The CFPB recently released its fall 2015 Rulemaking Agenda, which suggests that the CFPB may be looking to exert its supervisory authority over certain marketplace lenders. If that is in fact the case, it would represent the agency’s first foray into this rapidly-developing credit marketplace.
The Rulemaking Agenda is released twice a year — in the spring and fall — and is where the CFPB identifies its rulemaking priorities for the short and long term. The fall Agenda contains a list of the various substantive rulemakings already underway at the CFPB — involving arbitration provisions, payday lending, prepaid accounts, overdrafts, debt collection, mortgage servicing, and the statutorily-required rule on women-owned, minority-owned, and small businesses data collection. These have all been publicly discussed by the CFPB before, and so they are no surprise.
In addition, the Rulemaking Agenda identifies two substantive rulemakings that are possible in the longer term, in the areas of credit reporting and student loan servicing. On credit reporting, the CFPB identifies the following “[p]otential topics for consideration” in a rulemaking: “the accuracy of credit reports, including the processes for resolving consumer disputes, or other issues.” Interestingly, although the CFPB has had supervisory authority in the credit reporting area since July 20, 2012, and enforcement authority since the agency’s inception in July 2011, it has brought only a single case against a credit reporting agency, involving a background check company. On student loan servicing, the CFPB identifies unspecified “specific acts or practices” and “consumer disclosures” as possible rulemaking topics. The CFPB has been quite active in the student loan servicing space, so this suggestion of possible future rulemaking is not surprising.
The Rulemaking Agenda also identifies the next area in which the CFPB may issue a “larger participant” rule. The Dodd-Frank Wall Street Reform and Consumer Protection Act allows the CFPB to issue “larger participant” rules to define larger participants in a particular market for consumer financial products or services. Once the CFPB issues such a rule, it gains supervisory authority over such larger participants. That is, the “larger participant” rulemaking is a mechanism by which the CFPB is authorized to expand its supervisory jurisdiction by identifying additional markets in which it can conduct examinations of providers of consumer financial products or services. By statute, the CFPB was given supervisory authority over mortgage originators, brokers, and servicers; mortgage foreclosure relief providers; private student loans providers; and payday lenders. Since 2011, the CFPB has expanded its supervisory jurisdiction by issuing larger participant rules in the credit reporting, debt collection, international money transfer, student loan servicing, and automobile financing markets.
The Rulemaking Agenda notes that the CFPB “expects next to develop rules to define larger participants in markets for consumer installment loans and vehicle title loans,” with pre-rule activity to begin in September 2016. (In the spring, the CFPB had noted that it was “considering” such rules.) The Agenda does not further define what “consumer installment loans” might be included in such a rule, but it appears that the broad category may include at least some marketplace lenders. The term “marketplace lending,” sometimes called peer-to-peer lending, has broad meaning. According to a recent request for information released by the Treasury Department, marketplace lending means the “segment of the financial services industry that uses investment capital and data-driven online platforms to lend either directly or indirectly to small businesses and consumers.” Depending on how the CFPB defines the “consumer installment loan” market, its larger participant rule may sweep in only true lenders or also encompass other marketplace loan participants.
Absent an intervening enforcement action or bulletin, this is likely to be the CFPB’s first foray into the marketplace lending arena. (Last week, the CFPB announced an enforcement action against an “online lender,” Integrity Advance. That action, however, concerned a self-described online payday lender, and not a marketplace lender. That the CFPB chose to refer to an “online lender” as opposed to using “payday lender” in its press release headline suggests the agency wants to be seen as active in the online credit space.) Unlike the other, long-established markets in which the CFPB has issued larger participant rules, marketplace lending is both growing and evolving rapidly. A larger participant rule would not impose any substantive limitations in this area; it would only authorize the CFPB to conduct examinations of the larger participants defined by the rule. It may be that the CFPB views such a rule as an opportunity to learn more about this dynamic market before flexing its regulatory muscle.
A proposed larger participant rule covering “consumer installment loans” may sweep more broadly than just marketplace lending, and may also include other providers of consumer installment loans, including online retailers offering credit products, and third-parties that provide credit for such purchases.
“Participants in markets for consumer installment loans,” including marketplace loan participants, should carefully consider any proposed larger participant rule that the CFPB ultimately issues, and consider submitting comments to shape its scope.