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Explainer: What is a nonbank, and what makes one “larger”?

Dear CFPB,

I noticed you posted a request for public comments on “larger participants” for your “nonbank supervision” program. I don’t understand what this is about. I know what a bank is – I walk past one every day on my way to work – but what is a nonbank? And larger than what, anyway?


Dear Consumer,

Those are great questions. You’re not the first person to read the phrase “nonbank” and lapse into a state of confusion. “What is a nonbank?” you ask yourself. Worry no more! The CFPB Web Team is on the case, with help from our Nonbank Supervision team. Here’s the lowdown:

The Dodd-Frank Act – the law that created the CFPB – gave us the job of supervising large banks, thrifts, and credit unions, and other financial institutions. Supervision, as we’ve explained previously, involves observing financial institutions — for example, by asking for information about their practices or conducting examinations. In our case, we do this mainly to make sure they comply with federal laws that protect consumers.

Bank supervision isn’t new. What is new is that, for the first time, under the Dodd-Frank Act, many nonbank financial companies will also be subject to federal supervision.

So what IS a nonbank? For our purposes, a nonbank is a company that offers consumer financial products or services, but does not have a bank, thrift, or credit union charter and does not take deposits.

Huh? Today, there are thousands of companies that offer financial products that are not banks, and consumers interact with them on a regular basis. If you’ve taken out a payday loan, received a call from a debt collector, or accessed your credit report, you probably have interacted with one, too. Other kinds of nonbanks include finance companies or companies that wire or send money for you.

Products from nonbanks form a significant chunk of the overall consumer financial marketplace. The number of nonbank companies that provide consumer financial products and services has grown over the last few decades. Under Dodd-Frank, many of these nonbanks will be subject to a federal supervision program for the first time.

What’s a “larger participant”? Our nonbank supervision program may look at all sizes of nonbank mortgage companies, payday lenders, and private student lenders. But Dodd-Frank says that in other markets, the Bureau’s supervision program generally covers only institutions that are “larger participant[s] of a market for other consumer financial products or services.”

“Larger”? Larger than what? Well, that’s what the CFPB has to figure out. Congress did not set the thresholds for inclusion in this supervision program for these other markets. Congress required that we define what these size thresholds should be, so we can lay the foundation to start this part of our nonbank supervision program. In other words, it’s our job to figure out exactly how large “larger” really is.

How do you do that? We start by asking the public for input. We’ve posted a Notice and Request for Comment on some important questions that need answers, like how to set thresholds and criteria for defining larger participants, and what markets we should cover in our initial rule. We’ll also conduct our own analysis to determine what threshold works best, but since this decision affects millions of consumers – including you – we are asking for input from everyone who wants to give it.

Can you end this blog post with a clever segue? We can! Now that you know what a nonbank is and why they matter, please take a moment to look at the Notice and file comments as indicated there. We want your input.


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