• CFPB proposes rule narrowing its power to supervise nonbanks
• New definition of “risks to consumers” would bind bureau decisions
• Move could mean fewer firms face CFPB oversight
• Proposal aims to bring consistency and legal clarity to supervision
• Critics warn it weakens consumer protections and oversight reach
• Comments on proposal open until Sept. 25
• Acting Director Russ Vought driving cuts to staff and funding
• Rule aligns with broader effort to scale back CFPB enforcement

The Consumer Financial Protection Bureau is seeking to limit its ability to supervise individual nonbanks, according to a rule proposal published Tuesday in the Federal Register.

The bureau said it aims to adopt a standard definition of “risks to consumers” regarding financial products or services. That definition would bind the CFPB itself in deciding which nonbanks fall under its supervision.

The proposal acknowledges the rule could affect a large population of firms. “The Bureau expects that under the proposed rule it will be less likely to designate any particular entity for supervision, all other factors being equal,” the entry stated.

The CFPB currently has authority under the Consumer Financial Protection Act to supervise nonbanks engaged in conduct that poses risks to consumers. Until now, the agency has exercised this power through case-by-case orders rather than a formal rule.

That approach has created concerns about consistency. The CFPB wrote that issuing ad hoc orders risks applying the “risks to consumers” standard differently across cases, leaving uncertainty for firms about the criteria they may face.

The agency also acknowledged that without a binding definition, its actions may not fully align with the law. The new rule is intended to create a standard that is “consistent, foreseeable, and based on the best reading” of the statute.

“This will ensure that the Bureau acts within the bounds of its statutory authority and provide clarity to institutions about the standard the Bureau applies,” the CFPB wrote.

The proposed shift represents a narrower interpretation of its authority. While the agency has sometimes taken a broad view of consumer risk in the past, the current leadership argues Congress intended supervision to be “squarely focused on serious conduct.”

The rule could result in fewer firms being placed under CFPB oversight, potentially reducing compliance costs for those that might otherwise have been designated. It may also change the behavior of companies close to the threshold of designation.

The proposal is open for public comment until Sept. 25.

The move is the latest example of the bureau’s changing direction under Acting Director Russ Vought. Vought has already sought to reduce staff levels, cut funding, and roll back guidance and enforcement measures implemented under former Biden-era Director Rohit Chopra.

Bloomberg Law reported last week that the CFPB is preparing to close nearly 2,000 matters flagged by bank examiners, part of a broader shift as Trump administration officials return to positions of influence.

The proposed rule underscores the shifting balance between regulatory oversight and industry freedom, a debate that could shape the CFPB’s role for years to come