The nation’s new consumer watchdog is preparing to supervise “nonbanks” as part of its mandate to protect Americans from deceptive or abusive lending practices.
This month, with President Obama’s appointment of former Ohio attorney general Richard Cordray as director, the Consumer Financial Protection Bureau can broaden its scope beyond traditional big banks, six months after the U.S. agency was created under the Dodd-Frank financial reform legislation.
The CFPB’s supervision of large banks, thrifts, and credit unions – those with assets of more than $10 billion – began on July 21, 2011.
Now, the CFPB’s has authority to oversee nonbank businesses, regardless of size, in certain markets: mortgage companies (originators, brokers, and servicers, and loan modification or foreclosure relief services); payday lenders; and private education lenders.
For all other markets – such as debt collection, consumer reporting, auto financing, and money services businesses – the CFPB said it can supervise “larger participants,” but it must define what a “larger participant” means.
The agency is seeking public input on defining a “larger participant.” It has published a Notice and Request for Comment. The CFPB said public comments on the questions listed in the notice would help it formulate a rule to protect American consumers from “nonbank” lenders who are skirting or violating consumer protection laws.
“We already have taken important first steps to develop a ‘larger participant’ rule – that is, we asked for public feedback on developing a rule,” the agency writes on its website. “So far, we’ve received thousands of public comments.”
There are currently thousands of nonbank businesses that offer consumer financial products and services.
“If you’ve taken out a payday loan, received a call from a debt collector, or accessed your credit report, you may well have done business with one yourself,” the CFPB said.
These common transactions add up to a big part of the overall market for financial products and services.
The CFPB’s nonbank supervision will include assessing whether nonbanks are conducting their businesses in compliance with federal consumer financial laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act.
The CFPB can:
- Require the nonbanks to file certain reports;
- Review the materials the companies actually use to offer those products and services;
- Examine their compliance systems and procedures;
- Analyze what they promised consumers.