures demonstrates how these seemingly minor practices disproportionately impact low-income communities and communities of color, creating barriers to financial inclusion that contradict the CFPB’s core mission³.
Activities with Indirect Connections Would Escape Oversight
Third-Party Vendor Risks
The rule’s requirement for “direct connection” to financial products creates dangerous loopholes. Nonbank companies could contract with vendors using deceptive or unfair practices, but avoid CFPB supervision by claiming these relationships are not “directly connected” to financial product offerings.
Lead generation companies selling consumer data to financial institutions could evade supervision entirely. Their practices directly facilitate discriminatory lending and predatory marketing but may not meet the narrow “direct connection” standard⁴.
Data Brokering Activities
The sale of consumer financial data to advertisers or third parties would likely fall outside CFPB supervisory authority under this rule. These activities create privacy risks and enable discriminatory targeting but occur one step removed from “direct” financial product offerings.
Emerging Financial Technologies Would Lack Adequate Oversight
Buy Now, Pay Later (BNPL) Services
Some BNPL providers structure their services to argue they don’t offer “consumer financial products” as traditionally defined. The proposed rule’s narrow interpretation could allow problematic BNPL practices to escape supervision, despite their growing impact on consumer debt levels and creditworthiness.
Digital Payment Applications
Popular payment applications and digital wallets often operate in regulatory gray areas. The proposed rule’s restrictive interpretation could exclude oversight of practices that harm consumers using these increasingly common financial tools.
Cryptocurrency and Blockchain Services
Many cryptocurrency lending and trading services currently lack clear regulatory oversight. Rather than expanding supervision to address emerging risks, the proposed rule would likely exempt these services from CFPB authority, leaving consumers vulnerable to fraud and deceptive practices in rapidly evolving markets.
Market-Wide Systemic Risks Would Be Inadequately Addressed
The proposed rule’s focus on individual entity conduct ignores systemic market risks. Even if no single nonbank’s conduct meets the “significant harm” threshold, widespread adoption of problematic practices across the industry can create systemic consumer protection failures.
NCRC’s research on lending discrimination demonstrates how individual lenders’ practices that might not trigger the “high likelihood of significant harm” standard can collectively recreate redlining patterns and undermine fair lending principles across entire markets⁵.
Consumer Complaint Process Would Be Undermined
By requiring higher thresholds of demonstrated harm, the CFPB may inadvertently discourage consumers from filing complaints about practices they perceive as unfair but which might be deemed insufficiently harmful under the new standard. This chilling effect would reduce the Bureau’s ability to identify emerging consumer protection issues through complaint analysis⁶.
Recommendation: Adopt the 2022 “Dormant Authority” Standard
The current statutory framework already requires “reasonable cause to determine” that conduct poses “risks to consumers”—a standard that appropriately balances industry clarity with consumer protection needs. Congress deliberately chose this broad language to ensure the CFPB could address evolving market risks. The 2022 dormant authority approach⁷ demonstrates how this standard can be applied effectively without the artificial constraints proposed in the current rule. We urge the CFPB to formalize the use of its existing “dormant authority” as demonstrated in the 2022 supervisory designations⁸. This approach would:
- Maintain the broad “risks to consumers” standard established by Congress in 12 U.S.C. § 5514(a)(1)(C)⁹
- Formalize the dormant authority framework that successfully identified consumer risks in 2022
- Provide industry clarity through published guidance on dormant authority application without limiting statutory authority
- Preserve supervisory flexibility to address emerging market risks and evolving consumer protection challenges
Thank you for considering these comments. We urge the CFPB to prioritize comprehensive consumer protection over industry convenience by withdrawing this proposed rule.
Sincerely,
Jesse Van Tol
Chief Executive Officer
National Community Reinvestment Coalition
Contact:
Jason Richardson
Senior Director of Research
National Community Reinvestment Coalition
jrichardson@ncrc.org
(202) 628-8866
Endnotes
¹ Consumer Financial Protection Bureau. (2025, August 26). Legal Standard Applicable to Supervisory Designation Proceedings. Federal Register, RIN 3170-AB45. https://public-inspection.federalregister.gov/2025-16352.pdf
² Holland & Knight LLP. (2025, August). CFPB Proposes Legal Standard Applicable to Supervisory Designation Proceedings. https://www.hklaw.com/en/insights/publications/2025/08/cfpb-proposes-legal-standard-applicable-to-supervisory-designation
³ U.S. House of Representatives. (2011). 12 U.S.C. § 5514(a)(1)(C) – Supervision of nondepository covered persons. https://uscode.house.gov/view.xhtml?req=(title:12+section:5514+edition:prelim)
⁴ Consumer Financial Protection Bureau. (2022). CFPB invokes dormant authority to examine nonbank companies posing risks to consumers. https://www.consumerfinance.gov/about-us/newsroom/cfpb-invokes-dormant-authority-to-examine-nonbank-companies-posing-risks-to-consumers/
⁵ National Community Reinvestment Coalition. (2021). NCRC urges support for the Fair Lending for All Act HR166; recommends strengthening enforcement to prevent lending discrimination. https://ncrc.org/ncrc-urges-support-for-the-fair-lending-for-all-act-hr166-recommends-strengthening-enforcement-to-prevent-lending-discrimination/
⁶ National Community Reinvestment Coalition. (2020, August 27). Consumer Action: Advocates call foul as CFPB hides consumer complaint narratives from public view. https://ncrc.org/consumer-action-advocates-call-foul-as-cfpb-hides-consumer-complaint-narratives-from-public-view/
⁷ Consumer Financial Protection Bureau. (2022). CFPB invokes dormant authority to examine nonbank companies posing risks to consumers. https://www.consumerfinance.gov/about-us/newsroom/cfpb-invokes-dormant-authority-to-examine-nonbank-companies-posing-risks-to-consumers/
⁸ Consumer Financial Protection Bureau. (2022). CFPB invokes dormant authority to examine nonbank companies posing risks to consumers. https://www.consumerfinance.gov/about-us/newsroom/cfpb-invokes-dormant-authority-to-examine-nonbank-companies-posing-rules-to-consumers/
⁹ U.S. House of Representatives. (2011). 12 U.S.C. § 5514(a)(1)(C) – Supervision of nondepository covered persons. https://uscode.house.gov/view.xhtml?req=(title:12+section:5514+edition:prelim)
