The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) have issued a joint comment letter to the Consumer Financial Protection Bureau (CFPB) in response to their request for comment on defining “larger participants” of a market for other consumer financial products or services.
In the comment letter, co-signed by Neil Milner, president and chief executive officer of CSBS and Darin Domingue, president of AARMR, CSBS and AARMR propose recommendations in three primary areas for the Bureau to consider. As the CFPB determines which markets should be subject to its larger participant jurisdiction, the organizations strongly encourage the CFPB to be mindful of state legal definitions of the market, state jurisdictional coverage, and the overall consumer protection priority of the market.
The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) also recommended that, when determining what entities are “larger,” the criteria and thresholds should be flexible, determined on an industry-by-industry basis, and based on aggregated institutional ownership. Lastly, if the CFPB were to utilize a registration system to track consumer financial markets, the CFPB should require the applicable covered persons to be registered in each state, accept a covered person as registered if they are licensed through the Nationwide Mortgage Licensing System & Registry (NMLS), and consider using NMLS as its system of registration for each covered person in a state.
“State regulators welcome a non-depository supervision partner in the CFPB, and they appreciate the robust dialogue the CFPB has had with them regarding various aspects of the Bureau’s functions,” said Milner. “Because of the impact the Bureau’s definitions will likely have on state law, state regulation, and state-regulated entities, it will be even more crucial that the CFPB works with state regulators as it develops these new definitions.”
The Dodd-Frank Act gives the CFPB authority to regulate payday lenders, mortgage companies, and private student lenders. For all other non-depository consumer financial products or services, the CFPB has authority over those entities it deems to be “larger participants” in the greater market. Accordingly, before the CFPB can regulate these entities, it must first define “larger participant of a market for other consumer financial products or services.”
Section 1022(c) of the Dodd-Frank Act authorizes the CFPB to require registration of covered persons and requires the CFPB to consult with state agencies in the development and implementation of any registration requirements or systems. Registration can be used to provide important data that can inform the identification of larger market participants, and it can serve as an important component of the CFPB’s supervisory regime for larger nondepository market participants.
The states, for several years, have been in the process of building and implementing a national registration and licensing system and database for mortgage companies and mortgage loan originators—the NMLS.
"CSBS and AARMR have several resources the CFPB can use to help determine what a ‘larger participant’ is,” said Domingue. “State regulators have a wealth of experience regulating non-depository financial institutions and we look forward to working with the CFPB both on an individual and multi-state basis to promote more consistent, comprehensive, and efficient regulation in a manner that manages the burden on regulated entities.”
Based on the states’ experience with regulating a variety of non-depository consumer financial markets and with developing and, now, expanding the NMLS, CSBS and AARMR propose in the letter that if the CFPB chooses to pursue a registration framework, the CFPB establish the framework along the following lines:
►The CFPB should require all covered persons, as defined, to be registered with the CFPB in each State in which they do business.
►If a state licenses a covered person through the NMLS, then the covered person is deemed to be registered with the CFPB in that state.
►If a state does not license a covered person or does not use the NMLS, then the CFPB should consider using the NMLS (pursuant to 1022(c)(7)(C)) as its system of registration for each covered person in that state.