As rumors circulate about the potential diminishing role of the Consumer Financial Protection Bureau (CFPB) within the new administration, one might wonder if the consumer financial lending space will become a lawless void. However, like a vigilante for justice, the state financial regulators are ready to step up and protect consumers in the financial space on a nationwide basis. The largest tool in the state regulator’s arsenal is the Nationwide Multistate Licensing System & Registry (NMLS).

How does a system that was designed for the mortgage industry protect consumers in other financial transactions?

• As of January 1, 2017, more than 200 licenses outside of the mortgage industry are maintained through the NMLS. The NMLS refers to these as “Expanded Industries,” and these include, among others: money service business-related licenses, debt collector/collection agency licenses and payday lending licenses.
• Other financial services-related licenses take advantage of the standardized application and information collected on each entity in the NMLS. All companies regardless of industry, size or location start with the same standard company application (also known as a MU1 form), and each control person must complete an individual record (also known as a MU2 form). From there, each state can customize the information needed for each application, but there is always the same basic building block for all financial companies. This consistency allows for easy comparison across companies and industries.
• The NMLS provides a central repository for ownership, officer and management information. Because the system is automated, it can provide real-time updates on any changes for applicants and licensees. The regulator can see the updates as they occur in the industry rather than waiting for a paper application to be mailed, received in the mailroom, date stamped and finally routed to the appropriate regulator’s desk.
• By having the same information on all applicants across industries and states, state regulators can review trends, issues and potential consumer protection issues and collaborate with other state agencies for examinations.

Is this NMLS making changes to accommodate the expanded industries?

• YES! As the NMLS has grown over the years, it has made many of its enhancements with the expanded industries in mind. These enhancements include adding new sections to the standard company/MU1 form for the expanded industries, providing new upload capabilities for documents specific to the industry, and constantly polling the industry beyond the mortgage world for new ideas.
• The newest capability of the NMLS that arrived on March 20, 2017, is the Money Service Businesses (“MSB”) Call Report. Entities in states that are adopting this routine report and that maintain at least one MSB license in the NMLS will submit the call report through the NMLS. Currently, 18 state agencies (25 licenses) will adopt the NMLS MSB Call Report for Q1 2017 reporting. Review more information on the states adopting this new system of reporting.

What does this have to do with the CFPB?

• As the CFPB potentially loses its initial powerful mandate to protect all consumers in financial transactions, the state regulators – armed with the NMLS – will step into the void.
• More and more states have moved and will continue to move their licensing, reporting and monitoring capabilities to the NMLS. It is only a matter of time before all executives in any or all financial institutions will need to complete their very own individual record/MU2 on the NMLS.