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Rescission of CFPB Nonbank Registry Regulation

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The Honorable Russell Vought

Acting Director
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552

Re: Executive Order 14219 – Rescission of CFPB Nonbank Registry Regulation

Dear Acting Director Vought:

In furtherance of Executive Order (“EO”) 14219, 1the Conference of State Bank Supervisors 2(“CSBS”) recommends formal rescission of the Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders 3(“Nonbank Registry”).

The Nonbank Registry is unnecessary, unlawful, and unduly burdensome and should be rescinded. 4 The Nonbank Registry:

I. Constitutes government waste.

II. Fails the necessary cost-benefit analysis as required by statute.

III. Unlawfully encroaches on state authority.

IV. Is unnecessary to address potential “repeat offenders.”

CSBS supports the measures you have already taken to limit further regulatory burden and confusion from this misguided rule. 5

I. The Nonbank Registry constitutes government waste.

Since its inception, the CFPB has utilized the Nationwide Multistate Licensing System and Registry 6(“NMLS”) for various recordkeeping purposes, including publishing CFPB orders pertaining to nonbank entities, at no cost to the Agency. In 2010, state regulators launched NMLS Consumer Access, a fully searchable website that allows consumers to view company information and regulatory orders for state-licensed nonbank entities. Despite this fact, the CFPB has spent millions of dollars to construct a functionally similar nonbank registration system of its own and populate it with publicly available information that is easily accessed through other sources.7The Nonbank Registry is therefore unnecessary, duplicative of existing resources available to consumers, and a waste of federal funds.

II. The CFPB failed to perform the necessary cost-benefit analysis as required by statute.

The CFPB is required to consider the costs of regulations on small entities under the Regulatory Flexibility Act (“RFA”). This includes requirements to conduct an initial and final regulatory flexibility analysis and convene a panel of small business representatives (“SBREFA panel”) for any federal rule subject to notice-and-comment rulemaking .8The only exception to this requirement is if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities .9However, such certification must have a factual basis ,10which the CFPB never provided in either the proposed or final Nonbank Registry rule ,11thus violating RFA requirements.

As a result of forgoing the required RFA analysis, the CFPB’s cost estimates for the Nonbank Registry were unrealistically low. For example, the CFPB estimated that registering and reporting a covered order would cost about $350 per firm ,12a drastic underestimate that ignores the resources needed to develop new reporting processes, procedures, and internal controls; enhance technological systems; or engage outside counsel for a rule that mandates a 10-year registration and compliance requirement. 13An accurate estimate of costs, coupled with the negligible benefits of replicating an already existing registration system and republishing already available public information, suggests that the Nonbank Registry would likely violate the statutory cost-benefit analysis requirement.

III. The Nonbank Registry unlawfully encroaches on state authority.

The Nonbank Registry regulation is an explicit infringement on the basic tenets of federalism. Monitoring for, and reporting on, compliance with orders based on state law is exclusively the authority and responsibility of states, not the federal government. Congress did not give the CFPB any authority over state and local consumer financial laws, nor did it vest the CFPB with the power to adjudicate orders issued by independent state agencies and state courts.

IV. The Nonbank Registry is unnecessary to address potential “repeat offenders.”

The CFPB failed to prove that there is a recidivism problem among nonbanks that required the creation of the Nonbank Registry. Neither the proposed nor final rule provided data or examples of increased recidivism among nonbank companies. In fact, the only justification regarding recidivism provided is incredibly thin:

“Since passage of the [Consumer Financial Protection Act], the Bureau has brought more than 350 enforcement actions against nonbanks… On numerous occasions, the Bureau has uncovered companies that failed to comply with consent orders that the companies entered into with the Bureau voluntarily.”14

Presumably, the CFPB was wholly capable of detecting non-compliance with its own orders prior to establishing the Nonbank Registry. Similarly, it should be able to detect and deter non-compliance with any of its own orders in the future without the Nonbank Registry.

Conclusion

Under the parameters of EO 14219, CSBS encourages the formal rescission of the Nonbank Registry as it is unnecessary, unlawful, and unduly burdensome.

Sincerely,

Brandon Milhorn
President and CEO

Endnotes

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