With the appointment of Richard Cordray as director of the Consumer Finance Protection Bureau, the agency will now begin its review process of nonbank lenders.
Prior to Cordray's appointment, the CFPB was unable to oversee nonbank lenders without an established director. However, with Cordray in place, the agency has released the new guidelines it will follow to monitor brokers, lenders and servicers that were previously exempt from federal oversight.
In the new CFPB Mortgage Origination Examination Procedures guide, the agency outlined the guidelines it will adhere to when observing lenders unaffiliated with major banks. In addition, it was noted that the CFPB will rely heavily on mortgage information from federal and state regulators to assist the process.
In an effort to further protect consumers, the new guidelines highlighted the CFPB's dedication to examine details about nonbank lenders such as advertising practices and loan volumes. Although the CFPB's ultimate goal is not to eliminate such practices completely, it does hope to ensure that these lenders are not engaging in high-risk practices that could result in further financial harm to American consumers.
"The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness," said Cordray. "Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks."
Until the establishment of the CFPB under the Dodd-Frank Consumer Protection Act, only bank-affiliated mortgage lenders had been monitored by federal agencies, while nonbank lenders received their regulation at the state level.
However, some critics feel that federal regulation of nonbank lenders is unnecessary since they are already being monitored by the states that they operate in. Bill Himpler, vice president of the American Financial Services Association, noted that he was doubtful that the CFPB will effectively be able to regulate the nonbank sector.
"They want to have nonbanks treated the same as banks, and they're not," Himpler told The Wall Street Journal. "To treat them as such is really stepping out on thin ice."
Meanwhile, other critics have expressed their concerns regarding the executive appointment of Cordray to the position in the first place. Without a permanent director, the CFPB did not have the full power to oversee nonbank lenders.
President Barack Obama chose to directly appoint Cordray to the position during a Senate recess - a move that some critics deemed a violation of constitutional law. However, a recent opinion released from the Department of Justice noted that the move was well within the legal rights of the president.