CFPB kicks off nonbank supervision program, at last

Five-plus months after the official opening of the Consumer Financial Protection Bureau, the bureau finally got to kick off its nonbank supervision program.

Five-plus months after the official opening of the Consumer Financial Protection Bureau, the bureau finally got to kick off its nonbank supervision program.

With a director in place – Richard Cordray, whose special recess appointment occurred Jan. 4 – the CFPB can finally examine and regulate the “nonbank” financial service providers. “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,” according to the Bureau’s blog.

Many of these providers have operated under far fewer constraints than banks, thrifts and credit unions. For the most part, the nonbanks have never been subject to examinations and have operated virtually free of regulation.

Effective immediately, the CFPB will:

Regulate the following nonbank businesses, regardless of size: mortgage companies, including originators, brokers and servicers; loan modification or foreclosure relief services; payday lenders; and private education lenders.

Regulate “larger participants” – yet to be defined – in these categories: debt collection, consumer reporting, auto financing and money services businesses.

So far, the Bureau has said that its nonbank supervision program will include examinations that focus on the risks posed to consumers. Businesses will be evaluated for conducting business in compliance with federal consumer financial protection laws, with the cooperation of other federal regulatory agencies as well as state regulators.

In his first speech as CFPB director, Cordray told an audience at the Brookings Institution on Jan. 5 that there will be “real consequences to breaking the law.” He continued:

We have given informants and whistleblowers direct access to us. We took over a number of investigations from other agencies in July and we are pursuing some investigations jointly with them. We have also started our own investigations. Some may be resolved through cooperative efforts to correct problems, others may require enforcement actions to stop illegal behavior.

When asked if there was a certain size institution the Bureau would focus on, Cordray said that community banks and credit unions did not create problems in the markets that led to the financial crisis. “They were created significantly by having non-bank institutions not subject to any meaningful regulation. … This is a very important step forward for us, and I think that level playing field that we can attain between banks and non-banks, that was a central promise of the [Dodd-Frank Act]. It has been thwarted until now.”

President Obama visited the CFPB office on Jan. 6, delivering a pep talk to the staff that concluded with: “I know you guys are ready to go to work. I am too. I couldn’t be prouder of you.”

Raj Date, who has led the Bureau since the departure of Elizabeth Warren last summer, now becomes the CFPB’s deputy director.

Taking over Cordray’s position as head of enforcement will be the department’s former deputy director, Kent Markus. Markus is the previous chief legal counsel to former Ohio Gov. Ted Strickland.

Fredrikson & Byron Law