Better tech allowing state regulators to oversee non-bank lenders
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In the public policy debate over how to best regulate financial technology firms, technology itself is one good solution. Today, state regulators apply enhanced regulatory technology (RegTech) to FinTech.

It is called the Nationwide Multistate Licensing System (NMLS), which we use to license and enable multi-state operations of non-depositories. Congress has even embraced our system — requiring mortgage loan officers to be licensed or registered in NMLS — and supported its expanded use. 

How do state regulators use NMLS?


First, in order to communicate together and coordinate activity, state regulators need a common platform to license and regulate non-depository entities. NMLS fulfills this need. Today, NMLS is the system of record for 62 agencies operating at the state level.

Together, we use the system to analyze and supervise 21,000 companies in mortgages, money services, debt collection and consumer finance. These companies come in all sizes and business models (branch, online, hybrid). Mortgage companies licensed through NMLS originated $900 billion in loans last year and serviced almost $3.9 trillion worth of loans. 

Second, as a state regulator, it is important to support a healthy business environment. We see this happening. In the mortgage business, for instance, the number of mortgage loan officers in NMLS has grown 24 percent within the past five years to almost 150,000.

The number of state licenses they hold has jumped by 116 percent in the same time period to almost half a million. These developments have translated into more loan officers operating in more states. A regulatory system must enable the financial sector to bring its ideas and services to the market.

Third, as a state regulator, it is our job to make the licensing process as efficient as possible. Here, NMLS has helped us improve approval times. Before states transitioned onto NMLS, it took up to 32 days, on average, to approve a new license. That figure has been cut in half.

On renewals, many states are down to as few as two days. To expedite licensing approvals further, NMLS has worked with the industry to automate key requirements. For instance, most state-licensed companies are required to hold surety bonds — a source of funds that allows regulators and consumers to seek compensation from bad actors.

Getting a surety bond, traditionally a manual and time-consuming process, is now automated in NMLS. A RegTech platform that can drive efficiencies throughout more services is critical to regulators.

Fourth, as a state regulator, it is important to make it easier for companies to operate across state lines and for regulators to share information. Again, we see activity here. Over the past five years, NMLS has supported almost 70 percent growth in the number of mortgage companies operating nationwide — from 154 conducting business in 25 or more states to 264 today.

These companies represent almost half of annual mortgage origination volume and 75 percent of mortgage servicing. A RegTech platform must be flexible, supporting local and multi-state companies alike. 

Fifth, as a state regulator, it is important to bring transparency to the consumer. NMLS Consumer Access is the website where consumers can see which companies and mortgage loan officers are licensed to operate in their state, giving them confidence that they are working with a credible entity.

In 2016, Consumer Access was used by 3.7 million people who viewed more than 100 million pages. Creating broad, easy access for consumers to access vital information is another important part of RegTech and effective regulation.

As you can see, NMLS is an important tool being utilized by state regulators. Because of NMLS, there is a robust, vibrant regulatory system for non-depository entities operating in the United States. It is a system that has made the licensing process more efficient, including for those operating on a national basis, all while ensuring transparency to the consumer. 

But we are not stopping there. We are committed to a multi-state experience that is as seamless as possible. That is why state regulators are transforming NMLS to automate the first-state licensing process, where today there is the greatest level of effort in a multi-state system.

In addition, state regulators are meeting with FinTech companies and other stakeholders to get their ideas on further improvements. Through a CSBS task force on emerging payments and innovation, state regulators are discussing what more can be done on a collaborative basis. 

To us, the question is not whether state regulation is good enough. Instead, the question always is whether we can make it better. I believe we can; we must and we will. 


Charles Cooper is the chairman for the Conference of State Bank Supervisors. Cooper is also the commissioner of the Texas Department of Banking. 

The views expressed by contributors are their own and not the views of The Hill.