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ABA and CBA Joint Comment Letter on Nonbank Supervision
Dear Director Chopra,
The American Bankers Association and Consumer Bankers Association (the Associations) appreciate the opportunity to comment on the Consumer Financial Protection Bureau’s (Bureau, or the CFPB) procedural rule amending the risk-determination procedures applicable to the Bureau’s exercise of supervisory authority over a nonbank entity that may “pose risks to consumers” regarding the provision of consumer financial products or services (Procedural Rule).
I. Summary of Comment
The Associations fully support the authority given to the Bureau in section 1024 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to supervise nonbank providers of consumer financial products or services (nonbanks) to ensure that federal consumer financial law is “enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.” Section 1024(a)(1)(C) authorizes the Bureau to supervise nonbanks that “pose risks to consumers” (Nonbank Risk-Based Supervision Authority). That authority allows the Bureau to move quickly to supervise entities that present an immediate risk of harm to consumers. Under the Bureau’s 2013 final rule implementing the Nonbank Risk-Based Supervision Authority provision, the Bureau may exercise supervision of the nonbank for a period of two years under this authority.
We support the Bureau’s announcement that it will use this authority to increase nonbank supervision.8 We agree that the Bureau should act nimbly in response to emerging risks. At the same time, the Bureau’s use of this authority is no substitute for the Bureau’s supervision of nonbanks using its authority to supervise “larger participant[s]” in a market for financial products or services.9 That authority allows the Bureau to provide ongoing — not time-limited — supervision of these larger participants.
A cornerstone of Title X of the Dodd-Frank Act was the authority given to the CFPB to establish a supervisory program for nonbanks to ensure that federal consumer financial law is “enforced consistently, without regard to the status of a person as a depository institution, in order to promote fair competition.” Consumer protection laws and regulations must be enforced in a fair, comparable, and rational way for legal and regulatory obligations to be observed. The Associations have long believed that establishing comparable accountability across all providers of comparable financial products and services is a fundamental mission of the Bureau. Only through ongoing supervision does an entity expend the resources to develop the practices, procedures, training, and other components of an effective compliance management system that promotes the entity’s compliance with consumer protection laws. We urge the Bureau to initiate expeditiously rulemakings to define data aggregators and nonbank consumer installment lenders as “larger participants” in their respective markets.
By the Procedural Rule, the Bureau proposes to establish a process for it to release publicly all or part of any decision or order (collectively, orders) subjecting the entity to the Bureau’s supervision. While we appreciate the Bureau’s intent to provide transparency in how it carries out its work, we oppose this change. Confidentiality has long been a bedrock principle of the supervisory process, and it should be preserved. We are concerned that the release of the Bureau’s orders would set a harmful precedent by disclosing confidential supervisory information.
We do not agree that the public release of these orders will provide helpful guidance to regulated entities about the CFPB’s interpretation of the law and regulations it enforces. Instead, the orders will be based on limited information regarding conduct that the CFPB has not investigated fully and only believes may be illegal, leaving the public and industry to speculate about what conduct might violate the relevant statute or regulation. Indeed, we believe the public release of these orders will exacerbate the challenges of “regulation by enforcement,” generating uncertainty among regulated entities and increasing their legal exposure, which discourage innovation in the design and delivery of financial services. Rather than seeking to provide transparency through these orders, we recommend the Bureau adopt procedures permitting the public release of the name of each nonbank subject to the Bureau’s supervision pursuant to its Nonbank Risk-Based Supervision Authority and issue Supervisory Highlights publications to inform companies of emerging risks to consumers.