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CFPB establishes procedural rules for non-bank supervision program

The Consumer Financial Protection Bureau recently announced its proposed rules that would establish procedures to extend the watchdog agency’s supervision to non-bank institutions as mandated by the 2010 Dodd-Frank Act.

Under Dodd-Frank, the CFPB also has the ability to exercise its supervisory authority should an unresponsive non-bank’s activities and products be deemed a threat to the American consumer. The rule proposed by the CFPB would establish procedures used to make that determination and extend its supervisory authority.

The CFPB, under the rule, would initiate contact with a non-bank through a Notice of Reasonable Cause, which includes details related to the CFPB’s belief that the non-bank poses a risk to consumers. The non-bank would then have 20 days to take action after receiving the notice, which would further include a statement explaining the details of a response and the consequences, should the institution fail to respond.

The non-bank would be allowed to appeal its designation as a non-bank institution subject to CFPB oversight or accept the CFPB’s supervisory authority. Should an institution assert that it should not be supervised, information in writing, including evidence and an affidavit guaranteeing the validity of all information, must be provided.

The non-bank may further request a supplemental oral hearing to make further arguments in its case against supervision, though this request must be supplied in the response. Once the CFPB receives the request, the agency would contact the non-bank institution within 14 days to schedule and provide details of a hearing.

After the CFPB receives the non-bank’s response, the assistant director of the CFPB will issue an initial determination within 45 days. Should the non-bank request a supplemental oral hearing, this time period would be extended to 90 days. Then, once the CFPB director receives the initial recommendation, he or she would then issue a final recommendation within 45 days that would either release from or subject the non-bank to CFPB oversight.

The rule is open for comment until July 24.