CFPB Procedural Rule for Supervision of Nonbanks that Pose Risks to Consumers

Written by Michael Coleman, Regulatory Compliance Counsel

On June 26^th, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule establishing the procedures which the CFPB will use to bring under its supervisory authority certain nonbanks whose activities it has reasonable cause to determine pose risks to consumers. The effective date of the rule is August 2, 2013.

Here is an excerpt from the CFPB’s press release summarizing the nature of the final rule:

“This rule outlines procedures to notify a nonbank that it is being considered for supervision because the CFPB may have reasonable cause to determine that it poses a risk to consumers. The rule also sets out the procedures that the CFPB will follow to give the nonbank in question a reasonable opportunity to respond to such notice. For example, the rule dictates what the CFPB requires in both the notice and the response. And, the rule creates a mechanism for nonbanks to file a petition to terminate the CFPB’s supervisory authority after two years.”

Once effective the procedures will be located in The CFPB’s Regulations 12 C.F.R. Part 1091.

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Keep in mind that there are other Dodd-Frank provisions which give the CFPB supervisory authority over nonbank institutions, here is another excerpt from the press release on the procedural rule:

“In addition to the authority to bring nonbanks under the CFPB’s supervisory authority based on risk determinations, the Bureau also has authority under the Dodd-Frank Act to supervise 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. The CFPB can also supervise the “larger participants” in other nonbank markets as the Bureau defines by rule. The Bureau has issued two rules defining larger participants: one rule for the consumer reporting market that went into effect in September 2012, and the other for the debt collection market that went into effect in January 2013. A proposed larger-participant rule for the student loan servicing market was issued in March 2013.”  (Emphasis added.)

As the press release notes, the CFPB has taken several actions related to its supervisory authority over nonbanks. Below are some links to the final and proposed rules:

• Final rule defining “larger participants” for the consumer reporting market
• Final rule defining “larger participants” for the debt collection market, and technical corrections to the final rule.
• Proposed rule defining “larger participants” for the student loan servicing market

We can expect that the CFPB will remain active in this area, keep your eyes peeled for future developments.