Federal Authority Over Nonbank Financial Institutions Commences Under the Watch of the New CFPB Director, Raising Questions About Their Capabilities
The appointment of Richard Cordray as the Director of the Consumer Financial Protection Bureau (CFPB) in 2011, a position he held until 2018, marked a significant milestone in financial regulation. His tenure was instrumental in the CFPB's efforts to oversee a wide range of financial entities, including nonbank financial institutions.
Established by the Dodd-Frank Act in 2010, the CFPB was given the power to police deceptive, abusive, or unfair practices in the financial sector. The Act broadly empowered the CFPB with authority beyond traditional banks, enabling it to regulate nonbank financial companies engaged in consumer finance. This includes credit reporting agencies, payday lenders, debt collectors, and other nonbank entities.
During Cordray's directorship, the CFPB exercised its regulatory and supervisory authority over nonbanks. However, the legal status and enforceability of the CFPB's nonbank actions are currently open to challenges. Regulators have missed 81 percent of passed deadlines for implementing the Dodd-Frank Act, which has contributed to delays and uncertainties in the regulatory landscape.
In a bid to increase financial stability and prevent another financial crisis, the Federal Deposit Insurance Corporation (FDIC) has ruled that the nation's largest banks must create "living wills" to outline how they will be dismantled in case of failure. The rule applies to 37 banks holding approximately 61 percent of a combined $4.14 trillion in government-protected assets. The "living wills" are meant to provide a clear plan for the orderly resolution of the bank in the event of its failure. The FDIC will review these "living wills" to ensure they meet the necessary standards for a smooth resolution process.
The financial technology (FinTech) sector, which has experienced significant growth over the past decade, is also leveraging technology to automate financial services and processes, making financial services more accessible and efficient. Examples of FinTech platforms include Facebook, Messenger, Twitter, Pinterest, LinkedIn, Whatsapp, and Email. The creation of "living wills" is part of a broader effort to increase financial stability and prevent another financial crisis.
The Dodd-Frank Act confers full authority to the CFPB to regulate non-banks only if the Senate confirms the director. The legal status and enforceability of the CFPB's nonbank actions are currently open to challenges, making it crucial for the Senate to confirm a director to ensure the CFPB can fully exercise its regulatory and supervisory powers.
References: [1] Consumer Financial Protection Bureau. (n.d.). About Us. Retrieved from https://www.consumerfinance.gov/about/ [2] Consumer Financial Protection Bureau. (n.d.). Regulatory and Enforcement Actions. Retrieved from https://www.consumerfinance.gov/enforcement/enforcement-actions/
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