CFPB Issues First Nonbank Supervisory Designation Order | Practical Law

CFPB Issues First Nonbank Supervisory Designation Order | Practical Law

The CFPB published its first supervisory designation order, determining that World Acceptance, a nonbank installment lender, has met the legal requirements for CFPB supervision.

CFPB Issues First Nonbank Supervisory Designation Order

Practical Law Legal Update w-042-4570 (Approx. 3 pages)

CFPB Issues First Nonbank Supervisory Designation Order

by Practical Law Finance
Published on 27 Feb 2024USA (National/Federal)
The CFPB published its first supervisory designation order, determining that World Acceptance, a nonbank installment lender, has met the legal requirements for CFPB supervision.
On February 23, 2024, the Consumer Financial Protection Bureau (CFPB) published its first supervisory designation order (order), determining that nonbank installment lender World Acceptance has met the legal requirements for CFPB supervision.
Nonbank financial companies subject to CFPB supervision under Section 1024(a)(1) of the Consumer Financial Protection Act (CFPA) include "Any nonbank covered person who … the bureau has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond, based on complaints … or information from other sources, that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products services."
According to the order, the CFPB has reasonable cause to determine that World Acceptance, one of the world's largest small loan consumer finance companies, is engaging in conduct that poses risks to consumers, including that it:
  • Bundles consumer loans with insurance products and does not adequately explain costs or that the insurance products are optional.
  • Harasses and embarrasses defaulted borrowers in order to collect on consumer loans, including:
    • contacting borrowers at their places of employment;
    • contacting borrowers' employers, friends, family members, and other third parties; and
    • engaging in excessive calls, threats, and other coercive tactics.
  • Furnishes inaccurate information to consumer reporting agencies and fails to adequately respond to consumer disputes regarding the adequacy of furnished information.
  • Undertakes frequent and recurrent refinancing of loans, causing consumers to pay annual percentage rates in excess of those described in initial loan agreements and trapping consumers in debt for years.
The order states that it is not a finding that World Acceptance has engaged in wrongdoing, but rather is a determination that CFPB supervision is warranted. Under the order CFPB intends to notify World Acceptance if and when the CFPB elects to require reports, conduct an examination, or exercise any of its other authorities.
Unlike an administrative enforcement proceeding, which entails findings of fact and conclusions of law on whether an entity violated federal consumer financial protection laws, this supervisory proceeding addresses whether the CFPB has reasonable cause to determine that World Acceptance's conduct “poses risks to consumers with regard to the offering or provision of consumer financial products or services,” for the purpose of designating World Acceptance for supervision.