Richard Cordray is wasting no time as the newly appointed head of the Consumer Financial Protection Bureau.
In a speech today at the Brookings Institution in Washington, he announced that the agency has officially launched its program for supervising non-banks. "We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders and other firms that often compete with banks but have largely escaped any meaningful federal oversight,” he said to a standing-room-only crowd.
Cordray also defended his recess appointment, stating, “The appointment is valid.” Republicans in Congress protested that the Senate was not in adjournment long enough for President Obama to make the recess appointment yesterday.
With a director in place, the CFPB now has the authority to turn its attention to financial services provided by non-banks. According to the agency, nearly 20 million consumers use payday loans, roughly 200 million Americans rely on credit reporting agencies to report their credit histories accurately, 14 percent of consumers have one or more debts in collections, and nonbank lenders originated almost 2 million new mortgages in 2010.
“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,” Cordray said.
He hinted at enforcement actions in the pipeline. “We took over a number of investigations from other agencies in July, and we are pursuing some investigations jointly with them,” he said. “We have also started our own investigations. Some may be resolved through cooperative efforts to correct problems. Others may require enforcement actions to stop illegal behavior.”
According to the CFPB, the non-bank supervision program will include conducting individual examinations and “may also include requiring reports from businesses to determine what businesses need greater focus. How often and to what degree the examinations are performed will depend on CFPB’s analysis of risks posed to consumers based on factors such as the non-bank’s volume of business, types of products or services, and the extent of state oversight.”
Under the Dodd-Frank Act, the CFPB has specific authority to oversee mortgage companies (originators, brokers, and servicers including loan modification or foreclosure relief services); payday lenders; and private education lenders.
It can also oversee “larger participants” in other financial services markets. Defining what that means and determining who will be covered is likely to emerge as a major battle going forward. Last summer, the CFPB sought public comment on developing an initial rule for larger participants in six areas: debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities. The agency said it “will soon propose its initial rule on this issue.”
The non-bank supervision office at the CFPB is headed by Peggy Twohig, formerly the associate director of the Federal Trade Commission’s Financial Practices Division.