The Consumer Financial Protection Bureau (CFPB) launched their nonbank supervision program recently. So what exactly is a nonbank? It’s an entity that offers or provides financial products or services but does not have a bank, thrift or credit union charter. Nonbank providers include payday lenders, many mortgage lenders, mortgage servicers, money services companies (check cashing stores), debt collectors and the credit reporting agencies.
Many consumers may be surprised to learn that these nonbank entities have traditionally operated under a different set of federal-level rules than banks and credit unions.
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While chartered banks, thrifts and credit unions have historically been regulated and supervised by a variety of different agencies on both a state and federal level (and will continue to be with the CFPB), many consumer protection entities have concerns that these so-called nonbank entities have not always been held accountable to the same rules and standards at the federal level, which subjects consumers who use nonbank services to potentially unfair and deceptive practices.
And there are a lot of consumers who use the services provided by these nonbanks. According to the CFPB, an estimated 20 million consumers use payday loan services, 14 percent of consumers have one or more loans in debt collection and approximately 2 million new mortgages were opened in 2010 with nonbank mortgage companies. Also, most U.S. consumers have a credit bureau report housed and managed by Equifax, Experian and TransUnion.
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The CFPB reports that their nonbank supervision program will be very similar to the bank supervision program. The CFPB will conduct examinations to ensure the nonbanks are complying with the federal consumer financial laws, as well as to evaluate and understand potential risks to consumers surfacing from the nonbank entities. This will also allow the CFPB to remedy violations that may harm consumers.
Consumers will likely see little in the way of immediate change, as this process is just getting started, but it will be interesting to track and monitor progress as the new supervision program is enacted.
The CFPB is interested in hearing from consumers regarding their experiences (with the chartered banks and nonbank entities) or if you have questions—just visit www.consumerfinance.gov.
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Image: Orin Zebest, via Flickr.com