Less than a day into his new position as director of the Consumer Financial Protection Bureau, Richard Cordray announced a new arm of the agency that will police nonbanking entities. A nonbank is pretty much any kind of lender or consumer financial product service that doesn’t have a bank, thrift or credit union charter. (See a rundown of all nonbanks in the U.S.)
Mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors and money service companies all fall under that umbrella.
The new program rounds out the CFPB’s existing banking supervision branch, which wasn’t authorised to oversee nonbanks while lawmakers bickered over Cordray’s appointment.
“This is an important step forward for protecting consumers,” Cordray said in a statement Thursday. “Holding both banks and nonbanks accountable to consumer financial laws will help create a fairer, more transparent market for consumers. It will create a better environment for the honest businesses that serve them. And it will help the overall economic stability of our country.”
Nonbanks provide services to a huge number of consumers and until the CFPB was created under the Dodd-Frank Act, there was no agency solely responsible for keeping them in line with federal laws.
Nearly 20 million consumers rely on payday loans and about 200 million Americans use credit reporting agencies like Experian and TransUnion for their credit histories, according to the CFPB. And nonbank mortgage lenders generated more than 2 million new mortgages in 2010.
Much like its regulation fo banking entities, the watchdog will conduct individual examinations of nonbanks based on their business size, the type of services they render and the risk they pose to consumers.
Examiners, who will be stationed in several major cities across the country, will also review the business’s products and services over their entire life – from the development stage to marketing, sale and management.
If they find a company out of line with federal consumer protection laws, they can bring legal action and enforce corrective actions.
Now that the nonbanking branch is functioning, the agency will also be able to really start cracking down on shady private student loan lenders. They started taking complaints from students hit hard by private lenders in the fall.
Despite its lack of a director, the CFPB has made big strides since its creation last summer. Interim Director Raj Date oversaw the creation of the Know Before You Owe campaign, which has been cracking down on shady credit lending practices.
The agency also consolidated two federally required mortgage disclosures into a simple form that makes the loan process more transparent to consumers.
It’s also been charged with enforcing the CARD Act, which was put in place back in 2009 to try to curb interest rate increases on consumer credit cards. The agency says less than two per cent of cards saw interest rate hikes versus 15 per cent before the act was implemented.
In early December, it unveiled the prototype for a new transparent credit card agreement and began taking consumer complaints about mortgage lending practices on its site.