Attorney General Bonta Urges Trump’s CFPB to Continue Protecting Americans Who Rely on Nonbank Entities for Financial Services

Proposed rule would increase the risks of financial harm for millions of Americans 

OAKLAND — California Attorney General Rob Bonta this week, along with 20 attorneys general, opposed a Consumer Financial Protection Bureau (CFPB) proposed rule that would limit the CFPB’s authority to oversee nonbank financial services providers. Nonbank providers are part of a fast-growing consumer financial market that provides bank-like services while operating without a banking license, making nonbank financial services companies less regulated than traditional banks. Nonbanks were at the center of the 2008 financial crisis, putting consumers and the financial system at risk due to lack of transparency and regulation. In response, Congress authorized the CFPB to engage in supervision of nonbank entities where there is reason to believe that the companies are posing risks to consumers. The proposed rule imposes haphazard limits on one of the CFPB’s key tools to protect consumers and if passed, would increase the risk of financial harm for millions of Americans, particularly with the increasing move to digital payments and other nonbank financial services. Shortly after taking office, the Trump Administration has engaged in a campaign of destruction and systemic shuttering of the CFPB, threatening catastrophic harm to hardworking families and consumer financial markets nationwide. 

“The CFPB was created in response to the failure of regulators to address consumer protection issues that in 2008, led to millions of lost jobs and trillions of dollars in losses for American consumers. Now, the Trump Administration is attempting to gut the CFPB's ability to do its job, to do the very thing it was created to do,” said Attorney General Bonta. “Nonbank financial services providers have a large and increasing significance to the everyday financial lives of consumers, growing at twice the rate of banking services in the last few years — growth that has happened alongside, not despite of, regulation and oversight of the CFPB. Consumers and businesses, especially those without access to traditional banks, rely on these providers for their financial needs. I urge the CFPB to continue its important work in regulating these nonbank providers and helping protect consumers from catastrophic financial harm.”

The past two decades have seen an exceptional growth of digital and financial services provided by entities other than banks, such as digital wallet providers, peer-to-peer payment processors, neobanks, and online or mobile-app lenders. Despite not holding banking licenses, these nonbank providers play an important role in meeting financial needs unmet by conventional banks, especially for people and businesses that might not qualify for regular bank loans.  

Background

After examining the fallout of the 2008 financial crisis, Congress concluded the crisis resulted in part from the failure of federal banking and other regulators to address significant consumer protection issues detrimental to both consumers and the safety and soundness of the banking system. In direct response to these events, Congress established the CFPB and tasked it with enforcing numerous federal consumer protection statutes and enacting regulations to further these efforts. For over a decade, the CFPB has served as an invaluable partner to state attorneys general and state banking regulators, both by working to protect consumers against fraudulent and abusive practices and by advancing a fair and level playing field in consumer financial markets by issuing regulations under federal law. California has also expanded oversight of nonbanks at a state level since the financial crisis, including through the establishment of Department of Financial Protection and Innovation.

The Trump Administration has taken a series of actions intended to debilitate the CFPB, including issuing a suspension of work across the agency, terminating probationary employees, and announcing a decision not to draw additional funding from the Federal Reserve. These actions appear to be part of a unilateral effort to permanently shut down the agency, including programs and operations mandated by federal law. Most recently, the Trump Administration issued reduction in force notices to 90% of the CFPB’s workforce — a move that was swiftly blocked by the courts. 

Attorney General Bonta has been a vocal supporter of CFPB. This week, Attorney General Bonta sent multiple letters to the CFPB, opposing a series of proposals that would dramatically shrink the Bureau’s supervisorial oversight of the markets for auto finance, consumer reporting, debt collection, and international money transfer services. Earlier this year, Attorney General Bonta submitted amicus briefs in Mayor and City Council of Baltimore v. Consumer Financial Protection Bureau and in National Treasury Employees Union v. Vought, lawsuits challenging the Trump Administration’s efforts to dismantle the CFPB.   

In sending the letter, Attorney General Bonta joins the attorneys general of New York, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, North Carolina, Oregon, Rhode Island, Vermont, and Washington, as well as the Hawaii Office of Consumer Protection.

A copy of the letter can be found here.