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Money Laundering and Regulatory Enforcement Risks for Non-Banks

It is not hard to read the tea leaves when it comes to government criminal and civil enforcement programs.  Prosecutors and regulators try to jawbone the industry into compliance by threatening criminal and/or civil enforcement, making examples of industry players by prosecuting a handful of them for criminal and/or civil infractions, and then pointing to those prosecutions as a way to encourage industry compliance.  Sometimes it works;  sometime it does not.

For non-bank businesses, the Administration is targeting them for criminal and civil prosecutions, while subjecting the industries to increased regulation.  A “non-bank” business  is a company that offers or provides consumer financial products or services but does not have a bank, thrift, or credit union charter. Non-bank financial service companies include mortgage lenders, mortgage servicers, payday lenders, consumer reporting agencies, debt collectors, and money services companies.  

There are thousands of non-banks and millions of American consumer rely on their services in the financial marketplace; nearly 20 million consumers use payday loans, roughly 200 million Americans rely on credit reporting agencies, 14 percent of consumers have one or more debts in collections, and non-bank lenders originated almost 2 million new mortgages in 2010.

The Justice Department recently announced the unsealing of indictments against seven individuals and four check cashing businesses for violations of the Bank Secrecy Act.  The cases are linked to ongoing prosecutions of health care fraud investigations.  This new emphasis on non-bank criminal enforcement reflects the Administration’s desire to increase money laundering enforcement against companies which are often used to launder money as alternatives to financial institutions.   

Meanwhile, on the civil side, the Consumer Financial Protection Bureau has launched a formal supervision program to ensure that non-banks  follow federal consumer financial laws.  Congress established the CFPB to protect consumers and enforce federal consumer financial laws by:

  • Conducting rule-making, supervision, and enforcement for Federal consumer financial protection laws
  • Restricting unfair, deceptive, or abusive acts or practices
  • Taking consumer complaints
  • Promoting financial education
  • Researching consumer behavior
  • Monitoring financial markets for new risks to consumers
  • Enforcing laws that outlaw discrimination and other unfair treatment in consumer finance

Prior to passage of the Dodd-Frank Act, there was no federal program to supervise non-banks. The CFPB has the authority to oversee non-banks, regardless of size, in certain specific markets: mortgage companies (originators, brokers, and servicers including loan modification or foreclosure relief services); payday lenders; and private education lenders.

For other markets, the CFPB can also supervise the larger players, or “larger participants.” Last summer, the CFPB sought public comment to develop an initial rule, identifying six possible markets for consideration—debt collection, consumer reporting, prepaid cards, debt relief services, consumer credit and related activities, and money transmitting, check cashing and related activities.

The CFPB’s non-bank supervision program is intended to ensure that non-banks comply with federal consumer financial laws, and will  include conducting individual examinations.  Examiners will review consumer financial products and services with a focus on risk to consumers; compliance with federal consumer financial laws; and the non-bank’s internal ability to detect, prevent, and remedy violations that may harm consumers.  If warranted, the CFPB enforcement arm will bring legal actions to protect consumers.

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2 Responses

  1. June 26, 2012

    […] FCPA and Bribery Act. The FCPAProfessor has a guest post with a deep look at Australia. Mike Volkov sees non-banks facing enforcement for money laundering and other regulatory risks. Thebriberyact.com […]

  2. June 29, 2012

    […] FCPA and Bribery Act. The FCPAProfessor has a guest post with a deep look at Australia. Mike Volkov sees non-banks facing enforcement for money laundering and other regulatory risks. Thebriberyact.com […]