WASHINGTON The Consumer Financial Protection Bureau finalized a rule Wednesday that expands its supervisory authority to begin selectively examining nonbank entities.
The rule sets procedures for how the agency will supervise nonbanks and which companies it will select based on whether their activities pose a risk to consumers.
"This is an important step in our effort to continue building a strong supervision program," said CFPB Director Richard Cordray, in the release. "This rule clearly lays out how we plan to implement our supervisory authority over nonbanks that we determine pose risk to consumers."
Since last year, the CFPB has begun regulating certain nonbank entities such as debt collectors and payday lenders through other authorities given to it under the Dodd-Frank Act. It has also taken a more holistic approach in how the agency approaches such supervision by, for example, ensuring that examiners are trained to look at banks and nonbanks in an effort to promote equal treatment.
The agency first proposed the nonbank supervision oversight plan in May 2012. The final rule outlines how the CFPB will notify a nonbank when it's being considered for supervision and give it an opportunity to respond. The Dodd-Frank Act gave the CFPB authority to supervise any nonbank that the agency feels has "reasonable cause" that its services or products pose a risk to consumers. The CFPB primarily bases its reasoning on the complaints it collects, which is another reason why the agency has expanded its online consumer complaint database this year.
The final rule also allows a way for nonbanks to file a petition to end the CFPB's supervisory authority after two years.
"We are also providing industry with a streamlined process that is fair and efficient," Cordray said in the release.
Overall, the agency's ability to regulate nonbanks extends well beyond this particular rule. The CFPB cautioned in the release that while this rule is based on risk determinations, the Dodd-Frank Act also gave it authority to supervise any sized nonbank based on specific markets such as mortgage companies, payday lenders and private education lenders. The CFPB can also supervise certain nonbanks under its "larger participants" rule based on its own determination. In the last year, the agency has expanded this rule to supervise the credit reporting market, debt collectors and it recently proposed to supervise the student loan servicing market.
The final nonbank supervision rule will take effect 30 days after being published in the Federal Register.