As you know, the Dodd-Frank bill grants the power to the Consumer Financial Protection Bureau to supervise nonbank entities.  But they can’t just wave a wand and begin supervising.  The entities in question must be informed of why they are being targeted for supervision.

The Bureau has not only the authority to supervise industries, such as payday loans or insurance companies, but also individual companies that they believe pose a risk to consumers.

So far the Bureau is in the process of reviewing the industries of nonbank payday lenders, mortgage lenders and student loan providers, as well as, large debt collection agencies and credit bureaus.

The new rules, announced Thursday, July 12, 2012, explain the process for naming specific firms to supervisory status.

The proposed rules would have the CFPB notify the company in writing of the reasons for their desired supervision and give the firm two avenues to respond:  in writing, where the firm would provide documents to back up their response, and in a phone interview with the CFPB.

The phone interview is not required by law, but the CFPB wants the companies affected to have every opportunity to respond and set up their case as to why they are not a threat to consumers in any way.

The CFPB noted that the phone conversation is informal and is not considered legally binding.  There is no discovery and no witnesses are to be called.

A notice from the CFPB does not necessarily mean that the firm may be under direct supervision.  But it might mean that they could conduct exams and require reports from those firms.

If a company is chosen for supervision, they can petition the CFPB for removal by demonstrating that they have addressed the issues at hand.

Thank you to American Banker and Kate Davidson for source material for this article.