| Two trade organizations serving only small lenders today jointly called on CFPB Director Mulvaney to apply existing law to help small lenders avoid excessive regulation aimed at larger finance companies and those with poor consumer track records. | Joint CMLA CHLA Letter to CFPB Director Mulvaney (2/13/2018)
Joint CMLA CHLA Press Release (2/13/2018) |
A tiered regulatory approach toward community lenders was contemplated by Congress and signed into law via Section 1024 of Dodd-Frank, “SUPERVISION OF NONDEPOSITORY COVERED PERSONS.” This section authorizes the CFPB to:
- Conduct examinations of non-banks,
- Conduct third party audits of independent service providers or nonbanks, and
- Take enforcement action against nonbanks.
Subsection (b)(2) of Section 1024 requires the CFPB to carry out a “Risk-based Supervision Program,” under which it shall exercise its supervisory authority over non-banks, including IMBs, “based on the assessment . . . of the risks posed to consumers in the relevant product markets and geographical markets, and taking into consideration as applicable—-
- the asset size of the covered person;
- the volume of transactions involving consumer financial products or services in which the covered person engages in;
- the risks to consumers created by the provision of such consumer financial products or services;
- the extent to which such institutions are subject to oversight by State authority for consumer protection; and
- any other factors that the Bureau determines to be relevant to a class of covered persons.”
These lenders have been carefully underwriting loans for many years and in some cases decades,” Executive Director (Acting) Rob Zimmer said. “Existing law says the CFPB should recognize the relative risks, or lack thereof, of these lenders. Small lenders cannot absorb or amortize high fixed costs the way large banks are able to do. In addition, many of these lenders have higher costs of funding due to their business models—they don’t get cheap deposit insurance money, cheap Fed window money, and they never took TARP funds. They’ve been careful. They haven’t been on the taxpayers’ dime. It’s well past time for Washington to regulate appropriately, and help small businesses that not only create good-paying jobs, but serve consumers in a careful, sound manner.”
CMLA remains concerned that without appropriate relief, the existing trend toward greater consolidation in the lending markets will accelerate further, limiting choices to consumers, and concentrating risk in ever-larger financial companies.
“When we talk to both parties Capitol Hill, neither says greater consolidation is desired or wise,” Zimmer continued. “Here is a statutory way to help keep local lenders in local markets, while maintaining effective consumer protections.”