WASHINGTON — In an ironic twist, the industry is coming to the defense of the Consumer Financial Protection Bureau.
No, you did not read that wrong. While still skeptical about the bureau's existence, banks are squarely in its corner in terms of regulating the competition. In 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."
When the bureau released the notice, Elizabeth Warren, then the CFPB's de facto leader, said it was important to get the ball rolling in ensuring regulatory equity between banks and nonbanks. (Dodd-Frank has no limits on the bureau enforcing rules for big banks without there being a director in place.)
"This is a down-payment on the agency's commitment to leveling the playing field for all financial services providers," Elizabeth Warren, the agency's architect who until last month was the administration official in charge of launching it, said. "Consumers deserve the peace of mind that financial companies — banks and nonbanks — are following the rules."
The bulk of comments — totaling more than 10,000 — were submitted by consumers or consumer advocates urging the bureau to craft a broad definition to include everyone from to include various nonbank institutions, from companies that conduct employer background checks, to the manufactured housing finance market, to debt relief agencies.
Rep. Carolyn Maloney, D-N.Y., one of the bureau's most outspoken supporters, said the "larger participant" definition should allow for the most expansive inclusion possible.
"Simply put, the more market participants that fall under CFPB supervision, the more transparent and clear the market will become as a whole," Maloney said in a comment letter.
Whereas the banking industry has mostly argued for strict limits on the bureau's reach, comments on the nonbank plan sided with consumer advocates, calling for the agency's authority to be robust.
Robert C. Hunter, the deputy general counsel for the Clearing House Association, which represents large banks, said the agency should not be stingy in targeting nonbank players.
"The Clearing House believes that the CFPB should define 'larger participant' broadly to avoid harm to consumers and an unlevel playing field in these markets," Hunter wrote in an Aug. 15 letter. "Any nondepository engaged to any material degree in the business of consumer financial products or services should be considered a 'larger participant' subject to supervision … and, consistent with its statutory purposes, the CFPB should cast a wide net in determining which larger participants should be subject to risk-based supervision."
The Consumer Bankers Association, which urged the White House to nominate a director so banks do not bear all the regulatory burden, said it fully supports the CFPB's efforts to collect information.
"Proper implementation of these provisions is critical to achieve one of the most important goals of the agency, which is to level the playing field of financial services regulation by providing comprehensive federal oversight of the tens of thousands of nonbanks that operate across the country," Jeffrey P. Bloch, the group's senior regulatory counsel, wrote in an Aug. 15 letter.
But other groups less tied to banking were critical, arguing the bureau had overreached just by requesting comment before a CFPB director was confirmed by the Senate. Under Dodd-Frank, the Treasury Department has the final say on bureau policy before a director is installed, but commenters noted Treasury should not be authorizing rulemaking decisions.
"Congress surely intended the director, not the secretary, to oversee all phases of the rulemaking process" with respect to nonbank supervision rules, wrote David Hirschmann, chief executive for the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, and U.S. Chamber Institute for Legal Reform President Lisa Rickard. "These phases include not just the period after the formal publication of the proposed rule, but also the process of crafting the rule."
Their letter, dated Aug. 15, called on the bureau to end all work on the larger participant rule until a director is confirmed.
"In addition, we ask the secretary and the CFPB to issue detailed guidance explaining what authority, if any, the bureau may have to undertake action that concerns a bureau function that is not authorized by" Dodd-Frank, they wrote.
Others, meanwhile, called for a more limited definition of the nonbank firms the agency will oversee. The Consumer Credit Industry Association, a trade association of insurance companies that sell credit insurance and debt cancellation products, said the bureau should not target firms whose industries are already regulated by others.
"Businesses that are adequately regulated on a state level or by other federal entities should not be subject to another reporting requirement to the CFPB," Scott J. Cipinko, the group's executive vice president, said in the letter.
On the other side of the coin, the Independent Community Bankers of America said the bureau should include a wide variety of criteria in its definition of larger participant.
Depository institutions "providing similar consumer financial products and services receive regular compliance examinations," wrote Lilly Thomas, ICBA's vice president and regulatory counsel. "Conversely, certain nondepository institutions have not historically been examined. Such inconsistent supervision can lead to lax compliance and harm consumers."
