One day after President Obama appointed Richard Cordray as director of the Consumer Financial Protection Bureau over the objections of Senate Republicans, the bureau announced the launch of a new “nonbank supervision program.”
What’s a “nonbank”? That’s the CFPB’s term for a lender that doesn’t have a bank, thrift, or credit union charter. Mortgage lenders, payday loan operations, debt collectors, and consumer reporting agencies are all considered “nonbanks.”
Millions of Americans deal with nonbanks regularly: Some 20 million consumers utilize payday loan services, while 2 million new mortgages were originated with nonbank lenders in 2010, and 14% of consumers have debt collectors after them.
The CFPB’s new supervision program doesn’t create any new regulations for nonbanks to follow. Instead, the program is intended to ensure that nonbanks comply with existing federal regulations. In a press release, the bureau’s new director explained why the new program is essential:
“This is an important step forward for protecting consumers,” said Richard Cordray, Director of the CFPB. “Holding both banks and nonbanks accountable to consumer financial laws will help create a fairer, more transparent market for consumers. It will create a better environment for the honest businesses that serve them. And it will help the overall economic stability of our country.”
During a speech on Thursday at the Brookings Institution, Cordray focused especially on concerns over nonbank mortgage lenders. “Novel and exotic mortgages battered housing markets and triggered the financial crisis that wrecked the economy and hurt millions,” Cordray said. “Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them. … But we must establish clear standards of conduct so that all financial providers play by the rules.”
The CFPB launched a similar supervision program last July, aimed specifically at oversight of banks. Now, the CFPB will have the authority to supervise nonbanks as well.
Instead of relying on “after-the-fact” investigations of potential wrongdoing, the CFPB will be empowered to conduct examinations of businesses as it sees fit. The bureau may also require reports, conduct interviews with nonbank workers, and observe the business in action to make sure that no federal laws are being violated.