Compliance Blog

Written by Steve Van Beek

I'm a self-diagnosed compliance geek.  I spend a bit too much time combing the pages of the Federal Register.  Of course, the three-columned pages can start to get blurry no matter how many proposed and final regulations you read.  One area that I usually skim is the "Regulatory Analysis" section.  This section is where the regulators put their estimated compliance burden of a new regulation.  This estimate includes the number of hours expected and the number of entities impacted. 

Yesterday, I was reading the Regulatory Analysis section for the Risk-Based Pricing Notice proposal and it definitely caught my attention.  The risk-based pricing rule is issued jointly by the Federal Reserve and the Federal Trade Commission.  The new Consumer Financial Protection Bureau (CFPB) will obtain responsibility for these rules after July 21, 2011.

The Federal Reserve's section indicated they expect their rule - Regulation V - to impact 18,173 entities.  What about the Federal Trade Commission's regulation?

"Number of respondents:  As discussed above, the proposed requirements would require a person that is required to provide a risk-based pricing notice and uses a credit score in making the credit decision requiring a risk-based pricing notice to add information to that disclosure.  Given the broad scope of creditors, it is difficult to determine precisely the number of them that are subject to the Commission’s jurisdiction and that engage in risk-based pricing and use a credit score in making the credit decision requiring a risk-based pricing notice. As a whole, the entities under the Commission’s jurisdiction are so varied that there are no general sources that provide a record of their existence, and they include many small entities for which there is no formal tracking method. Nonetheless, Commission staff estimates that the proposed regulations will affect approximately 199,500 creditors subject to the Commission’s jurisdiction.  The Commission invites comment and information about the categories and number of creditors subject to its jurisdiction." (emphasis added).  

The CFPB will be tasked with writing and enforcing regulations on non-depository financial instituations.  How will the CFPB enforce these regulations if "there is no formal tracking method?"  Special Advisor Warren's testimory from May 24th does not mention any actions by the CFPB to analyze and evaluate these non-depository financial institutions.

She did include as one of the CFPB's main priorities:

"3) to help create a level playing field for community banks and credit unions to compete with large banks and non-depository financial companies;"  

A March speech at the Independent Community Bankers of America did indicate the CFPB will place an emphasis on compliance by non-depository financial institutions:

"Second, we can aim at problems where they exist. We are committed to ensuring that all providers – including community banks, credit unions, large banks, non-bank mortgage lenders, and payday lenders – must follow the rules for offering consumer financial products. We can’t enforce the law only against the banks that are easiest to find. Instead, we will build a strong enforcement arm that will – for the first time ever – put significant federal resources behind ensuring compliance by non-bank financial companies. That is why we anticipate more than half our budget will be committed to establishing supervision and meaningful enforcement. We need to make sure that the non-bank companies, and also the largest banks, follow the rules." (emphasis added).

Credit unions and other depository institutions are examined regularly.  The CFPB will have a tough task ahead of it to meet its goal of "leveling the playing field" as it will need to first find and track non-depository institutions and then enforce the existing regulations.