Think Lonnie Dealers are Safe from the CFPB?

[Ken Rishel]

On May 25, 2012, the Consumer Financial Protection Bureau (Bureau) issued a Proposed Rule (Rule) which, if adopted, would govern the process by which a "nonbank covered person" may become subject to the supervisory authority of the Bureau. This would effectively extend the ability of the CFPB to regulate and examine individuals as well as entities, which has real significance to small operators hoping to escape regulation.
Under the proposed process, the Bureau would provide a nonbank covered person a notice (Notice or Notice of Reasonable Cause) stating that the Bureau may have reasonable cause to determine that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The Proposal establishes mechanisms to provide the nonbank covered person a reasonable opportunity to respond to the Notice.
According to the Bureau, the proposed procedures would provide a recipient of a Notice (respondent) with a more robust process than required by Section 1024(a)(1)(C) in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
For example, as set forth now by Dodd-Frank, to satisfy the statutory requirement that the Bureau provide a reasonable opportunity to respond, the Bureau does not need to offer respondents an opportunity to participate in a supplemental oral response. The Rule, however, if adopted, would provide such an opportunity to respondents.
The question is, why is the CFPB going to all of this trouble to file a rule if they don't intend to use it? A recent Treasury rule extension made it very clear that even the smallest or lowest volume seller of manufactured homes was now subject to the anti money laundering statutes and must have a Compliance Management System in place by August 13, 2012. Now the CFPB is closing a loophole on their end that seems to only relate to very small operators.

We believe, based on our conversations with the regulators themselves, that they do expect compliance from everyone - even Lonnie Dealers. No doubt those of you engaged in magical thinking will choose to believe otherwise.