Today's Trends in Credit Regulation

CSBS and AARMR Make the Case for Expansion of NMLS into Registration of Non-Mortgage Lenders
By Catherine M. Brennan

Over the last few years, nondepository, non-mortgage lenders have watched developments at the state and federal levels focus primarily on mortgage lenders and the products they offer. Since Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, those lenders have waited for the other shoe to drop to see what kind of new regulation they may face at the hands of the Consumer Financial Protection Bureau. Recently, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators brought their desire for a new way of regulating such lenders – which has been percolating for the last few years – to the Bureau.

Under Dodd-Frank, the Bureau has the authority to examine and enforce regulations for banks and credit unions with greater than $10 billion in assets, all mortgage-related businesses (such as lenders, servicers, and mortgage brokers), and large nondepository financial companies. Dodd-Frank does not define “large nondepository financial companies.” Rather, Dodd-Frank gives the Bureau authority over anyone deemed by rule to be a “larger participant of a market for other consumer financial products or services.”

Dodd-Frank directed the Bureau to consult with the Federal Trade Commission prior to issuing a rule to define the “larger participants” that are “covered persons” subject to supervision by the Bureau. Further, Dodd-Frank authorizes the Bureau to require registration of covered persons and requires the Bureau to consult with state agencies in the development and implementation of any registration requirements or systems. In June, the Bureau released a Notice and Request for Comment seeking public input on the statutory requirement to define “larger participants” in certain consumer financial markets.

The Bureau identified six markets for potential inclusion in an initial rule: debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing, and related activities; prepaid cards; and debt relief services. The Bureau specifically contemplates regulating the installment lending industry as part of the “consumer credit and related activities” market. The larger participant rulemaking will ultimately enable the Bureau to begin a supervision program for larger participants in certain markets.

In response to the Notice and Request for Comment, the CSBS and the AARMR issued a joint comment letter to the Bureau in which they proposed that if the Bureau decides to implement a registration system to track consumer financial markets, the Bureau should require the covered persons to be registered in each state and consider using the Nationwide Mortgage Licensing System & Registry as its system of registration for each covered person in a state. The CSBS and the AARMR further noted that registration can provide important data that can inform the identification of larger market participants and serve as an important component of the CFPB’s supervisory regime for larger nondepository market participants.

Based on the states’ experience with regulating a variety of nondepository consumer financial markets and with developing and expanding the NMLS, the CSBS and the AARMR proposed that if the Bureau decides to require registration of these “larger participants,” the Bureau should require all covered persons, as defined, to be registered with the Bureau in each state in which they operate. Further, if a state licenses a covered person through the NMLS, then the covered person should be deemed to be registered with the Bureau in that state. Finally, if a state does not license a covered person or does not use the NMLS, the Bureau should consider using the NMLS as its system of registration for each covered person in that state.

So, what does this mean for “covered persons”? First, most – but not all – states require licensing or registration of direct lenders. If the Bureau adopts the NMLS for these lenders, direct lenders will need to ramp up their licensing and registration functions to ensure they provide what is requested. For larger participant direct lenders, any move to adopt the NMLS as the registration system of choice for the states should simply add another layer of complexity to their already complex compliance functions.

Catherine M. Brennan is a partner in the Maryland office of Hudson Cook, LLP. Cathy can be reached at 410-865-5405 or by email at

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