The Consumer Financial Protection Bureau today released a draft rule outlining how it plans to supervise debt collectors, consumer reporting agencies, money services companies and other small nonbanks that engage in “activities that pose risks to consumers.”
The draft rule sets out procedures to notify a nonbank that it is being considered for supervision and outlines how the nonbank can respond. Companies under CFPB supervision may be required to submit reports to the agency and undergo examinations.
Under the Dodd-Frank Act that created the CFPB, the agency has the authority to supervise any nonbank if the agency has a “reasonable cause” to believe it’s posing a risk to consumers based on complaints or other information. The law already gives the CFPB specific authority to supervise mortgage companies, payday lenders and private student loan lenders, and to oversee “larger participants” in other consumer financial product markets.
The proposed rule applies to small entities that might not otherwise be under the CFPB’s watch. “This is an important step in the development of our nonbank supervision program,” said CFPB Director Richard Cordray in a news release. “This proposal allows us to reach nonbanks that we would not otherwise supervise, while providing industry with a streamlined process that is fair and efficient.”
When the CFPB notifies a nonbank it is being considered for supervision, the agency said it will detail why it believes that the entity is “engaging in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”
The company will have two chances to respond – first in writing, and then orally, if the company requests it. The CFPB says this provides a “more robust process” than required by law.
The CFPB says the proceeding will be informal, and will not constitute an adjudicatory proceeding under section 554 of the Administrative Procedure Act. Under the draft rule, no discovery will be permitted, a supplemental oral response would not constitute a hearing on the record, and no witnesses would be permitted to be called. The CFPB’s assistant director will make a recommendation about supervision, and the CFPB director will make the final determination.
After two years, the company can petition the director for termination of supervision.
“Although the Dodd-Frank Act does not require that the CFPB issue this rule, the CFPB is issuing it to be transparent in its authorities and procedures, the agency stated.
The proposed rule is open for comment for 60 days.