What the CFPB's New Nonbank Registration Rule Means for Emerging Fintechs and Their Service Providers
On June 3, 2024, the Consumer Financial Protection Bureau (CFPB) issued the Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders Final Rule. This new regulation mandates certain nonbank entities to register information about their company and certain orders, as well as submit copies of those orders, to the CFPB. This rule, effective on September 16, 2024, represents a significant change in compliance requirements for many nonbank financial service providers. For emerging fintech companies and their service providers, understanding and adhering to this rule is crucial. Here's a breakdown of what it means and how it impacts the fintech sector.
Understanding the Final Rule
The CFPB's Nonbank Registration of Orders Final Rule requires nonbank entities that are "covered persons" under the Dodd-Frank Act to register certain final, written public orders issued by agencies or courts. These orders must be related to investigations, matters, or proceedings and must meet specific criteria to be covered by the rule.
Key Points of the Final Rule:
Covered Nonbanks: The rule applies to nonbanks participating in offering or providing consumer financial products or services, excluding insured depository institutions, certain motor vehicle dealers, and other specified entities.
Covered Orders: The orders must be final, public, and related to actions or proceedings brought by federal, state, or local agencies. They must impose obligations on the covered nonbank based on alleged violations of federal or state consumer financial laws or other laws enforced by the CFPB.
Registration Requirements: Nonbanks must submit detailed information about themselves and the orders to the CFPB. This includes the legal name, business address, copies of the orders, details of the issuing agency or court, effective dates, and any violations of covered laws.
Written Statement: Certain nonbanks supervised by the CFPB, with annual receipts of $5 million or more, must submit an annual written statement by an executive attesting to the company’s compliance with the order’s public provisions.
Timing Requirements: Registration begins on October 16, 2024, with specific implementation periods for different categories of nonbanks.
Implications for Emerging Fintechs
Emerging fintech companies, often at the forefront of innovation in financial services, must navigate these new regulatory waters carefully. Here are the key considerations:
Increased Compliance Burden: Fintechs must now allocate resources to ensure timely and accurate registration of applicable orders. This includes maintaining up-to-date records and submitting revised filings within 90 days of any changes.
Operational Impact: The need for detailed reporting and continuous compliance monitoring can strain operational capacities, particularly for startups with limited resources. Engaging compliance consultants or enhancing internal compliance functions may become necessary.
Transparency and Accountability: The public nature of the registry aims to enhance transparency and accountability in the fintech sector. Fintechs must be prepared for increased scrutiny from regulators, consumers, and other stakeholders.
Strategic Partnerships: Service providers to fintechs, including legal and compliance advisors, will play a crucial role in navigating these requirements. Collaboration with experienced professionals will be essential to ensure compliance and mitigate risks.
Preparing for Compliance
To comply with the new rule, emerging fintechs should take the following steps:
Assess Coverage: Determine whether your company is a covered nonbank under the rule and identify any applicable orders that need to be registered.
Develop a Compliance Plan: Establish a detailed plan for gathering and submitting the required information, including timelines and responsibilities.
Enhance Record-Keeping: Implement robust record-keeping practices to ensure all necessary documents are maintained and can be readily accessed for registration and ongoing compliance.
Engage Experts: Consider hiring or consulting with compliance experts to guide you through the registration process and ongoing obligations.
Conclusion
The CFPB's Nonbank Registration of Orders Final Rule marks a significant regulatory development for the fintech industry. Emerging fintech companies and their service providers must understand the rule's requirements and take proactive steps to ensure compliance. By doing so, fintechs can not only avoid potential penalties but also build trust and credibility in an increasingly regulated market.
For more detailed information or assistance with compliance, contact StartSmart Counsel, PLLC. We specialize in providing legal and compliance support to high-potential startups and emerging fintech companies. Visit our website at www.startsmartcounsel.com for more resources and to schedule a consultation.
