“The CFPB should be encouraged to adopt a
formal policy or rule that exempts smaller
nonbanks from being subject to
CFPB exams or audits.”
Another option
The irony is that the CFPB, under Dodd-Frank, has a statutory requirement to
exercise risk-based supervision discretion that takes into account a nonbank’s size, volume, product risk and
the extent to which the lender is subject to oversight by state authorities
for consumer protection. This is spelled
out under subsection 1024(b)(2) of the
Dodd-Frank Act.
Full implementation of this sub-
section would immediately reduce
compliance costs for the midsize and
smaller mortgage companies. That’s
because it would spare them from
preparing for redundant federal audits
and allow these nonbanks to build their
staff resources in other areas.
This is not to say nonbanks should
be totally exempt from all regulation.
Each state and any agency dealing with
these companies has the authority to
refer them to the CFPB for audit and
corrective actions, should violations
be found. If the Dodd-Frank risk-based
provisions were to be fully applied,
however, the CFPB would not have to
take on day-to-day regulatory respon-
sibility for overseeing nonbanks — just
like they now do not have such respon-
sibility under Dodd Frank with respect
to other similar-sized traditional banks.
In June 2017, the Treasury Department released a detailed report on
regulatory issues, which highlighted
unnecessary regulatory burdens, with
recommendations to address them.
A major conclusion of that report was
that the CFPB’s supervisory authority is
duplicative and unnecessary.
Treasury’s report noted that CFPB
supervisory authority extends to
state-licensed nonbanks that neither
enjoy special status under federal law,
“nor is regulation needed to address
moral hazard created by deposit
insurance,” given nonbanks don’t take
in deposits.
The report underscores the effec-
tiveness of state oversight, noting that
state supervisors “were often leaders in
identifying consumer-protection prob-
lems during the financial crisis and have
a unique perspective into the financial
services available and needs in their
communities.”
The report concluded by calling
on Congress to repeal the CFPB’s
duplicative supervisory authority,
recommending that “supervision of
nonbanks should be returned to state
regulators, who have proven experi-
ence in this field and an existing process
for interstate regulatory cooperation.”
n;n;n
The CFPB should be encouraged to
adopt a formal policy or rule that exempts smaller nonbanks from being
subject to CFPB exams or audits. In addition, the industry should urge the CFPB
to adopt a policy or rule that limits its
authority to take enforcement action
against smaller nonbanks unless one of
their state regulators or another federal
regulator provides a referral to investigate and take action.
Congress doesn’t need to act in the
case of easing regulatory burdens on
nonbank lenders. The industry just needs
to ensure the CFPB is fully adhering to
the statutory requirements of the Dodd-Frank Act.;n
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