Following his controversial recess appointment by President Barack Obama on Jan. 4 as director of the Consumer Financial Protection Bureau, Richard Cordray wasted no time in announcing the launch the nation’s first federal nonbank supervision program, one of the central new responsibilities of the agency. This, he said, will be an extension of the CFPB’s bank supervision program.
According to the announcement on Jan. 5, 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.
The CFPB 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 said it will soon propose its initial rule on this issue.
The CFPB also has authority to supervise any nonbank that it determines is posing a risk to consumers. 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 agency said. The CFPB Examination Manual, released in October, is the field guide that examiners will use for both. It is available on the CFPB website at www.consumerfinance.gov/guidance/supervision/manual/.
Before examiners go into a business, they will review information that is available publically or from other state or federal regulators. Examiners will be looking at the business’s consumer financial products and services with a focus on risk to consumers.
Examiners will review the business’s compliance with federal consumer financial laws for the entire life cycle of the product or service, including how a product is developed, marketed, sold and managed. Examiners will conduct interviews with personnel and observe the business’s operations. One important component that examiners will be looking for is the nonbank’s internal ability to detect, prevent and remedy violations that may harm consumers.
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.
The CFPB has assembled a group of examiners from a variety of backgrounds including from the FDIC, Federal Reserve System, Office of the Comptroller of the Currency, state banking regulatory bodies and industry. The examiners will be trained in both bank and nonbank supervision.
The CFPB’s nonbank supervision program will be coordinated with state regulators, when applicable. The CFPB has already begun to work with the states by developing, in cooperation with the Conference of State Bank Supervisors, a memorandum of understanding to share information between the CFPB, state regulators and state regulatory associations. To date, regulators in 42 states and Puerto Rico, representing 45 regulatory agencies, have joined the MOU. Five state regulatory associations have also signed the MOU including the American Association of Residential Mortgage Regulators and the National Association of Consumer Credit Administrators.
In moving forward to implement its nonbank supervision program, the CFPB will:
Copyright (c) February 2012 by BankNews Media