In his first move as the first director of the Consumer Financial Protection Bureau, Richard Cordray has introduced the Bureau’s Nonbank Supervision Program. The Bureau wants banks and nonbanks — non-traditional financial services providers like payday loan providers and prepaid card corporations — to “play by the same rules.”
“There are currently thousands of nonbank businesses that offer consumer financial products and services, and consumers interact with them all the time,” says the memo. “While banks, thrifts, and credit unions historically have been examined by various federal regulators, nonbanks generally have not.”
The Bureau seeks to protect consumers from potentially dishonest business practices in this under-regulated industry. So, they will hold nonbanks to the same standards that they hold banks to: they must, in other words, follow consumer financial laws. The memo makes explicit mention of the Truth in Lending Act and the Equal Credit Opportunity Act.
As for which sorts of businesses will fall under the Nonbank Supervision Program’s purview, the Bureau is at least a little vague. They grant themselves the “authority to oversee nonbank business, regardless of size, in certain markets,” including mortgage orginators and servicers (who Cordray has a history with), payday lenders and private education lenders.
For other nonbank financial institutions, the CFPB will supervise the “larger participants” once they manage to come up with a definition for what that means.
Cordray spoke at the Brookings Institution on Thursday in Washington D.C., and outlined his vision for what the CFPB’s regulatory role will be, now that it has fully vested its powers with him at the helm.
Cordray said the following to the crowd of policy wonks and journalists, according to Firedoglake:
“[Nonbanks] are important markets. Many provide valuable services to customers who lack access to other forms of credit. And they are big markets. Nearly 20 million American households user payday lenders, and pay roughly $7.4 billion in fees every year. Many subprime loans during the housing bubble were made by nonbank mortgage brokers. Since most of these businesses are not used to any federal oversight, our new supervision program maybe a challenge for them. But we must establish clear standards of conduct so that all financial providers play by the rules.”
Interesting. Seems to be in line with what we gleaned from his record as Ohio Attorney General. The CFPB isn’t here to make banks jump through more hoops before they can lend money to individuals and businesses; they’re here to use the power of the federal government to keep the bad guys out of the game.
Read the full memo here.