If you think the shadow of the Consumer Financial Protection Bureau (“CFPB”) is hiding behind a tree, you may well be right. On July 7th, the CFPB posted a Request for Information (“RFI”) on the federal government contracts website, called FedBizOpps.gov, in which it “pre-solicited” vendor capabilities to develop an automated technology solution for nonbank financial institutions to register with the CFPB. It noted that such a potential registration system “might also be used to collect financial and operational data as well as organizational structure data.” In other words, in the name of supervision, the CFPB might condition your future ability to offer goods and services on your advance registration and satisfaction of ongoing reporting requirements.
Perhaps sensitive to the potential criticism that the CFPB may be intruding too much into the lives of those it supervises, the CFPB made clear that it would provide notice and an opportunity for comment as required by the Administrative Procedure Act if it were to decide to propose such a rule. That is a good thing. Nevertheless, the CFPB’s expressed intent to determine the availability and cost associated with a web-based registration system and to solicit vendor comments on the CFPB’s potential requirements suggest that the CFPB is seriously considering a nationwide registration system for nonbank financial services providers.
It is a bit odd that the CFPB made the “announcement” of its potential plans to register nonbank financial service providers through a web site aimed at government contractors instead of the consumer credit industry. Indeed, as far as we know, many in the industry are unaware of the Bureau’s potential plans. It has, however, previously signaled this intention. In both the Fall 2015 and Spring 2016 regulatory agendas, the CFPB discussed its expectation not only to develop rules to define larger participants in the consumer installment and vehicle title loan markets, but to consider whether requiring registration of lenders in these markets or other non-depository lenders would facilitate the CFPB’s supervision of these entities.
The CFPB predicates its plans on its broad authority to supervise certain nonbank businesses pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It gives the CFPB the authority to prescribe rules regarding registration requirements applicable to certain “covered persons,” although the law does not mandate the creation of a registration system. According the CFPB, the statutory purpose of such nonbank supervision is to prevent harm to consumers and promote the development of markets for consumer financial products and services that are fair, transparent, and competitive.
In furtherance of this purpose and regulatory agenda, the RFI is designed to assist in the CFPB’s consideration of whether to procure a comprehensive and interactive online web-based Registration System that would allow nonbank financial institutions that are supervised or regulated by the CFPB to apply for, amend, update, or renew a registration online using a single set of uniform applications. The system might contain both public and confidential data and would also allow the CFPB to process these registration applications and amendments through automated workflows. In addition to the data elements noted above, the system may also be used to integrate data with other regulatory data.
The CFPB’s request for information detailed an interest in vendor capabilities and support services that, among other things, included:
- A portal that is accessible through all major web browsers;
- A portal with unique views and portals for the public, registrants, and regulators;
- A portal that allows registrants to set up an account and complete a uniform application form to identify and register their nonbank entity in the system;
- A portal that allows documentation and descriptive metadata to be available to the general public in order to assist in gathering and understanding registration information;
- A portal that is compliant with federal information security management act (FISMA moderate) standards and adheres to the CFPB’s cybersecurity and Section 508 requirements;
- A portal that uses a unique and persistent identifier for each registrant in the system;
- Availability of a call center for both registrants and the CFPB that answers questions regarding system use and provides real time help in navigating the system;
- A portal with robust workflow and reporting capabilities; and
- Contractor operation and maintenance support services.
Based on the CFPB request, at least one system that meets most of the CFPB’s requests is currently in existence – the Nationwide Multistate Licensing System and Registry (NMLS). The NMLS is a web-based system that allows state-licensed non-depository financial services entities, including mortgage lending companies and individuals, consumer lending businesses, money services businesses and debt collection businesses, to use a single set of uniform applications for all participating state agencies to apply for, amend, renew or surrender a license online. Mortgage loan originators who are employed by insured depository institutions are also using NMLS to manage their registrations. At the end of 2015, NMLS was the system of record for 61 state agencies, managing a total of 585 different license authorities.
Responses to the CFPB’s request for information were due on July 29, 2016. Although we were unable to confirm the number of responses the CFPB received, as expected, the State Regulatory Registry LLC, a subsidiary of the Conference of State Bank Supervisors that operates the NMLS on behalf of state financial services regulatory agencies, reported that it has responded to the CFPB’s request for information.
It is not at all clear whether and why the CFPB needs its own registry system for nonbank financial services companies. The fact that the CFPB has statutory authority to create a registration system does not mean it is a good idea. At a state level, it makes some sense to coordinate the licensing activities of the various states by developing a uniform system. After all, each state has its own statutory requirement to license or register mortgage lenders and servicers, and federal law imposes minimum state statutory standards for licensing mortgage loan originators. Creating and maintaining such a federal registration system may well be very controversial, particularly if the CFPB prohibits a state-licensed entity from making or servicing a loan unless and until it has registered with the federal government and satisfied whatever initial and continuing eligibility requirements the CFPB may seek to impose, including, perhaps, registration fees to pay for this new bureaucracy. If the registration system is nothing more than a directory of nonbank financial services companies, few are likely to care. If instead the registration is another form of regulation and data collection, the push back likely will be significant. Who knows? Maybe it will be as easy and painless as getting the lender equivalent of a TSA Precheck registration to speed you through the airport. A CFPB demand to see your papers before you can lend or service, however, is not likely to be so easy.