The Consumer Financial Protection Bureau must follow the Dodd-Frank Act Tiered Supervision Standard for Small and Medium-Sized Independent Mortgage Banks based on the size, volume, and scope of supervision of the state, said a letter from the Community Home Lenders Association to manager Rohit Chopra.
The group also expressed its “firm opposition” to any use of regulation by execution, which was standard practice for the office under its first director, Richard Cordray. A notable example is desktop actions on marketing services agreements that disguise bribes as payment for advertising. No formal regulation ever took place; instead, the bureau ruled on a case-by-case basis.
This practice was discontinued by acting director Mick Mulvaney and director Kathy Kraninger as well. expressed his opposition. However, under the Biden administration, the CFPB is rise in power enforcement efforts. Manager Chopra, at one time Cordray’s student loans ombudsman, was questioned about enforcement during his confirmation hearing.
Although Dodd-Frank does not have a specific exemption for smaller, independent mortgage banks from CFPB regulation and enforcement, it does contain “tiered regulatory language,” the letter says. This includes asset size, volume size, and extent of health monitoring. Smaller IMBs are subject to duplicate regulation by states and the CFPB, the letter says.
“The majority of smaller IMBs are private businesses, where the primary owner or owners have their skin in the game,” the letter states. “For these companies, the risk of large fines from the CFPB has a personal impact, unlike banks and public IMBs, where the shareholders bear the risk.”
The CFPB must specify the steps it will take to comply with Dodd-Frank’s tiered enforcement requirements.
In addition, “CHLA also requests that the CFPB adopt a public statement or formal policy that it will exempt small IMBs from being subject to CFPB reviews or audits – ideally listing a dollar or annual loan amount for the creation of a loan and a dollar or loan amount for the service.
The group also wants a promise from the CFPB that it will not take enforcement action against small mortgage bankers unless requested by a state regulator.
He also suggests that the office adopt a formal policy to allow a small mortgage lender the opportunity to correct a violation before imposing fines or taking enforcement action, if the IMB made a good faith effort to follow a rule.
“Such an approach would mirror that of other financial regulators such as the FDIC, which uses memorandums of understanding, a common informal agreement used to obtain a commitment from a bank’s board of directors to implement corrective actions.” , the CHLA said. “Other informal actions the CFPB could consider include board resolutions, letters of agreement, and other forms of bilateral agreements or actions.”