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CFPB advances nonbank supervision

By Marcie Geffner · Bankrate.com
Wednesday, July 3, 2013
Posted: 1 pm ET

The Consumer Financial Protection Bureau has issued a rule that establishes procedures to bring certain nonbanks within the agency's jurisdiction.

Nonbanks are companies other than banks, thrifts and credit unions that offer consumers financial products or services. Examples include consumer credit-reporting, money-transmitting and check-cashing companies, prepaid card issuers and debt relief services. To fall within the new rule, a nonbank must be engaged in activities the CFPB has reasonable cause to determine pose risks to consumers.

In a statement, CFPB Director Richard Cordray called the rule an important step in the agency's effort to build a strong program to supervise these nonbanks.

"This rule clearly lays out how we plan to implement our supervisory authority over nonbanks that we determine pose risk to consumers. We are also providing the industry with a streamlined process that is fair and efficient," Cordray stated.

The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to supervise any nonbank that it has reasonable cause to determine has engaged or is engaging in conduct that poses risks to consumers with regard to consumer financial products or services. Such conduct could involve potentially unfair, deceptive or abusive acts or practices or other acts or practices that potentially violate federal consumer financial law. The CFPB must base its reasonable cause determinations on complaints collected by the agency or information from such other sources as judicial opinions and administrative decisions, the CFPB said.

The new rule outlines procedures the CFPB will use to notify a nonbank that it is being considered for supervision, sets out procedures the CFPB will follow to give the nonbank a reasonable opportunity to respond to the notice, and creates a mechanism for nonbanks to file a petition to terminate CFPB supervisory authority after two years.

Notification means the CFPB may be supervising the nonbank.

The Dodd-Frank Act also authorizes the CFPB to supervise certain nonbanks, regardless of their size, in specific markets, namely, mortgage companies, payday lenders and private education lenders. The CFPB also can supervise certain larger participants in other nonbank markets.

Follow me on Twitter: @marciegeff.

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