House Financial Services Subcommittee on Financial Institutions and Consumer Credit Hearing
Federal Information & News Dispatch, Inc. |
INTRODUCTION
Good afternoon, Chairman
Thank you for holding this hearing and considering H.R. 4626, the SAFE Act Confidentiality and Privilege Enhancement Act, which will help states promote and extend smart, efficient regulation to our state-licensed, non-bank financial services providers through expanded use of the Nationwide Multi-state Licensing System and Registry (NMLS, or the System).
It is my pleasure to testify before you today on behalf of the
State banking regulators supervise over 5,100 state-chartered banks. Further, most state banking departments also regulate a variety of non-bank financial services providers, including mortgage lenders, money transmitters, payday lenders, and check cashers. In my state of
H.R. 4626 is just one example of
We appreciate your consistent and long-standing support for state banking and financial regulation, and I thank you for introducing H.R. 4626 and the many members of the Committee who support this bill.
ABOUT NMLS
Almost 10 year ago, in the lead up to the financial crisis, state regulators recognized the need to oversee the mortgage industry more comprehensively and efficiently. State regulators also wanted to effectively and efficiently streamline the licensing process across state lines. For instance, regulators from
When
The SAFE Act also established a framework that clarified state and federal roles and a mechanism for state and federal coordination and information sharing. Under this state-federal cooperative structure, state regulators are given primary responsibility for implementing the law's requirements, with a federal agency serving as a backstop and arbiter of the SAFE Act. All 50 states enacted laws to implement the mandates of the SAFE Act within one year of its passage. The states responded in record time to adopt NMLS, quickly putting in place a uniform and seamless system of mortgage licensing and supervision across the nation. With the success of NMLS, state regulators are increasingly able to share information across state lines and with their federal counterparts, leveraging collective resources and making the examination environment more efficient.
NMLS also serves as a resource for consumers and promotes greater transparency concerning the companies providing financial services to consumers through the NMLS Consumer Access website (www.nmlsconsumeraccess.org). NMLS Consumer Access enables consumers to verify whether a mortgage lender is in fact properly licensed.
The simplicity of the concept underpinning NMLS has been key to its success - via NMLS, a mortgage lender can easily apply for a license in one state or across multiple states using a uniform, electronic license application form. This uniformity cuts bureaucratic red tape and reduces regulatory burden for state-licensed companies with operations in numerous states. NMLS provides similar streamlining benefits to state regulators by providing back-office services. States that license the same entity are able to share pertinent information and collaborate with colleagues across state lines regarding multi-state entities, thereby reducing duplicative efforts and costs and promoting more efficient supervisory processes at state regulatory agencies. NMLS complies with the Federal Information Security Management Act's (FISMA) stringent data security standards.
EXPANSION AND WIDESPREAD SUPPORT OF NMLS
NMLS was designed in a forward-thinking manner to provide functionality for all state licensing regimes. NMLS proved to be such a successful and integral regulatory tool in the mortgage licensing arena, my fellow state regulators and I decided to expand its use to serve as a licensing system for other state-licensed, non-bank financial services providers. Starting in
The expanded use of NMLS has streamlined the licensing process for both licensees and regulators. It enables licensees to manage their licenses for multiple states, while states are able to track the number of unique companies and individuals, as well as the number of licenses they hold in each state. As a system of record for state regulatory authorities and a central point of access for licensing, NMLS brings greater uniformity and transparency to these non-depository financial services industries while maintaining and strengthening the ability of state regulators to monitor these industries.
Non-bank financial services companies have also supported the efficiencies that NMLS provides. In a
Federal regulators have also benefitted from NMLS efficiencies and are examining advantages to expanded use in other non-mortgage industries. In fact, the Dodd-Frank Wall Street Reform and Consumer Protection Act specifically required the
ENHANCED PRIVILEGE AND CONFIDENTIALITY PROTECTIONS FOR AN EXPANDING NMLS
Given the desire for expanded use of NMLS among non-depository financial services companies, state regulators, and other stakeholders, the introduction of H.R. 4626 comes as a very welcome development. The SAFE Act currently provides that information shared through NMLS among mortgage industry regulators retains existing state and federal privilege and confidentiality protections. Neither the SAFE Act nor H.R. 4626 create any additional privilege or confidentiality rights. Under the SAFE Act, information contained in NMLS retains whatever privilege and confidentiality protections the information enjoyed prior to being entered into NMLS, as long as that information is shared through NMLS among mortgage regulators.
I will use my own banking department as an illustration. Since the West Virginia DFI has the authority to license and supervise entities and individuals involved in mortgage lending, my agency is considered a mortgage industry regulator, and any regulatory information that I share with other mortgage industry regulators through NMLS retains all legal protections related to confidentiality and privilege. However, if another state regulator wants to use NMLS to license a certain category of non-depository companies and that state regulator is not a mortgage regulator, it is not clear that the SAFE Act's protections for privilege and confidentiality would apply. In that instance, if I needed to share licensing or other regulatory information through NMLS with that state regulator, that regulator might not be bound to comply with and honor the privilege and confidentiality protections that I must follow.
This possible gap limits the states' ability to use NMLS as a licensing system for non-mortgage financial services providers. The change proposed by H.R. 4626 addresses this uncertainty and would provide me and
It is important to note that H.R. 4626 does not create any privilege or new licensing or registration requirements through NMLS. The bill simply allows for existing confidentiality or privilege to continue when regulatory information concerning the expanded financial services industries is shared among state and federal regulators through NMLS. It also provides regulated entities with additional assurance that their sensitive information housed in NMLS retains existing legal protections related to privilege and confidentiality.
AUTHORITY TO CONDUCT CRIMINAL BACKGROUND CHECKS FOR AN EXPANDED NMLS
In the SAFE Act,
To make this process more efficient, the SAFE Act designates CSBS as a "channeler" - an approved company that acts as an intermediary in the fingerprinting and background check process - in the mortgage context. As a channeler, CSBS streamlines an otherwise onerous process and makes it efficient. A potential MLO scans his or her fingerprints at just one location. The
State law often requires background checks on other non-mortgage licensees, and a similar background check arrangement would need to be in place for successful NMLS expansion. The
COMMENTS ON OTHER LEGISLATIVE PROPOSALS
I appreciate the opportunity to offer, on behalf of CSBS, general comments on the other proposals being discussed today. I referred previously to the diverse financial services ecosystem that I and my fellow state regulators oversee in our home states. Community banks are a vital part of this marketplace, and, individually and through CSBS, state regulators are very focused on commonsense regulations and supervisory practices that reflect the community bank business model.
Our focus is not necessarily on less regulation, but on "right-sized" regulations that recognize most community banks engage in traditional portfolio and relationship-based lending.
For most community banks, risk management is based on an inherent understanding of the underlying credit risk, a deep knowledge of its customer base, and an alignment between the success of the bank and its customers. As this Committee has recognized, policy efforts that encourage portfolio lending by community banks will help these institutions capitalize on the strengths of this time-tested business model. Portfolio lending has been the focus of Congressman Barr's bills addressing the Ability-to-Repay rule's treatment of rural areas and loans held in portfolio; Similarly, H.R. 4521 recognizes that community banks take taxes and insurance into consideration before deciding whether to offer escrow services to customers. At its core, these policies reflect the incentives inherent in a community bank's decision to make a mortgage loan.
Given the centrality of housing and mortgage lending to the economy, ongoing oversight of mortgage regulation is important to ensure a diverse and well-functioning marketplace for mortgage credit. CSBS praised the final Basel III rule for its efforts to respond to the concerns of
Similar to H.R. 4626, Congressmen Barr and Perlmutter's bill, H.R. 5062, ensures the protection of privileged state supervisory information that is shared with the
CONCLUSION
As locally based and locally accountable regulators, state banking regulators continually strive for better ways to regulate the diverse system of financial services businesses that serve our communities and consumers. Our proximity to both businesses and consumers and our diverse regulatory portfolio gives us a unique, firsthand perspective of the benefits a smarter, more efficient, non-depository regulatory framework would bring. Such benefits include promoting sound business practices and responsible lenders, reducing regulatory burden, and strengthening consumer protection.
H.R. 4626 promotes all of these goals through an existing and successful regulatory tool, NMLS. H.R. 4626 will cut regulatory burden, streamline the licensing process, and promote regulatory coordination at the state and federal level. My colleagues and I appreciate the work Chairman
The
Thank you for the opportunity to testify before you today on state regulators' support for H.R. 4626. I look forward to answering to any questions you might have.
n1
n2 Subcommittee on Insurance, Housing, and Community Opportunity: "Appraisal Oversight: The Regulatory Impact on Consumers and Businesses," Printed Hearing 112-140 (
n3 12 U.S.C. [Sec.] 5512(c)(7) and 12 U.S.C. [Sec.] 5514(b)(7).
n4
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n6 Ryan, John W. "Approach to Basel III Respects Industry Diversity."
Read this original document at: http://financialservices.house.gov/UploadedFiles/HHRG-113-BA15-WState-SCline-20140715.pdf
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House Financial Services Subcommittee on Financial Institutions and Consumer Credit Hearing
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