American Financial Services Association senior vice president Celia Winslow recounted during a recent episode of the Auto Remarketing Podcast that AFSA has been seeking clarity about what the Consumer Financial Protection Bureau (CFPB) defines as risk for more than 10 years.

Just after Memorial Day, Winslow tried again, sending a letter to CFPB director Rohit Chopra again asking for the regulator’s risk definition in light of bureau’s proposed rule on supervisory authority over certain nonbank covered persons based on risk determination.

“AFSA fervently opposes the bureau’s proposal to publicize its designation of a covered person as a — yet undefined — ‘risky business.’ Before using this authority, and in the interest of transparency, AFSA urges the bureau to define ‘risk to consumers,’” Winslow began the letter.

Winslow explained that AFSA strongly discourages the bureau from publicizing any designation of covered persons under this rule. She also pointed out that AFSA actually agrees with the CFPB’s stance that “a central principle of the supervisory process is confidentiality.”

Winslow then wrote, “There is a vast and insurmountable difference between the public knowing that all banks over $10 billion, along with companies designated as ‘larger participants’ by the CFPB in a rulemaking, and the bureau deeming a specific business risky — again, under yet undefined criteria — and announcing that it will be supervised by the bureau.

“AFSA finds the logic behind this change flawed,” Winslow continued. “While the bureau states it proposes this change to ‘level the playing field,’ this rule does not create parity, but rather exposes companies to a potentially public, reputation-damaging designation of ‘risky’ with little opportunity to challenge it due to a lack of an administrative appeals process. The mere adverse publicity associated with a bureau declaration that a business is risky would impose unfair adverse reputational consequences upon the business. The public disclosure of the designation creates both an unnecessary confirmation bias and an unfair distrust of certain companies.

“Moreover, when the bureau makes a public declaration of supervision of a particular business model or product, this action alone sends a message to the market (to competitors, investors, and customers) that something is wrong at that institution,” Winslow went on to say. “And, under existing exam confidentiality rules, the supervised nonbank cannot make any public remarks about the nature of the supervision to address the bureau’s public disclosure. Further, if the nonbank were allowed to defend itself in the court of public opinion, the exam will be adversarial. As a result, the nonbank will be harmed by the declaration without any way to put the declaration of supervision in proper context.”

Winslow closed her letter by referencing Chopra’s comments to Congress.

“Additionally, a clear definition of the ‘risks to consumers’ will aid in the bureau’s mission to enhance transparency,” she said. “In the director’s testimony before the Senate Banking Committee last month, the director stated: ‘Laws work best when they are easy to understand, easy to follow, and easy to enforce.’ This statement is undeniably true; however, the lack of definitions in the rule makes it difficult to understand, to follow, and to enforce in a fair and appropriate manner.

“AFSA requests the bureau to incorporate clear definitions in the Rule as a part of its mission and commitment to transparency,” she added.