Nonbank Supervision Program Launched by CFPB
On the heels of President Obama's recess appointment of Richard Cordray as the Director of the CFPB, the CFPB announced the launch of its nonbank supervision program. A link to the CFPB's press release is located here. The CFPB clarified that a "nonbank" is a company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter, and can include companies such as mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors, and money services companies.
The CFPB's nonbank supervision will now begin in phases. Effective immediately, the CFPB has authority to oversee nonbank businesses, regardless of size, in certain markets: mortgage companies (originators, brokers, and servicers, and loan modification or foreclosure relief services); payday lenders; and private education lenders.
For all other markets, such as debt collection, consumer reporting, auto financing and money services businesses, the CFPB may supervise "larger participants" after defining this term in a final rule. The CFPB indicated in its release that it intends to issue a proposed initial rule "very soon." For a copy of CUNA's Comment Letter filed with the CFPB on its initial request for information, click here.
Additionally, the CFPB may supervise any nonbank that it has a reason to determine is engaging or has engaged in conduct that poses risks to consumers with regard to consumer financial products or services. The CFPB's blog from today mentions that the CFPB will be publishing rules setting out procedural guidelines for implementation of this particular provision of the Dodd-Frank Act, as well.
In discussing the tools to be used in the examination process of nonbanks, the CFPB will assess whether nonbanks are conducting their businesses in compliance with federal consumer financial laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act. Additionally, the CFPB may require nonbanks to file certain reports, review the materials the companies actually use to offer those products and services, review compliance systems and procedures, and review what has been promised to consumers, but notes that in general, the CFPB will notify a nonbank in advance of an upcoming examination.
The examination process will be the same as the CFPB's approach to bank examinations, and will be risk-based; taking into consideration several relevant factors such as the nonbank's volume of business, types of products or services, and the extent of state oversight. The CFPB will also coordinate with other federal and state regulators where necessary.