MBA, State Regulators Ask CFPB to Withdraw Nonbank Registry Proposal
The Mortgage Bankers Association urged the Consumer Financial Protection Bureau to withdraw a controversial proposal requiring covered nonbank financial institutions to register with and report to the Bureau when they become subject to certain public local, state, or federal consumer financial protection agency or court orders.
“MBA supports the Bureau’s efforts to effectively deter unlawful behavior and to identify entities that engage in repeat violations of consumer financial services laws. However, the Bureau should be more focused on helping mortgage lenders lower origination costs by removing – and not proposing – duplicative regulatory requirements that will provide little benefit to consumers,” wrote MBA Senior Vice President of Residential Policy and Strategic Industry Engagement Pete Mills.
The proposal requires covered nonbank financial institutions to register with and report to the Bureau when they become subject to certain public local, state, or federal consumer financial protection agency or court orders. The orders and company information would be published on a publicly available online database. Additionally, the proposed rule would require certain larger nonbank entities subject to the Bureau’s supervisory and enforcement authority to designate a senior-level individual to attest to compliance with each order.
In its letter, MBA said the Bureau has a duty to limit regulatory burden and consider costs and benefits. “As written, this proposal fails on both accounts,’ MBA said.
MBA’s foremost concern with the proposal is that the information the Bureau seeks is public, and for mortgage companies many of the orders are captured through the Nationwide Multistate Licensing System Consumer Access. As part of its supervisory authority, the Bureau is required to the fullest extent possible to use reports that have already been provided to federal and state agencies and use information that has been reported publicly. Additionally, the Bureau must tailor rules with consideration of the extent of current state supervision.
“By severely downplaying the role of NMLS and similar public registries, the Bureau is significantly overestimating the proposal’s benefits to consumers,” MBA said. “Requiring an individual to attest to compliance with consent orders will only serve as an unfair public shaming tool, which will discourage competent compliance and risk management professionals from serving in these important roles in the mortgage industry. The requirement is unlikely to improve outcomes for consumers as companies already have procedures set up to intake and escalate complaints due to the CFPB complaint portal. This requirement is also redundant as public consent orders are already signed by a company officer.”
MBA said while it supports the Bureau’s efforts to effectively deter unlawful behavior and to identify entities that engage in repeat violations of consumer financial services laws, “the Bureau should be more focused on helping mortgage lenders lower origination costs by removing – and not proposing – duplicative regulatory requirements that will provide little benefit to consumers.”
Should the Bureau choose to proceed, MBA suggested the Bureau lower costs on covered entities and to mitigate the downstream effects of this registry by:
• exempting covered entities that participate in the Nationwide Mortgage Licensing System;
• eliminating the executive attestation requirement or raise the threshold triggering executive attestation; and
• limiting the number of times a single instance of a violation needs to be reported.
Additionally, MBA made the following observations:
–The Bureau’s Proposal Underestimates Costs and Overestimates Benefits. MBA said the Bureau’s proposal will increase the amount of time and money covered entities must spend on compliance. The Bureau also overstates the benefits of the proposed rule to consumers. “This registry would provide no benefit to consumers who cannot understand a listed order and would levy additional costs on covered entities who will lose business from consumers who misunderstand the significance of some orders,” MBA said.
–The Bureau’s Proposal Duplicates Existing Registries. MBA said the types of orders the Bureau seeks to obtain and publish are almost entirely captured through the Nationwide Multistate Licensing System, which is owned and operated by the Conference of State Bank Supervisors and represents the agencies with primary supervisory and licensing responsibility for nonbank mortgage companies. “The NMLS has been in successful operation for many years and MBA members are accustomed to its licensing and reporting requirements,” MBA said.
“MBA supports the Bureau’s efforts to effectively deter unlawful behavior and to identify entities that engage in repeat violations of consumer financial services laws,” MBA said. “However, it is unclear how the Bureau’s attempt to create its own public repository while shifting the reporting burden to nonbank entities will benefit the public given that the information is already accessible to the Bureau, consumer groups, trade associations, firms conducting due diligence, the media, and the wider public.”
To reduce any redundancies and duplications, MBA said the Bureau should exempt all covered entities that participate in the NMLS and any other similar registries. “At a minimum, the Bureau should exempt the orders that are captured in NMLS or a similar registry,” MBA said. “The Bureau suggesting that its public registry would be a “better” more comprehensive way to display or make available the information will still burden entities, many of which are struggling with resource constraints given the current market, with no clear benefit to consumers. We therefore urge the Bureau to exempt entities that are covered under existing registries such as the NMLS.”
–The Bureau Should Reevaluate the Attestation Requirement. The Bureau’s proposal would require certain supervised nonbanks to submit annual written statements regarding compliance with each underlying order, signed by an attesting executive. MBA said the Bureau’s attestation requirement should be eliminated.” At the very least, the Bureau should not publicize the name and title of the executive, reconsider the supervised large nonbank threshold amount of $1 million in annual receipts, and provide more clarity on the steps and procedures the attesting executive must undertake,” MBA said.
In a similar letter, state regulators rejected the Bureau’s reasoning for establishing this registry. The Conference of State Bank Supervisors, along with the American Association of Residential Mortgage Regulators, the National Association of Consumer Credit Administrators, the North American Collection Agency Regulatory Association, and the Money Transmitter Regulators Association, raised many of the same objections.
“The Bureau has not proven there is a recidivism problem with nonbanks that necessitates building a new CFPB Registry that will be costly and complex for companies and will not provide any identified benefit for consumers but, instead, will likely cause industry and consumer confusion,” the joint letter said. “These structural deficiencies are exacerbated by the fact the Bureau has no supervisory or enforcement authorities that allow it to require companies to comply with state consumer financial laws or other state laws.”