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February 27, 2012


CFPB: Defining "Larger Participant"

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On July 8, 2011, we notified you that the Consumer Financial Protection Bureau (CFPB or Bureau) had issued a request for comments regarding the requirement to implement a program to supervise certain nondepository covered persons for compliance with Federal consumer financial laws. In that newsletter, we offered a synopsis and access to the comment portal.

On February 17, 2012, the Bureau published a Proposed Rule that would establish the "larger participant" rule for nonbank entities in two markets: consumer debt collection and consumer reporting.

The CFPB is required to issue an initial ''larger participant'' rule not later than July 21, 2012, which will be one year after the designated transfer date to the CFPB of the enumerated laws pursuant to Dodd-Frank.

The CFPB now seeks public comments as to how best to define "larger participants" in the markets for consumer debt collection and consumer reporting.

Comments must be received on or before April 17, 2012.
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The CFPB is responsible for the supervision of very large banks, thrifts and credit unions, their affiliates and certain nonbank "covered persons." To establish its scope of coverage, the CFPB must propose a rule to define "larger participants" in the markets for consumer debt collection and consumer reporting.

The proposal would place debt collectors and consumer reporting agencies that qualify as larger market participants within the Bureau's nonbank supervision program, marking the first time these activities would face federal supervision.

Consumer reporting agencies (CRAs) with over $7 million in annual receipts would be subject to CFPB supervision.

The CFPB has until July 21, 2012 to finalize an initial rule defining larger market participants that could come under CFPB supervision. The bureau is seeking public input as to which markets to include in the initial rule and which data sources the bureau might use to determine larger participants in nonbank markets.
Nonbanks are:

(a) any entity that engages in offering or providing a consumer financial product or service; and

(b) any affiliate of an entity described in (a) if such affiliate acts as a service provider to such entity.

Excluded from the definition of nonbanks are insured depository institutions or credit unions, or, in the case of such entities with assets of more than $10 billion, their affiliates.
The Bureau is authorized to supervise nonbank entities by requiring the submission of reports and conducting examinations to:

(1) assess compliance with Federal consumer financial law;

(2) obtain information about activities and compliance systems or procedures; and

(3) detect and assess risks to consumers and to the consumer financial markets.
The CFPB has previously sought to evaluate criteria that allow it to administer the Program efficiently by readily identifying larger participants based on "objective available data." Dodd-Frank provides that, for purposes of computing the activity levels of a market participant, the activities of the participant "shall be aggregated" with the activities of nondepository "affiliated companies."

Examples of potential criteria (one or in combination with others):

annual number of transactions in the market;
annual value of transactions (i.e., total loan volume);
annual receipts or revenue;
geographic coverage (i.e., number of states where engaged in business);
asset size; and
outstanding loan balances.

The thresholds - not necessarily mutually exclusive - that may be used could be based on an absolute approach (i.e., an entity with certain annual loan volume) or based on a relative approach (i.e., every market participant having an annual loan volume of a certain amount relative to other participants).

Bureau's Proposed Rule

For the debt collection and consumer reporting markets, the Bureau is proposing a test that measures the criterion of annual receipts.

This measurement will use a definition of "annual receipts" adapted from the definition of the term used by the Small Business Administration (SBA) for purposes of defining small business concerns.

Proposed Thresholds

Consumer debt collection entities: More than $10 million in annual receipts.

Consumer reporting agencies: More than $7 million in annual receipts.
In measuring the size of market participants, the CFPB's larger participant rule might provide that a covered person is a larger participant by measuring applicable criteria for the immediately preceding calendar year or years, or at one or more points in time.

Thus, assuming that criterion such as the annual number of transactions is used, coverage could be determined by evaluating the market participant's annual transactions for the previous calendar year or years.

Certain issues flow from this approach, such as:

How to treat certain significant events relevant to "larger participant" determinations, such as the merger of market participants?

How long a market participant should be subject to supervision once it has met the thresholds for being a larger participant?

How long should a larger participant be subject to CFPB supervision if in the subsequent year its size falls below the applicable threshold?

Bureau's Proposed Rule

The Proposed Rule provides that once a nonbank entity qualifies as a larger participant, it will be deemed a larger participant for a period not less than two years from the first day of the tax year in which the entity last met the applicable test.
Submit Comment
Click to Docket No. CFPB-2012-0005

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Consumer Financial Protection Bureau

Defining Larger Participants in Certain
Consumer Financial Product and Service Markets

Federal Register
February 17, 2012
Proposed Rules
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