CFPB Proposes Definitions for “Larger Participants” in Debt Collection and Credit Reporting Industries
The Consumer Financial Protection Bureau (“CFPB”) has issued a proposed rule defining its authority to examine nonbank “larger participants” in the debt collection and consumer credit reporting industries. The term “larger participant” was not defined in Dodd-Frank. Although the CFPB has the authority to examine any nonbank company in the mortgage, payday lending, and private student lending markets, the CFPB’s jurisdiction to examine companies in other consumer financial markets is limited to “larger participants.” Examples of these markets include debt collection, consumer reporting, auto financing, debt relief, prepaid cards, and money services. As we discussed in a prior blog post, the CFPB recently launched its nonbank supervision program.
Under the proposed rule, the thresholds for being subject to CFPB examination are $10 million in “annual receipts” for debt collection activities and $7 million in “annual receipts” for consumer credit reporting activities. The term “receipts” is defined to mean “total income” (or “gross income” for sole proprietorships) plus “cost of goods sold,” as such terms are defined on IRS tax return forms. Net capital gains and losses are excluded. Receipts are averaged over the three most recently completed fiscal years to determine annual receipts. Companies in the consumer reporting and debt collection industries should carefully review the definitions used by the CFPB for these activities, which differ from those used in the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. The CFPB has estimated (based on 2007 Economic Census data) that approximately 175 debt collection agencies and 30 credit reporting agencies in the United States will be covered by the rule.
Comments on the proposed rule are due by April 17, 2012. The proposed rule is limited to the debt collection and consumer credit reporting industries, and other consumer financial service providers can expect to see subsequent rules defining “larger participants” for their industries.