WASHINGTON — The Consumer Financial Protection Bureau outlined procedures Thursday for notifying nonbanks that they may be subject to supervision if they pose a risk to consumers.
CFPB has the authority to regulate nonbank mortgage, payday and student lenders of any size, as well as larger participants in other markets that it designates. But the Dodd-Frank Act also allows the agency to oversee individual companies if it has reasonable cause to believe they pose risks to consumers.
"This is an important step in the development of our nonbank supervision program," Director Richard Cordray said in a press 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."
The bureau launched its nonbank supervision program on Jan. 5, and immediately began supervising nonbank mortgage, payday and student lenders.
It has also proposed a rule to oversee large debt collection firms and credit reporting agencies. The so-called larger participant rule must be finalized by July 21, after which the bureau is expected to propose rules to add other markets, including prepaid card issuers, money transmitters and debt relief services.
The proposal issued Thursday would lay out the process for designating certain additional firms that may not fall under those categories. The comment period is open for 60 days.
Under the proposed process, CFPB must provide advance notice to a firm that it has reason to believe it is engaging, or has engaged, in behavior that poses risk to consumers, including a description of the basis for the claim.
The company would then have two opportunities to respond to the notice — first in writing, then through an oral response over the phone, at the company's request. It would be required to include any documents, written records or other items that support its argument.
The agency said the procedures established by the rule would provide a more robust process for nonbanks to respond than Dodd-Frank requires.
"For example, to satisfy the statutory requirement that the bureau provide a reasonable opportunity to respond, the bureau need not offer respondents an opportunity to participate in a supplemental oral response," the agency said.
In fact, the rule isn't required by the Dodd-Frank Act, CFPB said in a press release.
The proposal is careful to note that the process is considered informal, and would not constitute an adjudicatory proceeding. Thus, no discovery would be permitted, the oral response would not constitute a hearing on the record, and no witnesses would be allowed to be called.
The notice also would not mean a company is subject to oversight, merely that the bureau is considering adding it to its list of supervised entities. It would give CFPB the authority to conduct exams and require reports from those firms.
After the company has a chance to respond, the bureau's assistant director for nonbank supervision would submit a recommendation to the director, who makes the final determination. A company may also consent to the bureau's supervision when it receives the notice, or at any time during the response process.
If the director decides to subject the nonbank to supervision, the company would be allowed to petition CFPB to remove the order after two years. A nonbank that voluntarily consents to supervision for a certain time period, however, would not be able to petition for the removal of the order.
"A petition for termination of an order provides a method for a respondent to inform the bureau of actions taken and progress made to reduce the risks to consumers after the issuance of the order," the agency said in the proposal.