Cordray Launches CFPB Nonbank Program, Brushing Aside Legal Concerns

In his first speech as Director of the Consumer Financial Protection Bureau (CFPB), Richard Cordray announced a program to supervise nonbanks. "We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have largely escaped any meaningful federal oversight," Cordray said in remarks prepared for delivery at the Brookings Institution.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB the authority to oversee nonbanks of any size, in three markets: mortgage companies, payday lenders and private student lenders. The Bureau also can regulate large nonbanks in other markets, but only after defining them in a final rule. Last summer, the CFPB requested public comment on its larger participant rule in which it identified six markets for potential inclusion: debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities. In addition, the CFPB has the authority to supervise any nonbank that it believes poses a risk to consumers. The CFPB plans to propose rules establishing procedures for identifying those companies.

 

Nonbank examiners will use the same field manual introduced in October and nonbanks will be notified of upcoming exams. The CFPB plans to publish additional exam procedures tailored to the types of consumer products offered by nonbanks. "We will make sure that large banks and nonbanks are held to the same standards," Cordray said. "In the run-up to the financial crisis, many unsupervised firms led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers."