CFPB Launches Nonbank Supervisory Program

On January 5, 2012, just one day after President Obama appointed former Ohio Attorney General Richard Cordray to be its first Director, the Consumer Financial Protection Bureau announced that it was launching its Nonbank Supervisory Program. Mandated by provisions in the Dodd-Frank Act, the program is designed, according to the agency, to “help level the playing field for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve them.

For your reference, here’s a brief overview of the program and what it means for nonbank businesses that offer consumer financial products and services:

“This program has the goal of implementing supervisory audits and reviews of nonbanks, such as mortgage loan originators, lenders, mortgage bankers, mortgage brokers, servicers, and loan modification or foreclosure relief services (including also payday lenders and private education lenders).” (CFPB: Nonbank Supervision Program by Jonathan Foxx) 

“… this marks the first real change to the consumer financial landscape for nonbanking companies… The Nonbank Supervision Unit has a number of tools at its disposal for examining companies under its supervision. Besides requiring those companies to file certain reports, it can review materials used by the companies to offer their products and services, review their compliance systems and procedures, and review promises made to consumers.” (It Starts! CFPB Announces Implementation of its Nonbank Supervision Program by Loeb & Loeb LLP) 

“The launch of the CFPB’s nonbank supervision program has significant implications for legal and regulatory compliance and raises a number of new challenges for providers of consumer financial products and services. Nonbanks and their service providers will need to consider such issues as:

  • 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 may conduct interviews with personnel and observe the business’s operations; and
  • Under Dodd-Frank there are significant whistleblower protections and the CFPB is actively soliciting tipsters to report potential violations of federal consumer financial laws.

In addition, the agency has said that ‘one important component examiners will be looking for is the nonbank’s internal ability to detect, prevent, and remedy violations that may harm consumers.’” (Consumer Financial Protection Bureau Starts Nonbank Supervision Program by Venable LLP) 

“A significant limitation in Dodd-Frank urged by community bank groups provides that banks with $10 billion in assets or less would instead remain subject to examinations and enforcement actions regarding compliance with the consumer laws by their primary federal banking agencies and not the new CFPB examiners. However, community banks should keep a close watch on the supervision and enforcement policies and practices of the CFPB. In our experience, regulatory actions applicable to larger banks over time have a way of expanding to community banks through the regular bank examination process.” (CFPB Enforcement Actions Will Impact Community Banks by Manatt, Phelps & Phillips, LLP) 

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See also: President Uses Recess Appointment Authority to Install Cordray as CFPB Director (Venable LLP) 

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