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1 [1] (August 29, 2024)

handle is hein.crs/goveqmd0001 and id is 1 raw text is: Con re &on 2 fles arming I len Ii ivede a August 29, 2024 The Consumer Financial Protection Bureau (CFPB) Finalizes Rule for a Registry of Nonbank Covered Orders Nonbank consumer finance companies offer consumer finance products or services but do not have traditional bank or credit union charters and are subsequently less regulated, in general, at the federal level. Examples of nonbanks include financial technology companies (fintechs), payday lenders, and debt collectors. The Consumer Financial Protection Bureau (CFPB) is the primary federal supervisory regulator tasked with consumer financial protection for larger nonbank participants, as defined by the CFPB, and all nonbanks in certain sectors such as mortgages and payday lending. The CFPB's regulatory and enforcement scrutiny of nonbanks has increased in recent years. The CPFB has been increasingly focused on regulatory actions that it argues would improve transparency and accountability among nonbanks and that it argues could alleviate the potential risks they could pose to consumers. In July 2024, the CFPB issued a final rule mandating that nonbanks register previous public actions-including consent orders and enforcement actions-undertaken by financial regulators (such as the CFPB), other federal agencies, state or local governments, or the courts. The CFPB intends to publish this information on its website. In addition to the registration of covered orders, this rule requires a company executive to issue annual statements to the CFPB attesting compliance with these covered orders. The CFPB argues that this rule will help bring transparency to the financial marketplace and enable the agency and other regulators to more effectively monitor risks in the nonbank market. Nonbank industry groups disagreed with the CFPB's characterizations of the rule and argued that this rule duplicates existing public registries, is costly, and acts as a scarlet letter registry that ultimately discourages settlements and encourages lengthy litigation. H.R. 8773, the FY2025 Financial Services and General Government appropriations bill in the House, includes provisions in Section 501 that would bring the CFPB under normal congressional appropriations and in Section 504 that would prohibit those congressionally appropriated funds from being used to implement this final rule. Nonbank Markets and Regulation Since the Great Recession, nonbanks have become increasingly important in financial markets including small business lending and mortgage lending. Nonbanks originated roughly two-thirds of all mortgages in 2023 and made roughly half of personal loans by loan balance in 2019. Nonbanks have traditionally dominated financial services such as debt collection, payday lending, and credit reporting. Nonbanks have arguably succeeded in part due to regulatory arbitrage, where they are sometimes not subject to the same level of regulatory scrutiny as banks are. For example, nonbanks generally avoid costly capital requirements and stress tests. One study by academic economists found that 60% of the growth in nonbanks in the mortgage lending sphere from 2007 to 2015 was as a result of this regulatory arbitrage. New pricing technologies that nonbanks have adopted are arguably enabled by this different regulatory regime. According to research, these new pricing technologies has resulted in nonbanks making increased loan originations to traditionally underserved borrowers with faster origination speeds. Since its establishment, the CFPB has brought nearly 350 enforcement actions against nonbanks. The regulatory scrutiny of nonbanks by the CFPB and other financial regulators has increased in recent years, including this final rule. In general, the CFPB is concerned about potentially risky conduct by nonbanks that might cause harms to consumers. For example, recent CFPB rulemakings included new federal oversight and examinations of digital wallets and payment apps primarily developed by nonbanks. In addition, the CFPB has mandated Truth in Lending Act (TILA) disclosures for certain alternative products popularized by nonbanks: buy now, pay later and earned wage access. Fina Rue Deta s Nonbanks must have at least $1 million in total annual receipts for consumer-finance-related transactions to be covered by this rule. This rule includes nonbanks that are affiliates or subsidiaries of banks or credit unions. In total, the CFPB estimates that there are 155,043 nonbanks that are large enough to potentially report. Of those potentially eligible nonbanks, 1-5% of these nonbanks, or between 1,550 and 7,752 nonbanks, have previous public actions issued since 2017 that they would have to report to the nonbank registry. To comply with the final rule, nonbanks are required to submit copies of each final covered order. Covered orders are the final, public, written action undertaken by regulators for violations of consumer financial laws, including consent orders and public enforcement actions. Generally, these orders spell out the alleged misconduct undertaken by the nonbanks and the actions they must (or were required to) undertake to remedy the violations for the future. Such restitution could include monetary penalties for consumer relief and/or corrective actions required to remedy the violation. The CFPB plans to use these final covered orders to create a public online registry.

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