On January 5, the Consumer Financial Protection Bureau (CFPB) opened a new initiative, the nonbank supervision program, which is designed to ensure that nonbank financial institutions comply with consumer financial regulations. As with the Bureau’s bank supervision program, the nonbank program enforces federal laws and examines potential risks to consumers from financial businesses.
A nonbank institution is a company that provides financial products, but is not a chartered thrift, bank, or credit union. Examples of nonbanks include mortgage lenders and servicers, payday lenders, loan modification and mortgage relief services, private education lenders, and money services companies. The nonbank supervision program is authorized to supervise small businesses as well as large corporations.
The thousands of nonbanks in the country make up a major segment of the financial marketplace. Approximately 20 million Americans use payday loan services while about 200 million rely on credit reporting agencies to give credit scores. Fourteen percent of Americans have one or more debts that are subject to debt collections agencies and nonbank lenders offered 2 million new mortgages in 2010.
During an investigation the agency will examine a business’s compliance with federal law through interviews with employees and observing the business’s operations. They will also examine the nonbank entity’s internal processes for detecting and preventing violations of federal law. Businesses that are found to be in violation of the laws will be subject to corrective actions, including requiring that the company strengthen its processes to prevent violations. When applicable, the agency will enforce laws through appropriate legal actions.
The CFPB has pulled examiners from various agencies, including the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, state banking regulatory agencies, and industry. The CFPB examiners will operate from field offices in San Francisco, New York, Chicago, and Washington, D.C. and will work to understand the business practices in different regional markets.
The CFPB was formed in response to the 2007 financial crisis and was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB brings together most federal consumer financial protection authority under one roof. Its focus is on protecting Americans in the market for consumer financial products and services. Among other responsibilities, the agency supervises providers of consumer financial products that had previously escaped federal oversight. One of its first initiatives was to redesign credit card statements to make them easier for the average consumer to read and understand. It is designed to protect Americans from deceptive, unfair, and abusive financial practices.