The Consumer Financial Protection Bureau, or CFPB, has launched its federal nonbank supervision program, one of the central new responsibilities the agency acquired with a director. This will be an extension of the CFPB’s bank supervision program that began last July and will ensure that banks and nonbanks follow federal consumer financial laws.
A “nonbank” – or non-depository business – is a company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter. Nonbanks include companies such as mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors, and money services companies.
Prior to passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the law that created the CFPB, there was no federal program to supervise nonbanks. Other federal regulators examined banks, credit unions, and thrifts to make sure they were complying with the law, but generally the primary tool used to address issues with nonbanks was “after-the-fact” law enforcement.
Under the law, the CFPB now has the authority to oversee nonbanks, regardless of size, in certain specific markets: mortgage companies (originators, brokers, and servicers including loan modification or foreclosure relief services); payday lenders; and private education lenders.
For other markets, the CFPB can also supervise the larger players, or “larger participants.” Last summer, the CFPB sought public comment to develop an initial rule, identifying six possible markets for consideration—debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities. The CFPB intends to propose its initial rule on this issue in the near future.
According to the CFPB. It also has authority to supervise any nonbank that it determines is posing a risk to consumers.
Like the bank supervision program, the CFPB’s nonbank supervision program is designed to ensure that nonbanks comply with federal consumer financial laws and it is designed to assess risk to consumers arising from these businesses. The nonbank supervision program will include conducting individual examinations and may also include requiring reports from businesses to determine what businesses need greater focus. How often and to what degree the examinations are performed will depend on CFPB’s analysis of risks posed to consumers based on factors such as the nonbank’s volume of business, types of products or services, and the extent of state oversight.
The CFPB’s approach to nonbank examination will be the same as its approach to bank examination. The CFPB Examination Manual, released in October, is the field guide that examiners will use for both.
The nonbank business generally will be told of an upcoming examination and will receive status updates throughout the process. If a company is in violation of federal consumer financial laws, the CFPB will seek corrective actions, including strengthening the company’s programs and processes to ensure that violations do not recur and, where appropriate, that remedies are instituted. When necessary, examiners will coordinate and work closely with CFPB’s enforcement staff to bring appropriate legal actions to address harm to consumers.
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