Banks Make Peace with CFPB Over Regulating Nonbanks

In an ironic twist, the commercial banking industry is coming to the defense of the Consumer Financial Protection Bureau.

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While still skeptical about the bureau’s existence, banks are squarely in its corner in terms of regulating the competition. In recent comment letters on the bureau’s options for supervising nonbanks, banking trade groups uncharacteristically push the bureau to be aggressive with its nonbank supervision program and praise CFPB for starting the program early. Others are left to play the role of agitator, arguing the CFPB is overreaching.

The American Bankers Association “fully supports the bureau’s preliminary efforts to define its nondepository supervisory scope as it prepares for the future exercise of that supervision authority,” Virginia O’Neill, senior counsel for the ABA’s Center for Regulatory Compliance, wrote in a letter Aug. 15. “This approach has been a model effort to seek broad, careful, and thoughtful input in the important early stages of developing a rule proposal.”

In addition to its authority over banks, the Dodd-Frank Act authorized the bureau to write and enforce rules for all nonbank mortgage lenders, payday lenders and private education lenders, as well as certain nonbank firms in other markets. But first the bureau must define the scope of the nonbank firms it will supervise.

Meanwhile, the bureau is limited by the fact that it does not have a confirmed director in place, which under the law prevents the agency from actually supervising any nonbank.

Despite the leadership void, the bureau says it can still gather information about devising the nonbank program. In June, its “notice and request for comment” — one step short of an actual proposal — indicated the bureau plans to oversee “larger participants” in six credit-related nonbank sectors.

The notice sought input about each sector — debt collectors; consumer reporting agencies; money transmitters; prepaid-card issuers; debt-relief services; and other consumer lenders — and about how to define “larger participants.”

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