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CFPB Proposes New Rule on Non-Bank Oversight

Joe Mont | May 25, 2012

The Consumer Financial Protection Bureau is seeking comments on a newly proposed rule that establishes procedures to notify non-banks they are being considered for supervision and the recourse it has to respond.

Institutions, for example, are granted the right to file a petition to terminate supervision authority after two years.

A non-bank—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. Non-banks include mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors, and money services companies.

Under the Dodd-Frank Act, the CFPB has authority to supervise any non-bank if there is reasonable cause, based on complaints or other information, that it poses a risk to consumers. This is in addition to overseeing non-banks, regardless of size, in several specific markets, including: mortgage companies (originators, brokers, and servicers including loan modification or foreclosure relief services); payday lenders; and private education lenders.

Prior to passage of Dodd-Frank, which created the CFPB, there was no federal program to supervise non-banks. Other federal regulators examined banks, credit unions, and thrifts to make sure they were complying with the law, but generally there was “after-the-fact” enforcement.

The CFPB is authorized to require reports from and conduct examinations of non-banks subject to its supervision. How often and to what degree the examinations are performed will depend on CFPB's analysis of risks posed to consumers based on factors such as the non-bank's volume of business, types of products or services, and the extent of state oversight.

The CFPB's approach to non-bank examination will be the same as its approach to bank examination. The CFPB Examination Manual, a field guide examiners will use for both, is available here.

Comments on the proposed rule are due to the CFPB by July 24.