On January 5, the Consumer Financial Protection Bureau (CFPB) launched its non-bank supervision program. The initiative is mandated by Dodd-Frank, and will be an extension of the CFPB’s bank supervision program that began last July. The program is intended to ensure that banks and non-banks follow federal consumer financial laws.
The scope of the program is broad, as is the definition of "non-bank."
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.
Before Dodd-Frank, a variety of regulatory agencies oversaw non-bank activities. The CFPB now has the authority to oversee non-banks, 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.
The CFPB also has the power to oversee "larger participants" in debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities. The agency also has authority to supervise any nonbank that it determines is posing a risk to consumers. The CFPB has not yet proposed rules regarding who or how these entities will be regulated, but is expected to in the first half of 2012.
The CFPB’s approach to nonbank examination will be the same as its approach to bank examination. The CFPB Examination Manual, released in October, will guide both bank and non-bank examinations, and is available on the CFPB website at:
http://www.consumerfinance.gov/guidance/supervision/manual/.
The agency's priorities in implementing this supervision program will be to:
- Expand its ongoing supervision of mortgage servicers to nonbank mortgage servicers;
- Publish additional examination procedures tailored to the types of consumer financial products and services offered by nonbanks;
- Propose an initial rule to begin defining who meets the test for “larger participants” in certain nonbank markets;
- Publish rules to establish procedures to supervise a nonbank company where the CFPB has reasonable cause to believe it poses risks to consumers;
- Continue ongoing communications with state and federal regulators with a more specific focus on examination planning; and
- Continue to obtain feedback on its supervision program from nonbank financial services companies, banks, thrifts, and credit unions, federal and state agencies, consumer and community groups, and the public.