August 9, 2022

Consumer Agency Asks for Definitions of Nonbanks

The Dodd-Frank financial regulation law, which became effective last July, specifically allows the new consumer bureau to regulate nonbank mortgage companies, private education lenders and payday lenders. But the law allows the bureau to regulate only “larger participants” in a host of other consumer finance markets.

By July 21, 2012, one year after the bureau’s start-up date, it must define what other services will fall under its jurisdiction and what it means to be a “larger participant” in those markets.

In its notice and request for comment, the bureau has proposed six markets that might be included: debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing and related activities; prepaid cards; and debt relief services.

But it also asks for comment on additional service areas that should be included in its jurisdiction, and whether the services need to be national in scope or if regional markets should be considered.

“Consumers deserve the peace of mind that financial companies, both banks and nonbanks, are following the rules,” said Elizabeth Warren, a special adviser to the Treasury secretary who is overseeing the agency’s start-up.

“The C.F.P.B. will be able to examine companies that have never been subject to federal oversight to ensure that no one is gaining an unfair advantage by breaking the law,” Ms. Warren said. “This will ultimately create fair competition, better product offerings and more transparent markets for consumers.”

Although the bureau is scheduled to begin operations next month, it is not allowed to begin oversight of previously unregulated entities until it has a director in place. Ms. Warren has been widely talked about as a potential director but President Obama has not yet nominated anyone to fill the post.

A nomination is subject to Senate confirmation, but 44 Republican senators have said they will not consider any nominee until structural changes are made in the bureau, including replacing its single director with a five-member commission.

Banks, credit unions and savings and loan companies have long been subject to regular examinations by federal regulators to ensure that they comply with consumer financial laws. The Dodd-Frank law expanded federal regulation to a host of financial service companies that previously had not been regulated but that some legislators felt had contributed to the instability that worsened the 2008 financial crisis.

The questions on which the bureau is seeking public input also include what criteria to use to measure a market participant, how to set the threshold for “larger participant,” whether to use a single test for all markets or specific market-related tests and over what time period a participant’s activities should be measured.

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