WASHINGTON, D.C. — As dealers and lenders brace for more regulation, the Consumer Financial Protection Bureau earlier this week unveiled an expansion of its bank supervision program that began last July.

Officials indicated the expansion now includes nonbanks, ensuring that banks and nonbanks "play by the same rules."

The CFPB defined a nonbank as a company that offers or provides consumer financial products or services but does not have a bank, thrift or credit union charter.

"There are currently thousands of nonbank businesses that offer consumer financial products and services, and consumers interact with them all the time," bureau officials explained on their online blog.

"If you've taken out a payday loan, received a call from a debt collector, or accessed your credit report, you may well have done business with one yourself," they continued.

"These common transactions add up to a big part of the overall market for consumer financial products and services, and the importance of nonbanks has grown substantially over the last few decades," officials added.

While banks, thrifts and credit unions historically have been examined by various federal regulators, CFPB noted nonbanks generally have not.

By requiring the CFPB to examine nonbanks, officials said the Dodd-Frank Act — the law that established the CFPB — sought to ensure that consumers get the benefit of federal consumer financial laws on a consistent basis.

Officials believe this supervisory coverage will help "level the playing field" for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve them.

The Big Picture for the Nonbank Supervision Program

The CFPB recapped its supervision program for large banks, thrifts, and credit unions — those with assets of more than $10 billion — began operations on July 21.

CFPB explained its nonbank supervision will begin in phases.

Effective immediately, the CFPB has authority to oversee nonbank businesses, regardless of size, in certain markets: mortgage companies (originators, brokers, and servicers, and loan modification or foreclosure relief services); payday lenders; and private education lenders.

For all other markets — such as debt collection, consumer reporting, auto financing, and money services businesses — the CFPB may supervise "larger participants" after defining what "larger participant" means.

"We already have taken important first steps to develop a ‘larger participant' rule — that is, we asked for public feedback on developing a rule," officials insisted.

"So far, we've received thousands of public comments and have met with trade groups, consumer and civil rights groups, and various state and federal regulators to get their input," they continued.

"Based on their feedback, we have been hard at work preparing an initial ‘larger participant' rule," they went on to say. "We will issue a proposed initial rule very soon. We will notify you on this blog when we announce the publication of the proposed rule and tell you how you can comment on our proposal."

According to the Dodd-Frank Act, the legislation also says that the CFPB may supervise any nonbank that it has a reason to determine is engaging or has engaged in conduct that "poses risks to consumers with regard to consumer financial products or services."

The CFPB emphasized it will be publishing rules setting out procedural guidelines for implementation of this provision.

Tools at CFPB's Disposal

Officials reiterated the purpose of the CFPB's nonbank supervision is to prevent harm to consumers and promote the development of markets for consumer financial products and services that are "fair, transparent, and competitive."

To accomplish these goals, the CFPB said it will assess whether nonbanks are conducting their businesses in compliance with federal consumer financial laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act.

The CFPB emphasized its approach to nonbank examination will be the same as its approach to bank examination. It may include a combination of any of the following tools:

—Requiring nonbanks to file certain reports.
—Reviewing the materials the companies actually use to offer those products and services.
—Reviewing their compliance systems and procedures.
—Reviewing what they promised consumers.

In general, CFPB noted it will notify a nonbank in advance of an upcoming examination.

Consistent with the Dodd-Frank Act, the CFPB also is implementing a risk-based nonbank supervision program.

"On an ongoing basis, we will be assessing the risks posed to consumers in the relevant product markets," officials explained.

"When considering whether and how to supervise particular nonbanks.

"We will consider several relevant factors, including the nonbank's volume of business, types of products or services, and the extent of state oversight," they indicated.

CFPB pledged to coordinate with other federal and state regulators.

"This coordination will help us allocate resources where they are most needed and minimize burdens on the nonbanks," officials stressed.

"We have built — and continue to build — a highly qualified supervision and examination staff to execute on all of these important goals," they asserted. "Many examiners have come to the CFPB from state and federal bank and financial services regulatory agencies and they bring extensive experience in conducting examinations. We are training all of our examiners in CFPB supervision policies and procedures and integrating them into a coherent team."

The CFPB supervision staff will cover the nation, reporting to regional offices in San Francisco, Chicago, Washington, D.C., and New York.

Ongoing Dialogue

The CFPB again told interested parties such as dealers and lenders to contact the bureau to offer additional feedback through its website.

"As we move forward in building and implementing our supervision program, we will keep you informed of important developments, policies and procedures," officials maintained.

"We also want to hear from you. We would like to be part of an ongoing conversation with you about the CFPB supervision program," they continued.

Letter From New Director

After being tapped by President Barack Obama, director Richard Cordray issued an introductory letter on CFPB's website.

The entire letter is published below:

Today, I was appointed by President Obama to serve as the first Director of the Consumer Financial Protection Bureau. I am honored by this opportunity to continue my work on behalf of consumers. And I am energized by the responsibilities and challenges facing the Bureau.

The importance of this day has less to do with me personally and much more to do with you — and the millions of individuals and families across the country who access consumer financial markets every day to participate in our economy and to pursue their dreams and aspirations. That's because now, with a Director, the CFPB can exercise its full authorities — with respect to both banks and nonbanks — to help those markets operate fairly, transparently, and competitively.

Consumer finance is a big part of our economy — and it plays a large role in the daily life of almost every American. Few people spend their entire lives with so much wealth available to them that they never need to borrow money. Whether it is to pay the bills and meet their everyday needs, or to finance larger investments in their futures like an education or a home, most people find it necessary to use financial products to access credit.

Financial products can help make life better, but they can also make life harder. Most of us know at least someone – a parent or sibling or friend — who has money troubles. Sometimes, those troubles are caused by a tough break or just not having enough money to go around; other times, by a poor decision. But sometimes, those consumer money troubles arise out of problems in the consumer financial markets. I have seen senior citizens lose their life savings to scams and fraud. I have seen young adults start their lives with crushing student loan debt burdens that they cannot afford. I have seen families bankrupted, and thrown out of their homes, by complex mortgages with spiraling interest costs and monthly payments that were never clearly explained.

In its first six months, the CFPB has taken significant steps to make consumer financial markets more transparent so they work better for consumers and for responsible businesses. Our Know Before You Owe campaign has worked to improve disclosures and make the costs, risks, and benefits of financial transactions easier for consumers to understand. We have also launched our bank supervision program. CFPB examiners are now on the ground at the nation's largest financial institutions, reviewing documents and asking tough questions about how these banks are complying with consumer financial protection laws.

One difficulty we faced until now was that, without a director, we were unable to address all the problems we were created to tackle. In particular, we lacked the ability to supervise financial institutions other than big banks — like nonbank mortgage lenders and servicers, and payday lenders. Many of these institutions had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers.

I am pleased to say that, starting today, we can now exercise the full authorities granted to us under the law and begin to supervise these nonbanks. Standing up this program is a top priority for the CFPB. Over the coming weeks we'll be announcing more information about this program and how it will help to improve the consumer financial markets.

As we move forward, please let us know what you think. My colleagues and I are determined to deliver positive results for American consumers in all of our efforts. We want people to know what we are doing and we want to hear their reactions. We are confident that, with help and input from consumers and honest businesses, we can play an important role in safeguarding consumers, consumer financial markets, and the American economy.