Today marks an important step forward for the CFPB as we work to protect consumers. Going forward, the CFPB will expand its bank supervision program (which began last July) to nonbanks, ensuring that banks and nonbanks play by the same rules.
Before we get ahead of ourselves, it makes sense to remember what a nonbank actually is. 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.
There are currently thousands of nonbank businesses that offer consumer financial products and services, and consumers interact with them all the time. If you’ve taken out a payday loan, received a call from a debt collector, or accessed your credit report, you may well have done business with one yourself. These common transactions add up to a big part of the overall market for consumer financial products and services, and the importance of nonbanks has grown substantially over the last few decades.
While banks, thrifts, and credit unions historically have been examined by various federal regulators, nonbanks generally have not. Until today. By requiring the CFPB to examine nonbanks, the Dodd-Frank Act – the law that established the CFPB – sought to ensure that consumers get the benefit of federal consumer financial laws on a consistent basis. This consistent supervisory coverage will help level the playing field for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve them.
The Big Picture for the Nonbank Supervision Program
The CFPB’s supervision program for very large banks, thrifts, and credit unions – those with assets of over $10 billion – began operations on July 21, 2011. 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 what “larger participant” means. We already have taken important first steps to develop a “larger participant” rule – that is, we asked for public feedback on developing a rule. So far, we’ve received thousands of public comments and have met with trade groups, consumer and civil rights groups, and various state and federal regulators to get their input.
Based on their feedback, we have been hard at work preparing an initial “larger participant” rule. We will issue a proposed initial rule very soon. We will notify you on this blog when we announce the publication of the proposed rule and tell you how you can comment on our proposal.
The Dodd-Frank Act also says that 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 will be publishing rules setting out procedural guidelines for implementation of this provision.
Our Tools – Some of the Nitty Gritty
The purpose of the CFPB’s nonbank supervision is to prevent harm to consumers and promote the development of markets for consumer financial products and services that are fair, transparent, and competitive. To accomplish these goals, 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.
What will we do? The CFPB’s approach to nonbank examination will be the same as its approach to bank examination. It may include a combination of any of the following tools: requiring nonbanks to file certain reports, reviewing the materials the companies actually use to offer those products and services, reviewing their compliance systems and procedures, and reviewing what they promised consumers. In general, we will notify a nonbank in advance of an upcoming examination.
Consistent with the Dodd-Frank Act, the CFPB is implementing a risk-based nonbank supervision program. On an ongoing basis, we will be assessing the risks posed to consumers in the relevant product markets. When considering whether and how to supervise particular nonbanks, we will consider several relevant factors, including the nonbank’s volume of business, types of products or services, and the extent of state oversight.
The CFPB will coordinate with other federal and state regulators. This coordination will help us allocate resources where they are most needed and minimize burdens on the nonbanks.
We have built – and continue to build – a highly qualified supervision and examination staff to execute on all of these important goals. Many examiners have come to the CFPB from state and federal bank and financial services regulatory agencies and they bring extensive experience in conducting examinations. We are training all of our examiners in CFPB supervision policies and procedures and integrating them into a coherent team. Our supervision staff will cover the nation, reporting to regional offices in San Francisco, Chicago, Washington, D.C., and New York.
As we move forward in building and implementing our supervision program, we will keep you informed of important developments, policies, and procedures.
We also want to hear from you. We would like this blog to be part of an ongoing conversation with you about the CFPB supervision program. If you have questions or comments about our supervision program, please provide them in the comment section below.