CFPB Announces Supervision of Payday Loans
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UPDATED: Jan 17, 2012
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Earlier this month, the Consumer Financial Protection Bureau (CFPB) launched an expansion to their bank supervision program, which began in July, and is now hoping to apply those same bank supervisions to “nonbank” entities. Their goal is to ensure nonbanks are held to the same rules and restrictions that traditional banks adhere to.
“Nonbank,” according to the CFPB’s announcement, is any “company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter.”
Those who issue payday loans fall into that category.
The CFPB plans to release further expansions to this supervision program in installments. This first installment, effective immediately, grants the CFPB the authority to oversee nonbank businesses in the markets of mortgage lending, private student loan lending, and payday lending.
Other nonbank entities, such as those in debt collection, reporting, and auto lending, will only be monitored if they’re considered “larger participants.” However, the CFPB has yet to define what “larger participants” means, so until they publicly define what that means, those businesses will remain unsupervised by the CFPB.
The CFPB announced the purpose behind their nonbank supervision to “prevent harm to consumers and promote the development of markets for consumer financial products and services that are fair, transparent, and competitive.” In order to fulfill that promise, the new government agency is requiring nonbank entities to fully comply with the federal consumer financial laws, which include the Truth in Lending Act and the Equal Credit Opportunity Act.
They are also requiring that those who issue payday loans file certain reports and be prepared for the CFPBs spontaneous reviews of their records.
The CFPB was created in 2010 as a result of the Dodd-Frank Act with the intentions of protecting the public from poor or predatory lenders. Before its creation, those who issued payday loans were up in arms trying to prevent or limit the organization’s power.
This announcement came on the same day the CFPB’s new director, Richard Cordray, was recess appointed into position by President Obama. Since this appointment, there has been a rift in the Senate as Republicans feel the appointment was an abuse of power while Democrats support the president’s move.