Overview of the Regulatory Shift

The Consumer Financial Protection Bureau (CFPB) announced a strategic pivot in its enforcement approach, stating it would prioritize tackling significant threats to consumers rather than continuing with the implementation of the nonbank registration rule. This decision reflects a critical response to the industry’s feedback and ongoing concerns regarding regulatory redundancy.

Timeline of Changes

Initially proposed in late 2022, the CFPB’s nonbank registration system aimed to enhance transparency by mandating nonbank entities to report public agency enforcement actions and court orders. The final version of this rule was released in July 2024, set to take effect on September 16, 2024.

Under the previous schedule, smaller entities under CFPB’s supervision were slated to register by April 14, 2025, while all affected nonbanks were to comply by July 14, 2025. However, these deadlines are now uncertain due to the recent regulatory freeze.

Concerns Raised by the Industry

The primary criticism came from mortgage trade associations, which argued that the proposed rule was duplicative. Independent mortgage banks (IMBs) already provide similar information through the Nationwide Multistate Licensing System and Registry (NMLS), reinforcing the assertion that the new rule would impose unnecessary compliance burdens.

IMBs currently use NMLS MU1 forms to report all relevant federal and state regulatory actions, alongside specific court actions from the last decade. Failure to adhere to these reporting requirements can lead to significant penalties.

Responses from Mortgage Associations

In light of the decision to pause the nonbank registry implementation, various mortgage trade groups expressed their approval. The Community Home Lenders of America (CHLA) highlighted this move as a much-needed regulatory relief for smaller lenders, aligning with their advocacy for streamlined regulations that allow lenders to focus on core business activities.

Additionally, the Mortgage Bankers Association (MBA) had previously called for delayed compliance deadlines in a letter to the CFPB earlier in the year. Bob Broeksmit, the MBA president and CEO, described the rule as both costly and unnecessary. Following the recent freeze, Pete Mills, the MBA’s senior vice president, suggested that the CFPB could have integrated enforcement data into the existing NMLS Consumer Access portal instead, avoiding the creation of a parallel system.

Looking ahead, Mills confirmed that the MBA intends to closely monitor the situation and may advocate for the CFPB to formally rescind the regulation.