[Federal Register Volume 77, Number 33 (Friday, February 17, 2012)]
[Proposed Rules]
[Pages 9592-9608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3775]


=======================================================================
-----------------------------------------------------------------------

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1090

[Docket No. CFPB-2012-0005]
RIN 3170-AA00


Defining Larger Participants in Certain Consumer Financial 
Product and Service Markets

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule; request for public comment.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing a new regulation pursuant to

[[Page 9593]]

section 1024 of the Consumer Financial Protection Act of 2010. That 
provision grants the Bureau authority to supervise certain nonbank 
covered persons for compliance with Federal consumer financial laws and 
for other purposes. The Bureau has the authority to supervise nonbank 
covered persons of all sizes in the residential mortgage, private 
education lending, and payday lending markets. In addition, the Bureau 
has the authority to supervise nonbank ``larger participant[s]'' in 
markets for other consumer financial products or services. The Bureau 
must define such ``larger participants'' by rule, and such an initial 
rule must be issued by July 21, 2012.
    In this proposal, the Bureau proposes to define larger participants 
in the markets for consumer debt collection and consumer reporting. The 
Bureau intends that this proposal and subsequent initial rule will be 
followed by a series of rulemakings covering additional markets for 
consumer financial products and services. The Bureau also proposes to 
include provisions in this proposal that will facilitate the 
supervision of nonbank covered persons.

DATES: Comments must be received on or before April 17, 2012.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Because paper mail in the Washington, 
DC area and at the Bureau is subject to delay, commenters are 
encouraged to submit comments electronically. You may submit comments, 
identified by Docket No. CFPB-2012-0005 or RIN 3170-AA00 by any of the 
following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments. In general, all comments received 
will be posted without change to their content.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Bureau of Consumer Financial Protection, 1700 G Street NW., Washington 
DC 20006.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Bureau of Consumer Financial Protection, 1700 G 
Street NW., Washington DC 20006.
    In addition, comments will be available for public inspection and 
copying at 1700 G Street NW., Washington, DC 20006 on official business 
days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make 
an appointment to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and will be subject to public 
disclosure. Submit only information that you wish to make available 
publicly. Do not include sensitive personal information, such as 
account numbers or Social Security numbers. Comments will not be edited 
to remove any identifying or contact information, such as name and 
address information, email addresses, or telephone numbers.

FOR FURTHER INFORMATION CONTACT: Christopher Young, Senior Counsel, 
(202) 435-7408, or Nicholas Krafft, Consumer Financial Protection 
Analyst, (202) 435-7252, Office of Nonbank Supervision, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Background

    The Consumer Financial Protection Act of 2010 (Act) \1\ established 
the Bureau of Consumer Financial Protection (Bureau) on July 21, 2010. 
One of the Bureau's key responsibilities under the Act is the 
supervision of very large banks, thrifts, and credit unions, and their 
affiliates,\2\ and certain nonbank covered persons.\3\
---------------------------------------------------------------------------

    \1\ The Act is Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010, Public Law 111-203 (12 U.S.C. 
5301).
    \2\ See Act section 1025(a). The Bureau also has certain 
authorities relating to the supervision of other banks, thrifts, and 
credit unions. See Act section 1026 (c)(1), (e).
    \3\ Section 1024 of the Act applies to nondepository (nonbank) 
covered persons and expressly excludes from coverage persons 
described in sections 1025(a) or 1026(a) of the Act. Under section 
1002(6) of the Act, a ``covered person'' means ``(A) any person that 
engages in offering or providing a consumer financial product or 
service; and (B) any affiliate of a person described [in (A)] if 
such affiliate acts as a service provider to such person.'' Act 
section 1002(6); see also Act section 1002(5) (defining ``consumer 
financial product or service.'') Section 1024(d) of the Act provides 
that, subject to certain exceptions, ``to the extent that Federal 
law authorizes the Bureau and another Federal agency to * * * 
conduct examinations, or require reports from a [nonbank covered 
person] under such law for purposes of assuring compliance with 
Federal consumer financial law and any regulations thereunder, the 
Bureau shall have exclusive authority to * * * conduct examinations 
[and] require reports * * * with regard to a [nonbank covered 
person], subject to those provisions of law.''
---------------------------------------------------------------------------

    This proposal (Proposed Rule or proposal) would establish, in part, 
the scope of coverage of the Bureau's supervision authority for nonbank 
covered persons pursuant to section 1024 of the Act.\4\ That authority 
varies by consumer financial product or service market. Specifically, 
section 1024 grants the Bureau authority to supervise, regardless of 
size, nonbank covered persons that offer or provide to consumers: (1) 
Origination, brokerage, or servicing of residential mortgage loans 
secured by real estate, and related mortgage loan modification or 
foreclosure relief services; (2) private education loans; and (3) 
payday loans.\5\ In addition, the Bureau has the authority to supervise 
any ``larger participant of a market for other consumer financial 
products or services,'' as defined by rule by the Bureau.\6\ The Act 
requires the initial larger participant rule to be issued by July 21, 
2012. This Proposed Rule would establish the initial larger participant 
rule for two markets: consumer debt collection and consumer reporting. 
The Bureau anticipates subsequent rulemakings to define larger 
participants in additional markets.
---------------------------------------------------------------------------

    \4\ The Bureau's supervision authority also extends to service 
providers of these entities. See Act section 1024(e) (establishing 
the Bureau's supervisory authority relating to service providers); 
see also, Act section 1002(26) (defining ``service provider''). 
Service providers to consumer debt collectors and consumer reporting 
agencies may include firms such as data aggregators, law firms, data 
and record suppliers, account maintenance services, call centers, 
software providers, and developers of credit scoring algorithms.
    \5\ Act section 1024(a)(1)(A), (D), and (E).
    \6\ Act section 1024(a)(1)(B), (a)(2). The Bureau also has the 
authority to supervise any nonbank covered person that it ``has 
reasonable cause to determine, by order, after notice and a 
reasonable opportunity * * * to respond'' that such covered person 
``is engaging, or has engaged, in conduct that poses risks to 
consumers with regard to the offering or provision of consumer 
financial products or services.'' Act section 1024(a)(1)(C).
---------------------------------------------------------------------------

    The Bureau is authorized to supervise nonbank entities subject to 
section 1024 of the Act by requiring the submission of reports and 
conducting examinations to: (1) Assess compliance with Federal consumer 
financial law; (2) obtain information about such persons' activities 
and compliance systems or procedures; and (3) detect and assess risks 
to consumers and to the consumer financial markets.\7\
---------------------------------------------------------------------------

    \7\ Act section 1024(b)(1).
---------------------------------------------------------------------------

    The Proposed Rule only pertains to defining larger participants in 
certain markets for purposes of the Bureau's nonbank supervision 
authority and would not impose new substantive consumer protection 
requirements on any nonbank entity. Moreover, nonbank entities are 
subject to the Bureau's regulatory and enforcement authority and any 
applicable Federal consumer financial law, regardless of whether they 
are subject to the Bureau's supervisory authority.

II. Overview of Comments Received

    The Bureau solicited public comment on developing an initial 
proposed larger participant rule by publishing in the Federal Register 
a Notice and Request

[[Page 9594]]

for Comment (Notice) on June 29, 2011,\8\ and holding a series of 
roundtable discussions with industry, consumer and civil rights groups, 
and state regulatory agencies and associations.\9\ The comment period 
for the Notice ended on August 15, 2011. The Bureau received more than 
10,400 comments from individual consumers, consumer advocacy groups, 
industry trade groups, individual companies, state and Federal 
regulators, regulatory associations, and elected officials.\10\ Issues 
addressed in the comments included which markets should be covered in 
the initial proposed rule, the particular criteria and thresholds the 
initial rule should use to measure the size of nonbank covered persons, 
available data sources, and measurement dates and supervision 
timeframes.
---------------------------------------------------------------------------

    \8\ 76 FR 38059.
    \9\ In July 2011, the Bureau held four roundtable discussions on 
the larger participant Notice. More than 70 stakeholders 
participated, representing a diverse mix of nonbank and bank trade 
associations and consumer advocacy and civil rights groups. The 
roundtables focused on key issues regarding criteria (what to 
measure), thresholds (where to set), data (available sources), and 
markets (which to cover and how to define). Also in July 2011, the 
Bureau held a multistate regulator and regulatory association 
conference call that had more than 40 participants.
    \10\ More than 10,300 of these comments were nearly identical 
form letters from individuals asking the Bureau to include credit 
bureaus and credit scoring companies in its supervision program.
---------------------------------------------------------------------------

    Commenters suggested a variety of approaches to choosing markets 
for inclusion in the initial larger participant rule. Some suggested 
the inclusion of certain specified markets, such as consumer reporting. 
Other commenters, both industry and consumer, recommended that the 
Bureau take a broad and flexible approach to covering markets and 
defining larger participants, in order to bring a large number of 
markets and market participants under the Bureau's supervision program. 
Still other commenters suggested consideration of specific factors in 
choosing markets for inclusion, such as risk to consumers, costs and 
benefits, or duplication of existing supervision. With respect to 
establishing a test to define who is a larger participant in a market, 
comments submitted by both consumer groups and industry associations 
recommended that any test adopted by the Bureau enable it to adapt to 
evolving markets and be crafted such that nonbank covered persons do 
not ``slip through the cracks.'' Several commenters suggested that a 
``one-size-fits-all'' approach to establishing a test to define who is 
a larger participant would not work. These commenters noted that the 
differences between markets call for tests tailored to each individual 
market. In addition, some industry and consumer group commenters 
supported using multiple tests within a given market to make it harder 
for nonbank covered persons to evade supervision under the rule. Other 
industry group commenters, however, favored the use of a single test to 
minimize burden on both nonbank covered persons and the Bureau.
    The Bureau received comments both in favor and opposed to including 
small businesses within the coverage of the rulemaking. Trade groups 
with members that are small businesses cautioned about unnecessary 
burden and recommended an exemption of small businesses from coverage 
by the larger participant rule. Some consumer groups, on the other 
hand, advocated coverage of relevant firms even if they are small, 
arguing that in highly fragmented industries, almost all participants 
may be small businesses, and further, in the context of regional 
markets, small businesses may be large, regional players.
    Finally, some commenters responded to the Bureau's request for 
suitable data sources to develop and apply definitions of larger 
participants. However, none of the comments identified available, 
comprehensive data sources that could be used for this purpose.
    Comments are discussed below as relevant in the section-by-section 
description of the proposal.

III. Summary of the Proposal

    This proposal is the first in what the Bureau intends to be a 
series of rules to define ``larger participants'' in specific markets 
for purposes of establishing, in part, the scope of coverage of the 
Bureau's nonbank supervision program. In developing the proposal, the 
Bureau considered the comments it received in response to the Notice 
and in the roundtables conducted last year. The Proposed Rule covers 
two markets for consumer financial products and services: consumer debt 
collection and consumer reporting.
    The Proposed Rule sets forth definitions for the consumer financial 
products or services comprising the markets that it covers, in addition 
to defining other terms. The proposal establishes a test for each 
market to determine whether a nonbank entity is a larger participant of 
that market. 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. The proposed threshold for the consumer debt collection 
market is more than $10 million in annual receipts and, for the 
consumer reporting market, is more than $7 million in annual receipts. 
Under the tests set forth in the Proposed Rule, these receipts must 
result from activities related to the market in question. Covered 
persons meeting the proposed tests would qualify as larger participants 
and be subject to the Bureau's supervision authority under section 1024 
of the Act. Although annual receipts are proposed as the criterion of 
measurement for both markets covered by the Proposed Rule, the Bureau 
has not determined that this criterion would be appropriate for any 
other market that may be the subject of a future rulemaking. Rather, 
the Bureau will tailor each test to the market to which it will be 
applied.
    The Proposed Rule provides that once a nonbank covered person 
qualifies as a larger participant, the person 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 person last met the applicable test. The 
proposal also includes a procedure for a person to dispute that it 
qualifies as a larger participant. To facilitate the Bureau's 
supervision of nonbank covered persons, to enable the Bureau to carry 
out the purposes and objectives of the Act relating to supervision, and 
to prevent evasion, the Proposed Rule provides that the Bureau may 
require submission of certain records, documents, and other information 
for purposes of determining whether a person is a larger participant of 
a covered market.

IV. Legal Authority and Procedural Matters

A. Rulemaking Authority

    The Bureau is issuing this Proposed Rule pursuant to its authority 
under: (1) Sections 1024(a)(1)(B) and (a)(2) of the Act which require 
the Bureau to issue an initial rule to define who is a larger 
participant in certain markets for consumer financial products or 
services by July 21, 2012, one year after the designated transfer date; 
(2) section 1024(b)(7) which authorizes the Bureau to prescribe rules 
to facilitate the supervision of covered persons under section 1024 of 
the Act; (3) section 1022(c)(5), which provides the Bureau the 
authority to assess whether a nonbank entity is a covered person under 
the Act by requiring such person to submit to the Bureau, under oath or 
otherwise, annual reports or answers in

[[Page 9595]]

writing to specific questions; and (4) section 1022(b)(1), which grants 
the Bureau the authority to prescribe rules as may be necessary and 
appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of the Federal consumer financial laws, and to 
prevent evasions of these laws.

B. Proposed Effective Date of Final Rule

    The Administrative Procedure Act generally requires that rules be 
published not less than 30 days before their effective dates.\11\ The 
Bureau proposes that, once issued, the final rule for this proposal 
would be effective 30 days after publication. The Bureau seeks comment 
on whether the proposed effective date is appropriate, or whether the 
Bureau should adopt an alternative effective date.
---------------------------------------------------------------------------

    \11\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------

V. Section-by-Section Description of the Proposed Rule

Section 1090.100--Scope and Purpose

    Proposed Sec.  1090.100 sets forth the scope and purpose of the 
Proposed Rule. It states that the part defines those nonbank covered 
persons that qualify as larger participants of certain markets for 
consumer financial products or services pursuant to sections 
1024(a)(1)(B) and (a)(2) of the Act. Proposed Sec.  1090.100 further 
explains that a larger participant of a market covered by the part will 
be subject to the supervisory authority of the Bureau under section 
1024 of the Act. Finally, proposed Sec.  1090.100 provides that the 
part establishes rules to facilitate the Bureau's supervisory authority 
over larger participants pursuant to section 1024(b)(7) of the Act.

Section 1090.101--Definitions

    Proposed Sec.  1090.101 defines terms used in the Proposed Rule. If 
a term is defined in the Act, the proposal generally incorporates that 
definition, with clarifications and modifications where necessary. The 
Bureau seeks comment on each of the definitions set forth in the 
Proposed Rule and any suggested clarifications, modifications, or 
alternatives. The Bureau notes that certain key terms defined by the 
Act and adopted by the proposal, such as ``consumer,'' are defined 
differently by some consumer protection regulations such as Regulation 
Z \12\ or Regulation E.\13\ The Bureau solicits comment on whether the 
Bureau should conform any of these definitions to other regulations for 
consistency and, if so, to which definitions it should conform.
---------------------------------------------------------------------------

    \12\ 12 CFR 1026.1 et seq.
    \13\ 12 CFR 1005.1 et seq.
---------------------------------------------------------------------------

    Act. Proposed Sec.  1090.101(a) states that the term ``Act'' means 
the Consumer Financial Protection Act of 2010.
    Affiliated company. Section 1024(a)(3)(B) of the Act provides that 
for purposes of determining activity levels for, among other things, 
defining who is a larger participant of certain markets, the activities 
of affiliated companies (other than insured depository institutions or 
insured credit unions) shall be aggregated. The term ``affiliated 
company'' is not defined in the Act. For purposes of implementing 
section 1024(a)(3)(B)'s aggregation requirement, proposed Sec.  
1090.101(b) defines the term ``affiliated company'' in a manner guided 
by the definition of ``affiliate'' set forth in the Act,\14\ with 
modifications to track the requirements of 1024(a)(3)(B). Thus, 
proposed Sec.  1090.101(b) states that the term ``affiliated company'' 
means any company (other than an insured depository institution or 
insured credit union) that controls, is controlled by, or is under 
common control with, a person.
---------------------------------------------------------------------------

    \14\ Act section 1002(1).
---------------------------------------------------------------------------

    For purposes of the definition of ``affiliated company,'' proposed 
Sec.  1090.101(b) provides that the term ``company'' means any 
corporation, limited liability company, business trust, general or 
limited partnership, proprietorship, cooperative, association, or 
similar organization.\15\
---------------------------------------------------------------------------

    \15\ This definition of ``company'' is guided by the definition 
of that term in Regulation P, 12 CFR 1016.1 et seq. (Privacy of 
Consumer Financial Information), and Regulation V, 12 CFR 1022.1 et 
seq. (Fair Credit Reporting).
---------------------------------------------------------------------------

    Also for purposes of the definition of ``affiliated company,'' 
proposed Sec.  1090.101(b) explains when a person shall be considered 
to have control over another person, guided by the definitions of the 
term control provided in section 2 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 5301),\16\ 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), 
section 2 of the Bank Holding Company Act (12 U.S.C. 1841), and the 
rules of other Federal financial regulators.\17\ Proposed Sec.  
1090.101(b) thus provides that a person has control over another person 
if: (i) The person directly or indirectly or acting through one or more 
other persons owns, controls, or has power to vote 25 percent or more 
of any class of voting securities or similar ownership interest of the 
other person; (ii) the person controls in any manner the election of a 
majority of the directors, trustees, members, or general partners of 
the other person; or (iii) the person directly or indirectly exercises 
a controlling influence over the management or policies of the other 
person, as determined by the Bureau.
---------------------------------------------------------------------------

    \16\ Public Law 111-203, 124 Stat. 1390, section 2(18)(A) 
(2010).
    \17\ See, e.g., 12 CFR 41.3(i) (OCC rule defining ``common 
ownership or common corporate control'' in connection with fair 
credit reporting); 12 CFR 336.3(b) (FDIC rule defining ``control'' 
in connection with minimum standards of fitness for employment with 
the FDIC); 12 CFR 1805.104(q) (Department of the Treasury rule 
defining ``control'' in connection with the Community Development 
Financial Institutions Program).
---------------------------------------------------------------------------

    The Bureau seeks comment on whether the definition of ``affiliated 
company'' is appropriate to implement the aggregation requirement under 
section 1024(a)(3)(B) of the Act, and on possible alternatives to the 
proposed definition.
    Annual receipts. Proposed Sec.  1090.101(c) is informed by the 
method of calculating ``annual receipts'' used by the SBA \18\ in 
determining whether a business is a ``small business concern.'' Under 
proposed Sec.  1090.101(c), for purposes of calculating ``annual 
receipts,'' the term ``receipts'' means ``total income'' (or in the 
case of a sole proprietorship, ``gross income'') plus ``cost of goods 
sold'' as these terms are defined and reported on Internal Revenue 
Service (IRS) tax return forms. The term does not include net capital 
gains or losses. Annual receipts are measured as the average of a 
person's most recently completed three fiscal years, or the average 
receipts for the entire period the person has been in business if it 
has less than three completed fiscal years.\19\ The calculation of 
annual receipts also implements the aggregation requirement in section 
1024(a)(3)(B) of the Act by providing that the annual receipts of a 
person shall be added to the annual receipts of each of its affiliated 
companies. Such aggregation includes the receipts of both the acquired 
and acquiring companies in the case of an acquisition occurring during 
any relevant measurement period.
---------------------------------------------------------------------------

    \18\ 13 CFR 121.104.
    \19\ A ``completed fiscal year'' means a ``tax year'' including 
any ``short tax year.'' A ``fiscal year'' is 12 consecutive months 
ending on the last day of any month except December 31st. A ``tax 
year'' is an annual accounting period for keeping records and 
reporting income and expenses. An annual accounting period does not 
include a ``short tax year.'' A ``short tax year'' is a ``tax year'' 
of less than 12 months. IRS Publication 538, available at http://www.irs.gov/publications/p538/ar02.html#d0e237.
---------------------------------------------------------------------------

    The Bureau considered defining ``annual receipts'' as the term is 
used in the U.S. Economic Census, but this term includes revenue from 
all business activities, whether or not payment was

[[Page 9596]]

received in the census year, including net investment income, interest, 
and dividends.\20\ The Bureau believes that the SBA's definition of 
``annual receipts'' is more appropriate as a guide for this proposal 
because, by excluding net capital gains and losses, it does not capture 
this investment income, which is not generated from market activities 
in a given year.
---------------------------------------------------------------------------

    \20\ See http://factfinder2.census.gov/faces/help/jsf/pages/metadata.xhtml?lang=en&type=category&id=category.en./ECN/ECN/2007_US/56SSSZ4.MEASURE.RCPTOT#main_content.
---------------------------------------------------------------------------

    Assistant Director. Proposed Sec.  1090.101(d) states that the term 
``Assistant Director'' means the Bureau's Assistant Director for 
Nonbank Supervision or her or his designee. Under proposed Sec.  
1090.101(d), the Director of the Bureau may perform the functions of 
the Assistant Director as set forth in the Proposed Rule. Proposed 
Sec.  1090.101(d) further provides that, in the event there is no 
Assistant Director, the Director of the Bureau may designate an 
alternative Bureau employee to perform the functions of the Assistant 
Director.
    Bureau. Proposed Sec.  1090.101(e) states that the term ``Bureau'' 
means the Bureau of Consumer Financial Protection.
    Consumer. Proposed Sec.  1090.101(f) incorporates the definition of 
``consumer'' set forth in section 1002(4) of the Act. Thus, proposed 
Sec.  1090.101(f) states that the term ``consumer'' means an individual 
or an agent, trustee, or representative acting on behalf of an 
individual.
    Consumer debt collection. Under section 1002(15)(A)(x) of the Act, 
the term ``financial product or service'' includes ``collecting debt 
related to any consumer financial product or service.'' Section 
1002(5)(B) of the Act, in turn, provides that this activity is a 
``consumer financial product or service'' when ``delivered, offered, or 
provided in connection with a consumer financial product or service.''
    Proposed Sec.  1090.101(g) defines the consumer financial product 
or service of ``consumer debt collection'' to ensure that it captures a 
range of consumer debt collection activities, including consumer debt 
collection activities undertaken by third-party collectors, law firms, 
attorneys, and debt buyers. The proposed definition describes consumer 
debt collection as collecting or attempting to collect, directly or 
indirectly, any debt owed or due or asserted to be owed or due to 
another and related to any consumer financial product or service.\21\ 
It also indicates the debt may either be collected on behalf of another 
person or on the person's own behalf if the debt was obtained while in 
default, to ensure consumer debt collection activities of debt buyers 
are covered. The Bureau invites comments on all aspects of the 
definition of the term ``consumer debt collection,'' including possible 
alternatives to the proposed definition.
---------------------------------------------------------------------------

    \21\ Similarly, section 1692a(6) of the Fair Debt Collection 
Practices Act (15 U.S.C.1692 et seq.), defines debt collection to 
include, among other things, collecting or attempting to collect, 
directly or indirectly, any debt owed or due or asserted to be owed 
or due to another.
---------------------------------------------------------------------------

    Consumer financial product or service. Proposed Sec.  1090.101(h) 
incorporates the definition of the term ``consumer financial product or 
service'' set forth in section 1002(5) of the Act. Proposed Sec.  
1090.101(h) provides that the term ``consumer financial product or 
service'' means any financial product or service as defined in section 
1002(15) of the Act that is described in one or more categories under: 
(a) section 1002(15) of the Act and is offered or provided for use by 
consumers primarily for personal, family, or household purposes; or (b) 
clause (i), (iii), (ix), or (x) of section 1002(15)(A) of the Act \22\ 
and is delivered, offered, or provided in connection with a consumer 
financial product or service referred to in the immediately preceding 
subparagraph (a).
---------------------------------------------------------------------------

    \22\ Under these clauses, the term ``financial product or 
service'' is generally defined to include, subject to certain 
exclusions: (1) Extending credit and servicing loans, Act section 
1002(15)(A)(i); (2) providing real estate settlement services or 
performing appraisals of real estate or personal property, Act 
section 1002(15)(A)(iii); (3) collecting, analyzing, maintaining, or 
providing consumer report information or other account information 
used or expected to be used in connection with any decision 
regarding the offering or provision of a consumer financial product 
or service, Act section 1002(15)(A)(ix); and (4) collecting debt 
related to any consumer financial product or service, Act section 
1002(15)(A)(x).
---------------------------------------------------------------------------

    Consumer reporting. Under section 1002(15)(A)(ix) of the Act, the 
term ``financial product or service'' includes, subject to certain 
exceptions, ``collecting, analyzing, maintaining, or providing consumer 
report information or other account information, including information 
relating to the credit history of consumers, used or expected to be 
used in connection with any decision regarding the offering or 
provision of a consumer financial product or service.'' Section 
1002(5)(B) of the Act, in turn, provides that this activity is a 
``consumer financial product or service'' when ``delivered, offered, or 
provided in connection with a consumer financial product or service.''
    The definition of the consumer financial product or service of 
``consumer reporting'' proposed in Sec.  1090.101(i) is guided by the 
activity described in sections 1002(5)(B) and (15)(A)(ix) of the Act. 
The Bureau is proposing to modify this definition for the purposes of 
this Proposed Rule generally to exclude the activities of persons that 
furnish information about their own experiences or transactions with 
consumers and persons that use consumer report or other account 
information for their own purposes. While these activities do not 
typically result in annual receipts, the Bureau believes expressly 
excluding these activities will provide greater certainty for nonbank 
entities that do engage in these activities. Moreover, many large 
furnishers of information to consumer reporting entities are already 
subject to the Bureau's supervisory authority under the Act.\23\
---------------------------------------------------------------------------

    \23\ As noted above, section 1024 of the Act grants the Bureau 
authority to supervise, regardless of size, nonbank covered persons 
that offer or provide to consumers: (1) Origination, brokerage, or 
servicing of residential mortgage loans secured by real estate, and 
related mortgage loan modification or foreclosure relief services; 
(2) private education loans; and (3) payday loans. Section 1025 of 
the Act grants the Bureau authority to supervise very large banks, 
thrifts, and credit unions, and their affiliates.
---------------------------------------------------------------------------

    Proposed Sec.  1090.101(i) states that the term ``consumer 
reporting'' means collecting, analyzing, maintaining, or providing 
consumer report information or other account information, used or 
expected to be used in any decision by another person regarding the 
offering or provision of any consumer financial product or service. The 
language ``by another person'' revises the language of the Act to 
prevent the possibility of a person's own use of consumer report 
information being included in the definition. The definition also 
provides exceptions for the activities of a person providing 
information related to their (or their affiliate's) transactions and 
experiences with a consumer to an affiliate or to a consumer reporting 
entity, as well as the exception detailed in the Act for information 
used solely in a decision regarding employment, government licensing, 
and residential leasing. This definition covers different types of 
consumer reporting agencies such as credit bureaus, consumer report 
resellers, and specialty consumer reporting agencies such as those 
specializing in consumer check verification and payday lending 
transactions.\24\ The Bureau invites

[[Page 9597]]

comments on all aspects of the definition of the term ``consumer 
reporting,'' including possible alternatives to the proposed 
definition.
---------------------------------------------------------------------------

    \24\ This definition may also include entities such as credit 
scoring companies. Whether such an entity is covered under this 
definition would depend upon its particular activities. To the 
extent that a credit scoring company is engaged in collecting, 
analyzing, maintaining, or providing consumer report or other 
account information for the purposes described above, it would be 
covered by the definition.
---------------------------------------------------------------------------

    Larger participant. Proposed Sec.  1090.101(j) defines the term 
``larger participant'' to mean a nonbank covered person that meets a 
test under Sec.  1090.102, and which remains a larger participant for 
the period provided in Sec.  1090.103 of this part.
    Nonbank covered person. Section 1024 of the Act relates to 
``covered persons'' as defined in section 1002(6) of the Act that are 
not insured depository institutions or credit unions, or, in the case 
of such entities with assets of more than $10 billion, their 
affiliates, as set forth in sections 1025(a) and 1026(a) of the Act. 
Proposed Sec.  1090.101(k) therefore excludes from the definition of 
``nonbank covered persons'' persons described in sections 1025(a) and 
1026(a) of the Act and provides that the term ``nonbank covered 
person'' means, except for persons described in sections 1025(a) and 
1026(a) of the Act: (a) Any person that engages in offering or 
providing a consumer financial product or service; and (b) any 
affiliate of a person described in subparagraph (a) of this paragraph 
if such affiliate acts as a service provider to such person.
    Person. Proposed Sec.  1090.101(l) incorporates the definition of 
``person'' set forth in section 1002(19) of the Act. Proposed Sec.  
1090.101(l) states that the term ``person'' means an individual, 
partnership, company, corporation, association (incorporated or 
unincorporated), trust, estate, cooperative organization, or other 
entity.
    Supervision or supervisory activity. Proposed Sec.  1090.101(m) 
defines the terms ``supervision'' or ``supervisory activity'' to mean 
the Bureau's exercise, or intended exercise, of supervisory authority 
by initiating or undertaking an examination, or requiring a report, of 
a person pursuant to section 1024 of the Act.

Section 1090.102--Covered Markets and Tests for Determining Larger 
Participants of Those Markets

Section 1090.102(a)--Consumer Debt Collection
Market Overview
    Proposed Sec.  1090.102(a) relates to the market for consumer debt 
collection. As explained in the section-by-section description of 
proposed Sec.  1090.101(g), this market encompasses the collection, or 
attempted collection, of debt related to the consumer financial 
products or services described in sections 1002(5) and (15)(A) of the 
Act. Such activity includes the collection of debt related to consumer 
credit, certain consumer leases, and a variety of other consumer 
financial products or services, but generally not other debt incurred 
by individuals, such as medical debt.
    Participants in the debt collection market generally include third-
party debt collectors, debt buyers, and collection attorneys and law 
firms. Third-party collectors primarily collect debt on behalf of a 
debt owner, the person that originated the debt or purchased it. Third-
party collectors typically are compensated through contingency fees 
calculated as a percentage of the debt they collect.\25\ Creditors' 
practices vary in how they use outside collection agencies; in some 
cases creditors use collection agencies in the early stages of 
delinquency prior to charge off (charge off usually occurs 120 or 180 
days after delinquency, depending on the type of debt).\26\ In other 
cases, creditors use third-party debt collectors after a debt has been 
written off by the creditor.
---------------------------------------------------------------------------

    \25\ ACA International, 2010 Agency Benchmarking Survey, at 19 
(2010). According to the ACA International's 2010 Benchmarking 
Survey, collection agency commission rates averaged 27% in 2009, 
with a median of 25.6%.
    \26\ For example, the Federal Financial Institutions Examination 
Council, in its Uniform Retail Credit Classification and Account 
Management Policy, establishes a charge-off policy for open-end 
credit at 180 days delinquency and closed-end credit at 120 days 
delinquency. See 65 FR 36903, June 12, 2000.
---------------------------------------------------------------------------

    Debt buying is another important component of the consumer debt 
collection market. As the name indicates, debt buyers purchase debt, 
either from the original creditor or from another debt buyer, usually 
for a fraction of the balance owed.\27\ They profit when their 
recoveries exceed the combined costs of debt acquisition and of 
collecting from debtors, including overhead (or direct and indirect 
costs of collection). Debt buyers sometimes use third-party collection 
agencies or collection law firms to collect their debt, but many also 
undertake their own collection efforts. Finally, debt buyers also may 
decide to sell purchased debt to another debt buyer.
---------------------------------------------------------------------------

    \27\ Federal Trade Commission, Collecting Consumer Debts: The 
Challenges of Change, at 4 (Feb. 2009), available athttp://
www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf) (citing, Kaulkin 
Ginsberg, The Kaulkin Report: The Future of Receivables Management 
at 50 (7th ed. 2007)).
---------------------------------------------------------------------------

    Collection attorneys and law firms also play a key role in the 
consumer debt collection market.\28\ They sometimes are the primary (or 
only) debt collector with which a consumer will interact. Collection 
attorneys and law firms may collect through litigation (i.e., filing 
suit against consumers to collect debt). They also may collect in the 
same manner as other debt collectors, such as by sending dunning 
letters and making phone calls. By one estimate, approximately one in 
20 delinquent accounts gets referred to a law firm that specializes in 
debt collection.\29\
---------------------------------------------------------------------------

    \28\ Although attorneys are generally excluded from the Act's 
coverage, see Act section 1027(e)(1), this exclusion does not 
preclude the exercise of the Bureau's supervisory authority over 
collection attorneys. Section 1027(e)(2) of the Act provides that 
the general exclusion for attorneys does not limit the Bureau's 
supervisory, enforcement, or other authority with respect to an 
attorney who offers or provides a consumer financial product or 
service with respect to any consumer who is not receiving legal 
advice or services from the attorney in connection with that product 
or service. Further, section 1027(e)(3) of the Act provides that the 
Bureau shall have authority over attorneys who are otherwise subject 
to any ``enumerated consumer law'' within the meaning of the Act. 
Collection attorneys are subject to the Fair Debt Collection 
Practices Act, which is included among the enumerated consumer laws 
listed in section 1002(23) of the Act. See Heintz v. Jenkins, 514 
U.S. 291 (1995).
    \29\ National Consumer Law Center, The Debt Machine: How the 
Collection Industry Hounds Consumers and Overwhelms Courts at 11 
(July 2010).
---------------------------------------------------------------------------

    Consumer debt collection is a market for ``consumer financial 
products or services'' under section 1024(a)(1)(B) of the Act and is 
thus appropriate for inclusion in a larger participant rulemaking. 
Moreover, consumer debt collection is critical to the functioning of 
the consumer credit market and has a significant impact on consumers. 
By collecting delinquent debt, collectors reduce creditors' losses from 
non-repayment and thereby help to keep consumer credit available and 
potentially more affordable to consumers. Available and affordable 
credit is vital to millions of consumers because it makes it possible 
for them to purchase goods and services that they could not afford if 
they had to pay the entire cost at the time of purchase. Further, debt 
collection is a large, multi-billion dollar industry that directly 
affects a large number of consumers. In 2011, approximately 30 million 
individuals, or 14 percent of American adults had debt that was subject 
to the collections process (averaging approximately $1,400).\30\ 
Although these figures include not only consumer debt covered by the 
Act and the Proposed Rule, but also other types of debt such as medical 
debt, they indicate the importance and central role of

[[Page 9598]]

consumer debt collection as a market for consumer financial products or 
services.
---------------------------------------------------------------------------

    \30\ Federal Reserve Bank of New York, Quarterly Report on 
Household Debt and Credit (November 2011), available athttp://
www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q32011.pdf.
---------------------------------------------------------------------------

    The Bureau received comments from consumer groups recommending that 
the Bureau define each of the various debt collection activities 
described above as separate markets. Although the collection of 
consumer debt encompasses these different business models and it may be 
reasonable to define them as separate markets, it is difficult based on 
current market practices to draw a bright line separating them. Some 
third party-collectors also buy debt, and debt buyers may utilize in-
house or third-party collectors. Similarly, collection attorneys and 
law firms may, in addition to representing debt owners, buy debt and 
collect on their own behalf.\31\ The Bureau is also not aware of any 
currently available data that would be useable to devise separate tests 
for these nonbank covered persons. Thus, the Proposed Rule provides for 
a single-market approach to consumer debt collection.
---------------------------------------------------------------------------

    \31\ Federal Trade Commission, Collecting Consumer Debts: The 
Challenges of Change, at 3 (Feb. 2009), available athttp://
www.ftc.gov/bcp/workshops/debtcollection/dcwr.pdf (citing, Kaulkin 
Ginsberg, The Kaulkin Report: The Future of Receivables Management 
at 74 (7th ed. 2007)).
---------------------------------------------------------------------------

    Test to define larger participants in the debt collection market.
    Criteria. The Bureau has broad discretion in choosing criteria for 
determining whether a nonbank covered person is a larger participant of 
a covered market. For any specific market there could be several 
criteria, used alone or in combination, that could be viewed as 
reasonable alternatives. For the consumer debt collection market, the 
Bureau considered a variety of criteria, including criteria used by 
other agencies in different contexts. Among other possible criteria, 
the Bureau considered annual receipts; annual recoveries; number of 
employees; and new business (debt purchased by or placed with a 
collector).
    The Bureau proposes in Sec.  1090.102(a) to use annual receipts as 
the criterion for defining larger participants in the market for 
consumer debt collection. As noted above, the Proposed Rule is guided 
by and adapts the SBA's definition of ``annual receipts.'' The Bureau 
believes that annual receipts are a reasonable criterion because, among 
other things, they are a meaningful measure of the level of 
participation of an entity in a market and the entity's impact on 
consumers. For example, third-party collectors, debt buyers, and 
collection law firms earn income from recovering delinquent consumer 
debt. Those recoveries are the result of market participation, either 
through traditional collection means or litigation. Thus, the level of 
a person's market participation is reflected by the amount of that 
person's annual receipts. Moreover, by adapting the SBA's definition of 
``annual receipts,'' which has been used by the SBA for purposes of 
measuring small business concerns since soon after the inception of its 
program,\32\ the Proposed Rule uses a criterion that should be familiar 
to nonbank covered persons, thereby reducing regulatory burden. 
Further, the calculation for annual receipts is based on IRS tax forms 
and, as a result, generally can be determined by using business records 
created in the ordinary course of business.
---------------------------------------------------------------------------

    \32\ See ``SBA Size Standards Methodology'' at 4, available 
athttp://www.sba.gov/sites/default/files/size_standards_methodology.pdf.
---------------------------------------------------------------------------

    In addition, the U.S. Census Bureau's 2007 Economic Census 
(Economic Census) \33\ provides an available data source for 
determining the general contours of the market for consumer debt 
collection based on the criterion of annual receipts and thereby for 
defining the larger participants of that market. The Economic Census 
undertakes a direct survey of domestic business establishments and 
releases comprehensive statistics about key features and activity 
levels of these businesses, including total annual receipts.\34\ To 
conduct an Economic Census, the Census Bureau mails out data collection 
forms for all establishments of multi-unit companies, large single-unit 
employers, and a sample of small employers (generally defined as three 
or fewer employees).\35\
---------------------------------------------------------------------------

    \33\ U.S. Census Bureau 2007 Economic Census, available at 
http://www.census.gov/econ/census07/ census07/.
    \34\ As noted in the section-by-section discussion of the 
definition of ``annual receipts'' (proposed Sec.  1090.101(c)), the 
SBA and the Economic Census use the term ``annual receipts'' 
somewhat differently. As used by the Economic Census, the term 
includes receipts from all business activities, including net 
investment income, interest, and dividends, whether or not payment 
was received in the census year. The SBA, by contrast, defines the 
term to exclude net capital gains and losses and thus does not 
capture investment income. Notwithstanding this difference in the 
meaning of the term, the Economic Census data regarding annual 
receipts remain useful for purposes of developing a general 
understanding of the market for consumer debt collection and 
establishing a test for defining larger participants in that market.
    \35\ Response is required by law. No firm-level data is 
released; rather, the data are aggregated by sector according to 
North American Industry Classification System (NAICS) codes. For 
annual receipts, the Economic Census categorizes a business's annual 
receipts into one of 11 tiers to indicate different sizes, beginning 
at the highest level with firms having annual receipts in excess of 
$100 million, with each lower tier approximately half the size of 
the one above it (e.g., $50 million, $25 million, $10 million). When 
categorizing the data by sector, both the SBA and the Economic 
Census use the NAICS codes. This furthers the purpose of having a 
standard set of classification codes used across the Federal 
government. This joint use of NAICS codes enables the Bureau to make 
direct comparisons between the two data sets for purposes of market 
classification.
---------------------------------------------------------------------------

    There are limitations to the use of the Economic Census data on 
annual receipts in the debt collection market for purposes of the 
Proposed Rule. Most importantly, the Economic Census data are not 
limited to the collection of consumer financial debt, but rather 
include both business and non-financial consumer debt, such as medical 
debt.\36\ They may also be under-inclusive because entities that fall 
within the NAICS code may not correctly identify themselves or may 
otherwise fail to respond to the Census; moreover, the NAICS code may 
not include all persons engaged in activities that meet the definition 
of consumer debt collection under this proposal. However, although 
over-inclusive and possibly under-inclusive, the Economic Census data 
are nevertheless useful in showing the general contours of the consumer 
debt collection market, the relative size of participants within it on 
an aggregated basis, and how the participants are clustered by size. 
This information is thus helpful for purposes of developing a test to 
determine which participants in the market for consumer debt collection 
are larger participants based on the criterion of annual receipts.
---------------------------------------------------------------------------

    \36\ Entities whose activities fall within this NAICS code are 
described as: ``establishments primarily engaged in collecting 
payments for claims and remitting payments collected to their 
clients'' and include, among others, collection agencies, debt 
collection services, and account collection services. NAICS code 
56144 (collection agencies) through 2007, available at http://www.naicscode.com/search/MoreNAICSDetail.asp?N=561440.
---------------------------------------------------------------------------

    By contrast, neither annual recoveries nor new business were 
considered by the Bureau as viable criteria at this time, in large 
part, because there are not sufficient data to allow the Bureau to 
ascertain the general contours of the market based on these criteria. 
Further, the Bureau believes that the number of employees is not a 
suitable alternative criterion for this market because it may be 
difficult for a multi-line company to apportion employee time between 
relevant market-related and other activities. In addition, the number 
of employees may be an inaccurate measure if a company with wide market 
reach performs much of its work through contractors.
    The Bureau anticipates considering alternative or additional 
criteria for measuring larger participants of the market for consumer 
debt collection in the future if additional data for the debt 
collection market become available to

[[Page 9599]]

the Bureau, whether through registration of nonbank covered persons by 
the Bureau or otherwise.\37\ In that event, the Bureau may also 
consider potential amendments to the annual receipts criterion used in 
the Proposed Rule. The Bureau seeks comment on the proposed criterion 
and any additional or alternative criteria that might be used for 
measuring larger participants in the consumer debt collection market, 
as well as on any data sources available for such criteria.
---------------------------------------------------------------------------

    \37\ The Bureau is contemplating a future rulemaking to 
establish a nonbank registration program, which could be used to 
gather data to support subsequent larger participant rulemakings and 
their implementation. The Bureau has authority to issue such a 
registration rule under sections 1022(c)(7) and 1024(b)(7) of the 
Act.
---------------------------------------------------------------------------

    Threshold. Under the Proposed Rule, a nonbank covered person is a 
larger participant in the market for consumer debt collection if its 
annual receipts meet a specified threshold. As with regard to the 
selection of the criterion itself, the Bureau has broad discretion in 
setting the threshold above which an entity would qualify as a larger 
participant. The Bureau proposes more than $10 million in annual 
receipts as the threshold to define larger participants in the consumer 
debt collection market. Using this threshold, proposed Sec.  
1090.102(a) states that if a nonbank covered person offers or provides 
consumer debt collection, and has annual receipts of more than $10 
million resulting from that activity, it will be a larger participant 
of the consumer debt collection market.
    The Bureau believes that this threshold is a reasonable means of 
defining larger participants in this market.\38\ Based on the Economic 
Census, the proposed threshold would likely bring within the Bureau's 
scope of supervision approximately 175 entities \39\ out of 
approximately 4,500 firms engaged in debt collection under NAICS code 
56144. Thus, approximately 4 percent of all collection firms would be 
covered by the proposed threshold.\40\ For comparison, based on the 
Economic Census data, the median for annual receipts among collection 
firms is roughly $500,000, significantly below the proposed 
threshold.\41\
---------------------------------------------------------------------------

    \38\ The Bureau believes that a lower threshold might bring 
under the Proposed Rule entities that could reasonably be described 
as larger participants. The Bureau therefore seeks comment on 
whether in this proposal or in a future rulemaking the Bureau should 
set a lower threshold. For example, a threshold of $5 million in 
annual receipts would cover approximately 361 firms out of 4,500, 
and would comprise approximately 73% of the industry's annual 
receipts.
    \39\ Because firms collecting commercial and other debt that 
would not fall under the definition of consumer debt collection 
would not qualify as larger participants, the number of nonbank 
covered persons that would be larger participants under the Proposed 
Rule may be less than 175.
    \40\ Estimated from 2007 U.S. Economic Census--available at 
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 56144.
    \41\ Estimated from 2007 U.S. Economic Census--available at 
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 56144.
---------------------------------------------------------------------------

    The Bureau believes that the proposed definition would result in 
sufficient coverage of the debt collection market to enable the Bureau 
effectively to identify and assess risks to consumers in that market 
and assess nonbank covered persons' compliance with Federal consumer 
financial laws. The firms that would be covered by the proposed 
threshold generate approximately 63 percent of collections 
receipts.\42\ Thus, although covering only a small percentage of firms 
in the market, under the proposed threshold, the Bureau's supervision 
program would cover nonbank entities interacting with a significant 
portion of consumers with debt under collection.
---------------------------------------------------------------------------

    \42\ Estimated from 2007 U.S. Economic Census--available 
athttp://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 56144.
---------------------------------------------------------------------------

    Two trade associations for the debt collection industry each 
suggested that the Bureau set a threshold that would cover third-party 
collection firms and debt buyers with annual revenues of more than $250 
million. Based on available data, however, the Bureau estimates that 
$250 million in annual receipts would cover, at most, approximately 
seven or fewer firms comprising only approximately 20 percent of 
overall collection industry receipts.\43\ The Bureau does not believe 
that this recommended threshold would result in sufficient market 
coverage to allow it effectively to assess compliance with Federal 
consumer financial laws and detect and assess risks to consumers. 
Further, by covering only a handful of actors in a market of 
approximately 4,500 firms, the recommended threshold would omit many 
firms that would fairly be described as larger market participants. 
Indeed, the Act provides that the Bureau's supervision authority 
extends to the ``larger,'' not merely the ``largest,'' participants in 
a market.\44\ The threshold set forth in the Proposed Rule would 
provide the Bureau with the ability to supervise a broader range of 
market participants than only the very largest and identify and 
evaluate risks to consumers in different segments of the market.
---------------------------------------------------------------------------

    \43\ Estimated from 2007 U.S. Economic Census--available 
athttp://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ6&prodType=table, scroll 
to NAICS code 56144.
    \44\ Act section 1024(a)(1)(B).
---------------------------------------------------------------------------

    The Bureau notes that one of the largest debt buyers commented that 
the Bureau should not limit its supervisory authority to the very 
largest market participants. This commenter indicated that some of the 
most significant risks to consumers come from smaller debt collection 
companies that do not file disclosures and financial statements with 
the Securities and Exchange Commission and may not be properly 
licensed. Another industry commenter noted that smaller debt collection 
firms own or service tens of millions of consumer collection accounts, 
but often lack the sophisticated quality control mechanisms, training 
programs, and technological safeguards of the largest debt collectors.
    Finally, the threshold set forth in the Proposed Rule is 
substantially above the SBA's size standard for defining small business 
concerns. Under the SBA's rules, a debt collection firm with annual 
receipts of $7 million or less is a small business concern.\45\ 
Consequently, the Bureau believes that small business concerns under 
the SBA's rules generally should not meet the Proposed Rule's threshold 
for the consumer debt collection market.
---------------------------------------------------------------------------

    \45\ U.S. Small Business Administration Table of Small Business 
Size Standards Matched to NAICS Codes, http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf at 32.
---------------------------------------------------------------------------

    The proposed threshold is tailored for consumer debt collection, 
and the Bureau recognizes that it may not be suitable for other 
markets. The Bureau anticipates that other thresholds may be 
appropriate for purposes of defining larger participants in other 
markets. Moreover, just as with its choice of criteria, the Bureau 
anticipates considering alternative thresholds to define larger 
participants of the market for consumer debt collection in the future 
if additional data for the consumer debt collection market become 
available to the Bureau.
    The Bureau seeks comment, including any possible alternatives on 
the threshold it proposes for defining larger participants in the 
consumer debt collection market.
    Apportionment. The Bureau recognizes that there are multi-line 
companies that derive only a portion of their annual receipts from 
activities related to the consumer debt collection market. The Bureau 
further recognizes that in determining whether a person qualifies as a 
larger participant, the

[[Page 9600]]

annual receipts that are relevant are those that derive from a market 
covered by the Proposed Rule. Thus, the proposal provides that the only 
annual receipts to be considered are those ``resulting from'' 
activities related to the covered market. For example, a single entity 
might engage in both consumer debt collection and the collection of 
commercial debt. Similarly, in certain cases, the consumer debt it 
collects may be debt unrelated to consumer financial products or 
services, such as medical debt. In these circumstances, only the annual 
receipts resulting from the entity's collection of debt related to 
consumer financial products or services would be considered for 
purposes of determining whether the person is a larger participant of 
the consumer debt collection market.
    The Bureau recognizes that this apportionment adds an additional 
step in determining whether an entity is a larger participant for 
multi-line nonbank covered persons, and of nonbank covered persons that 
are part of a corporate family that files its tax returns on a 
consolidated basis. The Bureau also understands that the burden of 
determining annual receipts, and performing this additional calculation 
where necessary, will vary among businesses. The Bureau seeks comment 
on the way apportionment is treated in the Proposed Rule and any 
suggested alternative method for determining whether multi-line 
entities qualify as larger participants in a given market.
Section 1090.102(b)--Consumer Reporting
Market Overview
    Proposed Sec.  1090.102(b) relates to the market for consumer 
reporting. As explained in the section-by-section description of 
proposed Sec.  1090.101(i) above, the consumer reporting market 
includes the largest consumer reporting agencies selling comprehensive 
consumer reports, consumer report resellers, and specialty consumer 
reporting agencies. The largest consumer reporting agencies collect, 
among other information, credit account information, items sent for 
collection, and public records such as judgments and bankruptcies. 
Resellers purchase consumer information from one or more of the largest 
agencies, typically provide further input to the consumer report 
(including by merging files from multiple agencies or adding 
information from other data sources), and then resell the report to 
lenders and other users. Specialty consumer reporting agencies 
primarily collect and provide specific types of information that may be 
used to make eligibility decisions for particular consumer financial 
products or services, such as payday loans or checking accounts, or for 
other determinations, such as eligibility for employment or rental 
housing. However, certain types of specialty consumer reporting 
agencies, depending on their activities, may not be engaged in offering 
consumer financial products or services within the meaning of the Act, 
and for that reason would not be ``covered persons'' subject to the 
Bureau's supervisory authority.\46\ These effective exclusions are 
implemented in the definition of consumer reporting in proposed Sec.  
1090.101(i).
---------------------------------------------------------------------------

    \46\ Such an agency does not provide a ``consumer financial 
product or service'' if it provides only information ``that is used 
or expected to be used solely in any decision regarding the offering 
or provision of a product or service that is not a consumer 
financial product or service, including a decision for employment, 
government licensing, or a residential lease or tenancy involving a 
consumer.'' Act section 1002(15)(A)(ix)(I)(cc). The Bureau received 
a number of comments from consumer groups suggesting that the larger 
participant rule include within its scope of coverage firms that 
engage in providing background screening for employment purposes. 
However, as noted above, such activities do not constitute a 
``consumer financial product or service'' within the meaning of the 
Act.
---------------------------------------------------------------------------

    The consumer reporting market is appropriate for inclusion in the 
Proposed Rule because it is a market for a consumer financial product 
or service under section 1024(a)(1)(B) of the Act. Additionally, 
consumer reporting is of fundamental importance to the broader market 
for consumer financial products and services. Consumer reports 
(commonly referred to as ``credit reports''), which contain information 
about consumers' credit histories and other transactions, and the 
credit scores derived from these reports, affect many aspects of 
consumers' lives. Consumer reports are important tools that lenders use 
to assess borrower risk when evaluating applications for credit cards, 
home mortgage loans, automobile loans, and other types of credit. 
Consumer reports may also be used to determine eligibility and pricing 
for other types of products and services and other relationships, such 
as checking accounts. The consumer reporting market affects hundreds of 
millions of consumers. The Consumer Data Industry Association estimates 
that each year there are more than 36 billion updates made to consumer 
files at consumer reporting agencies,\47\ and three billion reports 
issued.\48\ It also estimates that each of the three largest consumer 
reporting agencies maintains credit files on more than 200 million 
consumers.\49\
---------------------------------------------------------------------------

    \47\ Stuart Pratt, President, Consumer Data Industry Association 
(CDIA), Statement before House Committee on Financial Institutions 
and Consumer Credit, ``Keeping Score on Credit Scores: An Overview 
of Credit Scores, Credit Reports, and Their Impact on Consumers,'' 
at 7 (March 24, 2010), available athttp://www.house.gov/apps/list/hearing/financialsvcs_dem/pratt_testimony.pdf). See also Federal 
Trade Commission, Report to Congress Under Sections 318 and 319 of 
the Fair and Accurate Credit Transactions Act of 2003 at 8-9 (2004).
    \48\ See Stuart Pratt, President, Consumer Data Industry 
Association (CDIA), Statement before House Committee on Financial 
Services, ``Credit Reports: Consumers' Ability to Dispute and Change 
Inaccurate Information,'' at 23 (June 19, 2007), available athttp://
archives.financialservices.house.gov/hearing110/ospratt061907.pdf.
    \49\ Stuart Pratt, Comments of CDIA to National 
Telecommunications and Information Administration, ``Information 
Privacy and Innovation in the Internet Economy,'' at 2 (June 13, 
2010), available athttp://ntia.doc.gov/files/ntia/comments/100402174-0175-01/attachments/Consumer%20Data%20Industry%20Association%20Comments.pdf.
---------------------------------------------------------------------------

    In response to the Notice, the Bureau received more than 10,400 
comments, approximately 10,300 of which were nearly identical letters 
sent from individuals asking the Bureau to exercise supervisory 
authority over different types of consumer reporting agencies and over 
credit scoring companies. On the other hand, one industry trade 
association commented that the Bureau should give careful consideration 
to the costs and burdens of including the consumer reporting market 
within the larger participant rule.
    In addition, a number of commenters recommended that the Bureau 
divide the consumer reporting market into separate markets for the 
largest consumer reporting agencies, specialized consumer reporting 
agencies, and credit scoring companies to ensure that consumer 
reporting agencies other than the three largest are deemed larger 
participants. The Bureau recognizes the importance of covering 
different types of consumer reporting agencies in its supervision 
program and believes that it may be reasonable to identify separate 
markets. At this time, however, despite its request for public comment 
on the best data sources, the Bureau is not currently aware of adequate 
data to devise separate tests for distinct markets in the consumer 
reporting industry. Although the Bureau is treating the consumer 
reporting market as a single market, as discussed in further detail 
below, it has chosen a test that would bring within the scope of the 
Bureau's supervision program certain consumer reporting agencies other 
than the very largest, including some larger specialty consumer 
reporting agencies.
    Test to define larger participant in the consumer reporting market.

[[Page 9601]]

    Criteria. As noted in the section-by-section description of the 
consumer debt collection market above (proposed Sec.  1090.102(a)), the 
Bureau has broad discretion in choosing criteria for measuring whether 
a nonbank entity is a larger participant of a covered market. The 
Bureau considered several criteria to measure participants in the 
consumer reporting market. These include, among others, annual 
receipts; number of unique consumer reports sold or otherwise provided 
to a third party annually; number of individual consumers a nonbank 
covered person collects, analyzes, and maintains data about, or 
provides consumer reports on, annually; and number of employees.
    The Bureau proposes in Sec.  1090.102(b) to use annual receipts as 
the criterion for defining larger participants in the consumer 
reporting market. As in the consumer debt collection market, the Bureau 
proposes to use as a guide the SBA's definition of ``annual receipts.'' 
The Bureau believes that annual receipts resulting from consumer 
reporting activities provide a reasonable indication of the level of 
market participation by a person and its impact on consumers. Consumer 
reporting agencies earn income from selling consumer reports and other 
market-related activities that directly affect consumers. As a result, 
the greater the annual receipts of a consumer reporting agency, the 
greater its market participation and the greater its impact on 
consumers. In addition, as with the consumer debt collection market, by 
adapting the SBA's definition of ``annual receipts,'' which has been 
used by the SBA since soon after the inception of its program, the 
proposed test is intended to be sufficiently straightforward so as not 
to put undue burden on nonbank covered persons in determining or 
disputing whether they are subject to the Bureau's nonbank supervision 
program.
    There are limited data available to develop a test for defining 
larger participants in the consumer reporting market. Although several 
of the largest participants in this market are public companies, the 
majority of firms are private and do not publicly disclose data. 
However, as with the consumer debt collection market, for the criterion 
of annual receipts, the 2007 Economic Census data provides an available 
data source.\50\
---------------------------------------------------------------------------

    \50\ A description of the Economic Census and its methodologies 
may be found in the debt collection market section (proposed Sec.  
1090.102(a)) above.
---------------------------------------------------------------------------

    The Bureau analyzed the Economic Census data for annual receipts 
for NAICS code 561450 (credit bureaus). Encompassed within this code 
are both ``consumer reporting agencies'' and ``mercantile (business-to-
business) reporting agencies.'' Consequently, as with the consumer debt 
collection market, a limitation of the Economic Census data is that 
they are over-inclusive.\51\ They are also under-inclusive because 
entities that fall within the NAICS code may not correctly identify 
themselves or may otherwise fail to respond to the Census; moreover, 
the NAICS code may not include all persons engaged in activities that 
meet the definition of consumer reporting under this proposal. An 
additional limitation of the Economic Census data for this particular 
NAICS code is that for certain census tiers, the aggregated annual 
receipts data are kept confidential.\52\ The data are nonetheless 
useful in showing the general distribution of the size of participants 
in the consumer reporting market.
---------------------------------------------------------------------------

    \51\ http://factfinder2.census.gov/faces/help/jsf/pages/metadata.xhtml?lang=en&type=category&id=category.en./ECN/ECN/2007_US/56SSSZ4.MEASURE.RCPTOT#main_content.
    \52\ Available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll to NAICS code 56145. Many Census 
tiers have flags in the receipts category, which read ``withheld'' 
to avoid disclosing data for individual companies; data are included 
in higher level totals. Other aggregated revenue data are available 
in a table showing the concentration of revenues among the largest 
firms, which extend through the top 50. See also http://
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ6&prodType=table">factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ6&prodType=table, scroll 
to NAICS code 56145.
---------------------------------------------------------------------------

    By contrast, the Bureau does not believe that other potential 
criteria, such as the total number of unique consumer reports sold or 
the number of individual consumers an entity provides consumer reports 
on, are appropriate alternatives because the available data do not 
permit the Bureau meaningfully to measure the general contours of the 
market based on these criteria and thus to devise a test for defining 
larger participants in the market on the basis of them. Further, the 
Bureau believes that the number of employees is not a suitable 
alternative criterion because it could be very difficult for a multi-
line company to apportion employee time between market-related and 
other activities, and many positions could be filled by contractors 
rather than employees.
    As additional data for the consumer reporting market become 
available to the Bureau, through future registration of nonbank covered 
persons or by other means, the Bureau may consider other criteria and 
potential revisions to the annual receipts criterion used in the 
Proposed Rule. The Bureau seeks comment on the proposed criterion and 
any additional or alternative criteria that might be used for measuring 
larger participants in the consumer reporting market, as well as on any 
data sources available for such criteria.
    Threshold. As noted above with regard to the consumer debt 
collection market, the Bureau has broad discretion in setting the 
threshold above which a nonbank covered person will qualify as a larger 
participant in the consumer reporting market.
    The Bureau proposes adopting more than $7 million in annual 
receipts as the threshold to define larger participants in the consumer 
reporting market. Applying this threshold, proposed Sec.  1090.102(b) 
states that if a nonbank covered person offers or provides consumer 
reporting and has annual receipts of more than $7 million resulting 
from this activity, it will be a larger participant of the consumer 
reporting market.
    The Bureau believes that this threshold is reasonable, in part, 
because available data indicate that it would enable the Bureau to 
cover in its nonbank supervision program the largest consumer reporting 
agencies as well as a number of larger specialty consumer reporting 
agencies.\53\ The Bureau believes that this threshold would cover a 
sufficient number of market participants to enable the Bureau 
effectively to assess compliance and identify and assess risks to 
consumers, but at the same time cover only the ``larger'' participants 
of the market.
---------------------------------------------------------------------------

    \53\ The Bureau believes that a lower threshold might bring 
under the Proposed Rule entities that could reasonably be described 
as larger participants. The Bureau therefore seeks comment on 
whether in this proposal or in a future rulemaking the Bureau should 
set a lower threshold. For example, a threshold of $5 million in 
annual receipts would cover approximately 36 firms out of 401, and 
would comprise approximately 95% of the industry's annual receipts.
---------------------------------------------------------------------------

    While there are hundreds of consumer reporting agencies, according 
to the 2007 Economic Census, a threshold of more than $7 million in 
annual receipts would cover no more than 39 credit bureaus, or 7 
percent of credit reporting agencies (including both mercantile credit 
reporting agencies and consumer reporting agencies).\54\ Because the 
Economic Census indicates that 75 percent of these credit bureaus are 
consumer reporting agencies,\55\ this

[[Page 9602]]

threshold would likely cover approximately 30 out of approximately 401 
consumer reporting agencies. However, some of those consumer reporting 
agencies may be specialty consumer reporting agencies providing, for 
example, consumer reports only for employment background screening or 
rental decisions. As noted above, such agencies do not offer consumer 
financial products or services within the meaning of the Act, and are 
effectively excluded from the Bureau's supervisory jurisdiction.\56\ As 
a result, the Bureau believes that this threshold will cover fewer than 
30 consumer reporting agencies. Again for comparison, the Bureau 
estimates that the median for annual receipts in this industry is less 
than $500,000, significantly below the proposed threshold.\57\
---------------------------------------------------------------------------

    \54\ This calculation assumes that firms in the Census-defined 
tier between $5 million and $10 million are evenly distributed 
throughout the tier.
    \55\ The Bureau extrapolated the number of entities from the 
proportion of establishments that are part of consumer reporting 
agencies rather than part of mercantile reporting agencies. 
According to the Economic Census, consumer reporting agencies 
account for almost 75 percent of all credit bureau entities (401 out 
of 535 in total). The Economic Census also indicates that the 
consumer reporting industry is highly concentrated. The 50 largest 
firms generate 96 percent of industry revenues. Conversely, the 
smallest 50 percent of firms generate approximately 1 percent of 
revenues.
    \56\ See Act section 1002(15)(A)(ix)(I)(cc). This provision 
defines the term ``financial product or service'' to exclude the 
provision of information ``that is used or expected to be used 
solely in any decision regarding the offering or provision of a 
product or service that is not a consumer financial product or 
service, including a decision for employment, government licensing, 
or a residential lease or tenancy involving a consumer.''
    \57\ The median is estimated from data available at http://
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table">factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 56145.
---------------------------------------------------------------------------

    The threshold of more than $7 million in annual receipts is 
consistent with the objective of supervising market participants that 
have a significant impact on consumers, in terms of the number of 
consumers affected by their operations. In the consumer reporting 
industry, prices range from two to three cents for prescreening 
products, from seven cents to sixty two cents for credit scores, and 
from one to two dollars for consumer reports, while some specialty 
reports may cost several dollars.\58\ Thus, a company with more than $7 
million in annual receipts would likely impact several million 
consumers. Further, the entities meeting the proposed threshold 
generate approximately 94 percent of industry receipts.\59\ Although 
this market share coverage is higher than that resulting from the 
threshold proposed for the consumer debt collection market, the Bureau 
believes that this difference is appropriate in light of the different 
structures of the two markets, particularly the highly concentrated 
nature of the consumer reporting market and the different types of 
firms encompassed in the market.
---------------------------------------------------------------------------

    \58\ Based on an analysis of General Services Administration 
schedules and other publicly available price quotes for several 
consumer reporting firms.
    \59\ Estimated from 2007 Economic Census--available at http://
http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table">factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 56145. See also http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ6&prodType=table, scroll to NAICS code 56145.
---------------------------------------------------------------------------

    Pending better and more complete data sources, the Bureau 
tentatively concludes that setting the threshold higher than that 
proposed amount likely would not result in sufficient coverage of 
consumer reporting agencies effectively to identify and assess risks to 
consumers in the consumer reporting market and to assess compliance 
with the Federal consumer financial laws. It is particularly important 
to reach larger participants of the consumer reporting market that may 
not be the largest firms, as some consumers may not have files at the 
largest consumer reporting agencies. Many consumers may not utilize a 
credit card or checking account, or otherwise participate in mainstream 
financial activities. As a result, the largest consumer reporting 
agencies may receive little, if any, data with which to maintain files 
on these consumers. However, these consumers may utilize alternative 
financial products such as payday loans or check cashing services, 
which in some instances may be reported to specialty consumer reporting 
agencies. Setting the threshold too high would fail to capture the 
larger specialty consumer reporting agencies that compile information 
about consumers in alternative financial markets.
    Finally, the proposed threshold is consistent with the SBA's size 
standard for defining small business concerns. Under the SBA's rules, a 
consumer reporting firm with annual receipts of $7 million or less is a 
small business concern.\60\ Thus, the Bureau believes that small 
business concerns under the SBA's rules generally should not meet the 
Proposed Rule's threshold for the consumer reporting market.
---------------------------------------------------------------------------

    \60\ U.S. Small Business Administration Table of Small Business 
Size Standards Matched to NAICS Codes, http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf at 32.
---------------------------------------------------------------------------

    In tailoring the thresholds for this market, the Bureau considered 
several comments from both industry and consumer groups that suggested 
the Bureau use tests involving multiple criteria and thresholds for 
each market segment. Although the Bureau recognizes the advantages of 
this approach, in light of the limited data for the consumer reporting 
market, the Bureau tentatively concludes that in the case of consumer 
reporting a test using a single criterion and threshold would be most 
effective for the nonbank supervision program at this time.
    The Bureau seeks comment, including any possible alternatives, on 
the proposed threshold for defining larger participants in the consumer 
reporting market.
    Apportionment. As with the consumer debt collection market, the 
Bureau recognizes that in developing a test for determining whether a 
person qualifies as a larger participant, the annual receipts that are 
relevant are those that derive from a market covered by the Proposed 
Rule. Thus, the proposal provides that the only annual receipts to be 
considered are those ``resulting from'' activities related to the 
covered market. As with the consumer debt collection market, the need 
to apportion revenues would add an additional step in determining 
whether an entity is a larger participant both for multi-line nonbank 
covered persons and for nonbank covered persons that are part of a 
corporate family that files its tax returns on a consolidated basis. 
The Bureau seeks comment on the way apportionment is treated in the 
Proposed Rule and any suggested alternative method for determining 
whether multi-line entities qualify as larger participants in a given 
market.

Section 1090.103--Status as Larger Participant Subject to Supervision

    The Bureau believes that it is important that the Bureau have 
sufficient time to undertake and complete supervisory activities 
relating to a larger participant. Thus, proposed Sec.  1090.103 states 
that a person qualifying as a larger participant under Sec.  1090.102 
shall not cease to be a larger participant under this part until two 
years from the first day of the tax year in which the person last met 
the applicable test under Sec.  1090.102.\61\
---------------------------------------------------------------------------

    \61\ For example, assume a nonbank consumer reporting agency's 
tax year were to run from July 1 to June 30. Assume the entity had 
$8 million in receipts in each of the tax years of 2010, 2011, and 
2012 (July 1, 2010 to June 30, 2011; July 1, 2011 to June 30, 2012; 
and July 1, 2012 to June 30, 2013, respectively). That entity would 
have $8 million in annual receipts for the 2012 tax year (July 1, 
2012 to June 30, 2013), as annual receipts are generally calculated 
as a three-year average. If the entity then had only $2 million in 
receipts for the 2013 tax year (July 1, 2013 to June 30, 2014), its 
annual receipts for the 2013 tax year would be $6 million. With the 
two-year supervision period, it would nevertheless remain a larger 
participant through June 30, 2014 because of its annual receipts in 
the 2012 tax year. On the other hand, assume the same facts but that 
the entity's tax year were to run from April 1 to March 31. In that 
case, the entity would remain a larger participant through March 31, 
2014. If the entity were to continue to have $7 million or less in 
annual receipts for the 2014 tax year (April 1, 2014 to March 31, 
2015), it would not be a larger participant for that year. However, 
if it were to have more than $7 million in annual receipts for the 
2014 tax year, it would again qualify as a larger participant for 
that year and would remain a larger participant through March 31, 
2016, even if its annual receipts again fell below $7 million for 
the 2015 tax year (April 1, 2015 to March 31, 2016).

---------------------------------------------------------------------------

[[Page 9603]]

    For the above reasons, the Bureau believes that establishing this 
minimum two-year supervision period is appropriate for the 
administration of the Bureau's supervisory authority and will avoid the 
inefficiency of more frequent determinations of an entity's status. The 
Bureau seeks comment on all aspects of proposed Sec.  1090.103, and in 
particular on whether a longer or shorter supervision period might be 
appropriate.

Section 1090.104--Determination of Status as a Larger Participant

    Prior to its implementation of a registration program, the Bureau 
expects to use various data sources, including publicly available data, 
to identify which nonbank covered persons appear to qualify as larger 
participants. If the Bureau determines that an entity qualifies as a 
larger participant and, after assessing applicable criteria as set 
forth in the Act, including risk to consumers,\62\ decides to undertake 
supervisory action in connection with that entity, the Bureau will send 
the entity a letter apprising it that it plans to undertake supervisory 
action on the basis of the entity's status as a larger participant. The 
Bureau recognizes that there may be instances when a person will 
dispute that it is a larger participant after receiving such a letter. 
Proposed Sec.  1090.104 sets forth a procedure for such a person to 
dispute its classification as a larger participant by providing to the 
Assistant Director for Nonbank Supervision of the Bureau an affidavit 
setting forth an explanation of the basis for the person's assertion 
that it does not meet the definition of larger participant. Proposed 
Sec.  1090.104 further permits a person to include with the response 
copies of any records, documents, or other information on which the 
person relied to make the assertion. Proposed Sec.  1090.104 further 
provides that a person waives the right, at any time that it may 
dispute that it qualifies as a larger participant, to rely on any 
argument, records, documents, or other information that it fails to 
submit to the Assistant Director under this section. Moreover, proposed 
Sec.  1090.104 states that a person who fails to respond to the 
Bureau's written communication within 30 days will be deemed to have 
acknowledged that it is a larger participant. Under proposed Sec.  
1090.104, after reviewing the affidavit and any other information 
submitted by the person disputing its status as a larger participant or 
deemed relevant by the Assistant Director, the Assistant Director must 
send the person a statement setting forth the Bureau's conclusion as to 
whether the person meets the definition of a larger participant. 
Additionally, the Proposed Rule provides that the Assistant Director 
may require that a person provide to the Bureau such records, 
documents, and information as the Assistant Director may deem 
appropriate to determine whether a person is a larger participant.\63\
---------------------------------------------------------------------------

    \62\ Act section 1024(b)(2). The factors to be considered in 
making this assessment include asset size, volume of transactions 
involving consumer financial products or services, risks to 
consumers, the extent to which institutions are subject to state 
oversight, and any other factor that the Bureau determines to be 
relevant.
    \63\ The Bureau believes that while it would have this authority 
under section 1024 of the Act even absent a regulation, a regulation 
is useful to provide clarity on the issue.
---------------------------------------------------------------------------

    These provisions are proposed pursuant to the Bureau's authority 
under section 1024(b)(7) of the Act to facilitate the Bureau's 
supervision of larger participants of the markets covered by this 
Proposed Rule by permitting the Bureau to determine whether a person 
meets the test for being a larger participant.\64\ The Bureau also 
proposes Sec.  1090.104 pursuant to section 1022(b)(1) of the Act, 
which grants the Director the authority to prescribe such rules as may 
be necessary and appropriate to enable the Bureau to administer and 
carry out the purposes and objectives of the Federal consumer financial 
laws, such as its supervision of larger participants, and to prevent 
evasions of these laws. Providing a process whereby entities must come 
forward with information if they wish to dispute their status as larger 
participants, and providing the Bureau the ability to require such 
information, is necessary and appropriate for the Bureau to implement 
and efficiently exercise its supervision authority and to prevent 
evasion of section 1024 of the Act.\65\
---------------------------------------------------------------------------

    \64\ Section 1024(b)(7) of the Act provides that in developing 
requirements or systems under that provision, where appropriate the 
Bureau shall consult with State agencies regarding requirements or 
systems (including coordinated or combined systems for 
registration). Given the focus of these provisions of the Proposed 
Rule on obtaining information to determine larger participant 
status, the Bureau does not believe that such consultation is 
appropriate in connection with this proposal. The Bureau, however, 
requests comments from relevant State agencies on this proposal.
    \65\ The Bureau also proposes Sec.  1090.104 in part pursuant to 
section 1022(c)(5) of the Act, which permits the Bureau to require 
that a nonbank person file with the Bureau, under oath or otherwise, 
annual or special reports or written answers to specific questions, 
to determine whether such person is a covered person.
---------------------------------------------------------------------------

    The Bureau seeks comment on this proposed process for allowing a 
person to submit to the Bureau documents and information supporting its 
assertion that it is not a larger participant. The Bureau also seeks 
comment on all other aspects of these proposed provisions.

VI. Request for Comments

    The Bureau invites comment on all aspects of this notice of 
proposed rulemaking and on the specific issues on which comment is 
solicited elsewhere herein, including on any appropriate modifications 
or exceptions to the Proposed Rule. The Bureau also seeks comment on 
which other markets for consumer financial products or services should 
be covered by future proposed rules to define larger participants.

VII. Section 1022(b)(2)(A) of the Act

A. Overview

    Section 1022(b)(2)(A) of the Act calls for the Bureau to consider 
the potential benefits, costs, and impacts of its regulations.\66\ The 
proposal, if adopted, would authorize the Bureau to exercise its 
supervisory authority with respect to certain nonbank covered persons 
defined as larger participants of the consumer debt collection and 
consumer reporting markets. Nonbank covered persons in the consumer 
debt collection market with more than $10 million in annual receipts 
and nonbank covered persons in the consumer reporting market with more 
than $7 million in annual receipts, as calculated in the manner set 
forth in the proposal, would qualify as larger participants and thus be 
subject to the Bureau's supervision authority. As noted, the Bureau 
estimates that these thresholds would encompass approximately 175

[[Page 9604]]

consumer debt collectors and 30 consumer reporting agencies.
---------------------------------------------------------------------------

    \66\ Specifically, the Bureau is to consider the potential 
benefits and costs of a regulation to consumers and covered persons, 
including the potential reduction of access by consumers to consumer 
financial products or services; the impact on depository 
institutions and credit unions with $10 billion or less in total 
assets as described in section 1026 of the Act; and the impact on 
consumers in rural areas. The manner and extent to which the 
provisions of section 1022(b)(2) apply to a rulemaking of this kind 
that does not establish standards of conduct is unclear. 
Nevertheless, to inform this rulemaking more fully, the Bureau 
performed the described analyses.
---------------------------------------------------------------------------

    That the Bureau is authorized to undertake supervisory activities 
with respect to a nonbank covered person that qualifies as a larger 
participant does not necessarily mean that the Bureau would in fact 
undertake such activities. Rather, the Bureau would decide whether to 
use its limited resources to examine or otherwise exercise its 
supervisory authority over a larger participant based on criteria set 
by Congress, which focus on risks to consumers.\67\ Conversely, nonbank 
covered persons in the consumer debt collection market with $10 million 
or less in annual receipts and nonbank covered persons in the consumer 
reporting market with $7 million or less in annual receipts, as 
calculated in the manner set forth in the proposal, generally would not 
be subject to the Bureau's supervision authority as larger participants 
of a covered market. They would, however, be subject to the Bureau's 
rulemaking and enforcement authority and subject to potential Bureau 
supervision pursuant to section 1024(a)(1)(C) of the Act.
---------------------------------------------------------------------------

    \67\ Act section 1024(b)(2). The Bureau is required to exercise 
its authority under its nonbank supervision program in a manner that 
is ``based on the assessment by the Bureau of the risks posed to 
consumers in the relevant product markets and geographic markets, 
and taking into consideration, as applicable--(A) the asset size of 
the covered person; (B) the volume of transactions involving 
consumer financial products or services in which the covered person 
engages; (C) the risks to consumers created by the provision of such 
consumer financial products or services; (D) the extent to which 
such institutions are subject to oversight by State authorities for 
consumer protection; and (E) any other factors that the Bureau 
determines to be relevant to a class of covered persons.''
---------------------------------------------------------------------------

    The Bureau notes at the outset that there is little publicly 
available data with which to effectively measure or quantify the 
benefits, costs, and impacts of supervision for compliance with Federal 
consumer financial law generally; as applied to the consumer debt 
collection or consumer reporting markets, more specifically; or, even 
more particularly, to covered persons in these markets with annual 
receipts above the thresholds set by the Proposed Rule. The Bureau has 
sought information from State regulators and regulatory associations to 
help quantify the costs incurred by nonbank covered persons from 
supervision, but, to date, the Bureau has been unable to locate useful 
information. As a result, the analysis that follows qualitatively 
examines the benefits, costs, and impacts of the key provisions of the 
proposal.\68\ The Bureau seeks comment on additional sources of data to 
evaluate the proposal. The Bureau will further consider the benefits, 
costs, and impacts of the Proposed Rule and any modifications the 
Bureau might make to the Proposed Rule prior to adopting a final rule.
---------------------------------------------------------------------------

    \68\ Where benefits or costs are not readily quantifiable or 
where data is not reasonably available, the Bureau will conduct 
qualitative analyses relying on information from available sources.
---------------------------------------------------------------------------

B. Potential Benefits and Costs to Consumers and Covered Persons

    The analysis considers the benefits, costs, and impacts of the key 
provisions of the proposal against a pre-statutory baseline, i.e., the 
benefits, costs, and impacts of the statute \69\ and the regulation 
combined. Together, the Act and the Proposed Rule initiate a Federal 
supervision program for certain nonbank entities in the markets for 
consumer debt collection and consumer reporting. The benefits, costs, 
and impacts therefore are considered relative to a baseline where such 
a Federal supervisory regime does not exist for nonbank institutions in 
these markets.\70\ In the following discussion, references to the 
proposal or the supervision program should be read to include the 
relevant provisions of the Act and the Proposed Rule regarding larger 
participants.
---------------------------------------------------------------------------

    \69\ Sections 1024(a)(1)(B) and 1024(b) of the Act.
    \70\ The Bureau has discretion in any rulemaking to choose an 
appropriate scope of analysis with respect to potential benefits and 
costs and an appropriate baseline. For the current proposal, another 
approach would be focus almost entirely on the supervision-related 
costs for larger participants and would omit a broader consideration 
of the benefits and costs of increased compliance. The Bureau, as a 
matter of discretion, has chosen to describe a broader range of 
potential effects to more fully inform the rulemaking.
---------------------------------------------------------------------------

    The potential benefit to consumers from the proposal is the 
increased consumer protection that should result from larger 
participants' likely increased compliance with Federal consumer 
financial law.\71\ The potential costs derive from the resources that 
larger participants will use to respond to any supervisory activity by 
the Bureau and to improve their compliance where necessary.
---------------------------------------------------------------------------

    \71\ The Bureau also views the increased detection and 
assessment of risks to consumers and to the consumer financial 
markets as a critical mission of the supervision program. The extent 
to which the Bureau is better informed and that further policy 
actions yield tangible benefits to consumers, covered persons, and 
the markets in general could also be viewed as a longer term 
benefit.
---------------------------------------------------------------------------

    The Bureau expects that the initiation of the supervision program 
in these markets will likely increase larger participants' compliance 
with Federal consumer financial law, and that such additional 
compliance will yield certain benefits for consumers that are affected 
by consumer debt collectors or consumer reporting agencies. For 
example, supervisory activity by the Bureau may lead to increased 
compliance with various statutes and regulations governing consumer 
debt collection and consumer reporting activities, such as the Fair 
Debt Collection Practices Act \72\ and the Fair Credit Reporting 
Act,\73\ respectively.\74\
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 1692 et seq.
    \73\ 15 U.S.C. 1681 et seq.
    \74\ For those larger participants as to which the Bureau does 
not initiate supervisory activity, it is expected that the prospect 
of potential supervisory activity may create an incentive to 
increase compliance where it is lacking.
---------------------------------------------------------------------------

    Increased compliance with existing laws may lead the affected 
entities to incur additional costs. Expenditures on systems and 
personnel may be required to revise existing products or processes to 
the extent they do not comply with Federal consumer financial law. At 
present, the Bureau does not have specific information on the magnitude 
of such changes, but expects that such costs will be larger at firms 
where major changes are necessary.
    Additional costs of the Proposed Rule are related to instances in 
which the Bureau decides to undertake supervisory activity, including 
an examination, with respect to a larger participant. The nature and 
extent of the supervisory activity will depend on the circumstances, 
and the costs incurred by an entity may derive from the gathering and 
reporting of information; the staff time, space and resources necessary 
to support on site exams; or other costs of interacting with the 
supervisor. Importantly, the proposal, if adopted, would not in itself 
impose any supervision-related costs. The rule would only authorize the 
Bureau to undertake certain supervisory activities. In deciding whether 
to undertake a supervisory activity with respect to any particular 
larger participant, the Bureau would have to take account of its 
limited supervisory resources, and apply the statutory criteria, which 
focus on risks to consumers. Therefore, these potential costs related 
to responding to supervisory activity, and any potential costs or 
benefits derived from increased compliance that would result from such 
supervisory activity, are probabilistic in nature.
    Consumer debt collectors and consumer reporting agencies may also 
incur some minor costs in determining if they qualify as larger 
participants under the rule, specifically if they believe their annual 
receipts are near

[[Page 9605]]

the applicable thresholds and they wish to dispute the Bureau's 
decision to commence a supervisory activity based on their status as 
larger participants. The Bureau's choice to use annual receipts, a 
well-defined criterion that is likely available to these entities, 
should help to minimize the costs of this calculation relative to other 
possible criteria. This is true even though apportionment may be 
necessary for certain firms that engage in activities not covered by 
this rule.
    As noted earlier, the Bureau may decide to undertake supervisory 
activity with regard to a larger participant only after considering the 
applicable statutory criteria including factors such as the size of the 
entity and risks to consumers. For larger firms or firms where there is 
evidence of risk to consumers, the benefits of the proposal should be 
highest. The largest firms are expected to impact the most customers; 
therefore, any lapses in compliance by such firms may have the largest 
negative impacts.\75\ Any increase in compliance would therefore 
benefit a large number of customers or transactions. At the same time, 
these firms should be best able to bear any fixed supervisory costs 
given their size and their potential ability to spread these costs over 
the large number of consumers and transactions. Where there is evidence 
of risks to consumers, the benefits of supervisory activity are also 
expected to be high. As a result, the statutory criteria regarding 
supervision should ensure that those larger participants that are 
supervised and that incur the costs of that supervision are the same 
firms where the benefits are likely to be highest.
---------------------------------------------------------------------------

    \75\ Larger firms may have more comprehensive or complex systems 
to monitor internal compliance limiting potential failures to comply 
with relevant regulations. However, the increased difficulty in 
coordination and communication in larger firms, and the fact that 
any compliance failures that do occur may impact a greater number of 
consumers, suggests that the benefits of supervision are still 
substantial.
---------------------------------------------------------------------------

    The proposal, if adopted, may have impacts on consumers' access to 
consumer financial products or services. Predicting the nature and 
extent of any potential impacts is difficult, particularly given that 
consumers are not generally the end customers in these two markets. For 
most consumers, consumer credit reports and the information contained 
therein, are primarily an input into ultimate credit decisions by 
mortgage lenders, credit card issuers, and other financial services 
providers. Similarly, terms in the consumer debt collection market are 
set between debt collectors and the creditors for whom they collect or 
from whom they purchase debts, in part, based on the debt collectors' 
ability to recover from consumers.
    Under the proposal, larger participants, and in particular those 
with respect to whom the Bureau chooses to conduct supervisory 
activity, are expected to incur the majority of the resource costs of 
increased compliance and increases in the quality of the services 
provided (e.g. credit reports may become more accurate, or consumers in 
collection may be treated more fairly).\76\ However, providers may pass 
on those costs to their customers (as noted, consumers do not generally 
purchase these types of services) who then may pass them on to 
consumers, in part through changes in prices for credit. The extent to 
which these costs are eventually reflected, on average, in higher 
prices for consumers or lower profits for the affected firms depends on 
the competitive conditions in the relevant markets. Some consumers 
could see higher costs of credit and less access, while for others the 
opposite could be true.\77\
---------------------------------------------------------------------------

    \76\ Debt collectors and consumer reporting agencies below the 
larger participant thresholds may change their behavior in response 
to the actions of larger participants. Specific reactions will 
depend on various factors, including the extent to which larger 
participants change their services or pricing, and are therefore 
difficult to predict.
    \77\ For example, increased accuracy of credit reports may yield 
a higher credit score for some borrowers and lower score for others. 
This former group could see the cost of credit decrease and access 
increase. The opposite may happen for the latter. Overall, the 
increased accuracy of the information should improve the pricing and 
allocation of credit.
---------------------------------------------------------------------------

    In developing the proposal the Bureau considered selecting 
different thresholds for each market. One alternative would be to set 
the thresholds substantially higher and cover only the very largest 
firms in each market. For example, a threshold of $100 million in 
annual receipts in the market for consumer reporting would cover only 
about 10 firms. Under such an alternative, the benefits of supervision 
to both consumers and covered persons would likely be substantially 
reduced, since firms impacting a large number of consumers and/or 
consumers in important market segments would be omitted. On the other 
hand, the potential costs to covered persons would of course be reduced 
if fewer firms were defined as larger participants and thus fewer were 
subject to the Bureau's supervision authority on that basis.\78\
---------------------------------------------------------------------------

    \78\ Pursuant to section 1024(e) of the Act, the Bureau also has 
supervision authority over service providers to nonbank covered 
persons encompassed by section 1024(a)(1), which includes larger 
participants, and some of these service providers may qualify as 
covered persons. The service providers to consumer debt collection 
and consumer reporting larger participants may include data 
aggregators, law firms, account maintenance services, call centers, 
data and record suppliers, and software providers. The Bureau does 
not have data on the number and characteristics of these service 
providers. The Bureau's discussion of potential costs, benefits, and 
impacts that may result from this proposal generally applies to 
service providers to larger participants.
---------------------------------------------------------------------------

C. Impact on Depository Institutions and Credit Unions With Total 
Assets of $10 Billion or Less as Described in Section 1026 of the Act, 
and the Impact on Consumers in Rural Areas

    The proposal does not apply to depository institutions or credit 
unions of any size.\79\ In addition, there is no additional or unique 
impact from the proposal on rural consumers.
---------------------------------------------------------------------------

    \79\ As noted above, as potential users of some of the services 
covered by the proposal, depository institutions and credit unions 
might see changes in the quality and prices of such services.
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\80\ The RFA defines a ``small 
business'' as a business that meets the size standard developed by the 
Small Business Administration pursuant to the Small Business Act.\81\
---------------------------------------------------------------------------

    \80\ 5 U.S.C. 601 et seq. The Bureau is not aware of any 
governmental units or not-for-profit organizations to which the 
proposal would apply.
    \81\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment.
---------------------------------------------------------------------------

    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) of any rule subject to notice-and-comment 
rulemaking requirements, unless the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities. The Bureau also is subject to certain additional procedures 
under the RFA involving the convening of a panel to consult with small 
business representatives prior to proposing a rule for which an IRFA is 
required.\82\
---------------------------------------------------------------------------

    \82\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    An initial regulatory flexibility analysis is not required for this 
proposal because the proposal, if adopted, would not have a significant 
economic impact on a substantial number of small entities. If adopted, 
the rule would define a class of firms as larger participants and 
thereby authorize the

[[Page 9606]]

Bureau to undertake supervisory activities with respect to those firms. 
The rule would not itself impose any obligations or standards of 
conduct on larger participants for purposes of RFA analysis. Moreover, 
even if the rule were considered to impose regulatory obligations for 
purposes of RFA analysis, the rule would impose such obligations only 
on nonbank covered persons in the consumer debt collection market with 
more than $10 million in annual receipts and nonbank covered persons in 
the consumer reporting market with more than $7 million in annual 
receipts, as calculated as set forth in the rule. As a result, a 
nonbank entity that would qualify as a larger participant would 
generally not meet the SBA standard for a small business, which in 
these markets has annual receipts at or below $7 million.\83\
---------------------------------------------------------------------------

    \83\ The Proposed Rule, if adopted, might authorize the Bureau 
to supervise a small business as a larger participant in two rare 
instances. First, a nonbank covered person that was not a small 
business when it met the larger participant definition might become 
a small business during the second year of the supervision period. 
The Bureau expects that this would be rare given that relatively few 
nonbank covered persons appear to have annual receipts near the 
relevant threshold. Moreover, the Bureau's choice to average the 
nonbank covered person's receipts over the previous three years 
(absent special circumstances) reduces the probability that a firm 
would fall below the $7 million threshold because this average is 
less sensitive to fluctuations from a single year. Second, the 
Proposed Rule defines the term ``control'' somewhat more expansively 
than the Small Business Administration for purposes of aggregating 
the activities of a nonbank covered person's affiliated companies 
for purposes of classification as a larger participant. A nonbank 
covered person that was not considered affiliated under the Small 
Business Administration standards but was classified as affiliated 
under the Proposed Rule might therefore be classified as a small 
entity under the RFA and a larger participant under the Proposed 
Rule. The Bureau anticipates that very few such cases would exist in 
either of the markets covered by the Proposed Rule.
---------------------------------------------------------------------------

    Additionally, the Bureau believes that the Proposed Rule would not 
result in a ``significant impact'' on any small entities that may be 
affected. As noted, the proposal, if adopted, would authorize the 
Bureau to undertake supervisory activities with respect to larger 
participants. Whether the Bureau would in fact engage in supervisory 
activity, such as an examination, with respect to a larger participant 
(and, if so, the frequency and extent of such activity) would depend on 
a number of considerations, including the availability of Bureau 
resources and the application of the applicable statutory factors set 
forth in section 1024(b)(2). Given the Bureau's finite supervisory 
resources, and the range of industries over which it has supervisory 
responsibility for consumer financial protection, whether and when an 
entity in the consumer debt collection and consumer reporting markets 
would be supervised is probabilistic. Moreover, in cases where 
supervisory activity were to occur, the costs that would result from 
such activity are expected to be minimal in relation to the overall 
activities of the firm.
    Finally, section 1024(e) of the Act authorizes the Bureau to 
supervise service providers to nonbank covered persons encompassed by 
section 1024(a)(1), which includes larger participants. Because the 
Proposed Rule does not address service providers, effects on service 
providers need not be addressed for purposes of this RFA analysis. Even 
were such effects relevant, the Bureau believes that it is very 
unlikely that any supervisory activities with respect to the service 
providers to the approximately 200 larger participants covered by this 
proposal would result in a significant economic impact on a substantial 
number of small entities.\84\
---------------------------------------------------------------------------

    \84\ The Bureau reaches this judgment in light of the number of 
relevant small firms in the relevant NAICS codes. For example, based 
on the examples in footnote 4, many of these service providers would 
be considered to be in industry 522390, ``Other activities related 
to credit intermediation,'' or 518210, ``Data Processing, Hosting, 
and Related Services.'' According to the 2007 Economics Census, 
there are more than 5000 small firms in the first industry group and 
nearly 8,000 in the second. Moreover, the limited number of expected 
cases in which an examination of a larger participant may indicate 
the need to examine a small service provider further limits any 
impact on these entities. And, were the Bureau to choose to 
undertake some supervisory activity with respect to a service 
provider, the burden imposed would likely be small compared to the 
overall activities of the firm. For example, using a conservative 
estimate of an exam that lasts ten business days (the Bureau expects 
any exam of a small service provider to be considerably shorter), 
the Bureau conservatively estimates that the supervised small entity 
would require a maximum of four person-weeks of time to support that 
exam (one full-time person for the two weeks prior to the exam and 
for the duration of the exam). For the two industries described 
above, such an exam at the median-sized firm below the SBA size 
threshold (approximately three or eight employees, respectively) is 
estimated to cost a fraction of a percent of annual receipts. 
Because the Bureau finds it very unlikely that it would supervise 
such entities except in rare circumstances, a substantial number of 
entities could not be involved. For larger small entities, the 
potential costs as a fraction of revenue are even smaller. For these 
reasons, the Bureau believes that any supervision of service 
providers would not result in a substantial economic impact on a 
significant number of small entities.
---------------------------------------------------------------------------

    Accordingly, the undersigned certifies that this Proposed Rule, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities.

IX. Paperwork Reduction Act

    The Bureau has determined that this Proposed Rule does not impose 
any new recordkeeping or reporting requirements on covered entities or 
members of the public that would be collections of information 
requiring approval under 44 U.S.C. 3501, et seq.

X. Consultation With Federal Agencies

    In developing the Proposed Rule, the Bureau consulted or offered to 
consult with the Federal Trade Commission, as well as with the Board of 
Governors of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, the Office of the Comptroller of the Currency, and the 
National Credit Union Administration, including regarding consistency 
with any prudential, market, or systemic objectives administered by 
such agencies.\85\
---------------------------------------------------------------------------

    \85\ Section 1022(b)(2)(B) of the Act requires the Bureau to 
consult with appropriate prudential regulators or other Federal 
agencies regarding consistency with any prudential, market, or 
systemic objectives administered by such agencies prior to proposing 
a rule and during the comment process. Additionally, section 
1024(a)(2) specifically requires the Bureau to consult with the 
Federal Trade Commission prior to issuing a rule defining larger 
participants under section 1024(a)(1)(B) of the Act.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 1090

    Consumer protection and credit.

Authority and Issuance

    For the reasons set forth above, the Bureau of Consumer Financial 
Protection proposes to add part 1090 to Chapter X in Title 12 of the 
Code of Federal Regulations to read as follows:

PART 1090--DEFINING LARGER PARTICIPANTS IN CERTAIN CONSUMER 
FINANCIAL PRODUCT AND SERVICE MARKETS

Sec.
1090.100 Scope and purpose.
1090.101 Definitions.
1090.102 Covered markets and tests for determining larger 
participants of those markets.
1090.103 Status as larger participant subject to supervision.
1090.104 Determination of status as a larger participant.

    Authority:  12 U.S.C. 5514(a)(1)(B); 12 U.S.C. 5514(b)(7)(A); 12 
U.S.C. 5512(b)(1); and 12 U.S.C. 5512(c)(5).


Sec.  1090.100  Scope and purpose.

    This part defines those nonbank covered persons that qualify as 
larger participants of certain markets for consumer financial products 
or services pursuant to sections 1024(a)(1)(B) and (a)(2) of the Act. A 
larger participant of a market covered by this part is subject to the 
supervisory authority of the Bureau under section 1024 of the Act. This 
part also establishes rules to facilitate the Bureau's supervisory

[[Page 9607]]

authority over such larger participants pursuant to section 1024(b)(7) 
of the Act.


Sec.  1090.101  Definitions.

    For the purposes of this part, the following definitions apply:
    (a) Act means the Consumer Financial Protection Act of 2010.
    (b) Affiliated company means any company (other than an insured 
depository institution or insured credit union) that controls, is 
controlled by, or is under common control with, a person. For purposes 
of this definition:
    (1) Company means any corporation, limited liability company, 
business trust, general or limited partnership, proprietorship, 
cooperative, association, or similar organization.
    (2) A person has control over another person if:
    (i) The person directly or indirectly or acting through one or more 
other persons owns, controls, or has power to vote 25 percent or more 
of any class of voting securities or similar ownership interest of the 
other person;
    (ii) The person controls in any manner the election of a majority 
of the directors, trustees, members, or general partners of the other 
person; or
    (iii) The person directly or indirectly exercises a controlling 
influence over the management or policies of the other person, as 
determined by the Bureau.
    (c) Annual receipts means receipts calculated as follows:
    (1) Receipts means ``total income'' (or in the case of a sole 
proprietorship, ``gross income'') plus ``cost of goods sold'' as these 
terms are defined and reported on Internal Revenue Service (IRS) tax 
return forms (such as Form 1120 for corporations; Form 1120S and 
Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for 
LLCs; Form 1065 and Schedule K for partnerships; Form 1040, Schedule C 
for other sole proprietorships). Receipts do not include net capital 
gains or losses; taxes collected for and remitted to a taxing authority 
if included in gross or total income, such as sales or other taxes 
collected from customers and excluding taxes levied on the entity or 
its employees; and amounts collected for another (but fees earned in 
connection with such collections are receipts). Items such as 
subcontractor costs, reimbursements for purchases a contractor makes at 
a customer's request, and employee-based costs such as payroll taxes, 
are included in receipts.
    (2) Completed fiscal year means a tax year including any short tax 
year. ``Fiscal year,'' ``tax year,'' and ``short tax year'' have the 
meanings attributed to them by the IRS as set forth in IRS Publication 
538, which provides that:
    (i) A ``fiscal year'' is 12 consecutive months ending on the last 
day of any month except December 31st.
    (ii) A ``tax year'' is an annual accounting period for keeping 
records and reporting income and expenses. An annual accounting period 
does not include a short tax year.
    (iii) A ``short tax year'' is a tax year of less than 12 months.
    (3) Period of measurement. (i) Annual receipts of a person that has 
been in business for three or more complete fiscal years means the 
total receipts of the person over its most recently completed three 
fiscal years divided by three.
    (ii) Annual receipts of a person that has been in business for less 
than three complete fiscal years means the total receipts of the person 
for the period the person has been in business divided by the number of 
weeks in business, multiplied by 52.
    (iii) Where a person has been in business for three or more 
complete fiscal years, but one of the years within its period of 
measurement is a short tax year, annual receipts means the total 
receipts for the short year and the two full fiscal years divided by 
the total number of weeks in the short year and the two full fiscal 
years, multiplied by 52.
    (4) Annual receipts of affiliated companies. (i) The annual 
receipts of a person are calculated by adding the annual receipts of 
the person with the annual receipts of each of its affiliated 
companies.
    (ii) If a person has acquired an affiliated company or been 
acquired by an affiliated company during the applicable period of 
measurement, the annual receipts used in determining size status 
include the receipts of such affiliated company for the entire period 
of measurement (not just the period after the affiliation arose).
    (iii) Receipts are calculated separately for the person and each of 
its affiliated companies in accordance with paragraph (c)(3) of this 
section even though this may result in using a different period of 
measurement to calculate an affiliated company's annual receipts. Thus, 
for example, if an affiliated company has been in business for a period 
of less than three years, the affiliated company's receipts are to be 
annualized in accordance with paragraph (c)(3)(ii) of this section even 
if the person has been in business for three or more complete fiscal 
years.
    (iv) The annual receipts of a former affiliated company are not 
included if affiliation ceased before the applicable period of 
measurement as set forth in paragraph (c)(3) of this section. This 
exclusion of annual receipts of former affiliated companies applies 
during the entire period of measurement, rather than only for the 
period after which affiliation ceased.
    (d) Assistant Director means the Bureau's Assistant Director for 
Nonbank Supervision or her or his designee. The Director of the Bureau 
may perform the functions of the Assistant Director under this 
proposal. In the event there is no such Assistant Director, the 
Director of the Bureau may designate an alternative Bureau employee to 
fulfill the duties of the Assistant Director under this part.
    (e) Bureau means the Bureau of Consumer Financial Protection.
    (f) Consumer means an individual or an agent, trustee, or 
representative acting on behalf of an individual.
    (g) Consumer debt collection means collecting or attempting to 
collect, directly or indirectly, any debt owed or due or asserted to be 
owed or due to another and related to any consumer financial product or 
service. A person offers or provides consumer debt collection where the 
relevant debt is either:
    (1) Collected on behalf of another person; or
    (2) Collected on the person's own behalf, if the person purchased 
or otherwise obtained the debt while the debt was in default under the 
terms of the contract or other instrument governing the debt.
    (h) Consumer financial product or service means any financial 
product or service, as defined in section 1002(15) of the Act that is 
described in one or more categories under:
    (1) Section 1002(15) of the Act and is offered or provided for use 
by consumers primarily for personal, family, or household purposes; or
    (2) Clauses (i), (iii), (ix), or (x) of section 1002(15)(A) of the 
Act and is delivered, offered, or provided in connection with a 
consumer financial product or service referred to in paragraph (h)(1) 
of this section.
    (i) Consumer reporting means:
    (1) In general. Consumer reporting means collecting, analyzing, 
maintaining, or providing consumer report information or other account 
information used or expected to be used in any decision by another 
person regarding the offering or provision of any consumer financial 
product or service.
    (2) Exception for furnishing to an affiliated person. Consumer 
reporting does not include the activities of a person to the extent 
that a person--

[[Page 9608]]

    (i) Collects, analyzes, or maintains information that solely 
relates to transactions or experiences between the person and a 
consumer; and
    (ii) Provides the information described in paragraph (i)(2)(i) of 
this section to an affiliate.
    (3) Exception for furnishing information to a consumer reporting 
entity. Consumer reporting does not include the activities of a person 
to the extent that a person provides information that solely relates to 
transactions or experiences between a consumer and the person, or the 
affiliate of such person, to another person that is engaged in consumer 
reporting.
    (4) Exception for providing information to be used solely in a 
decision regarding employment, government licensing, or residential 
leasing or tenancy. Consumer reporting does not include the activities 
of a person to the extent that a person provides consumer report or 
other account information that is used or expected to be used solely in 
any decision regarding the offering or provision of a product or 
service that is not a consumer financial product or service, including 
a decision for employment, government licensing, or a residential lease 
or tenancy involving a consumer.
    (j) Larger participant means a nonbank covered person that meets a 
test under Sec.  1090.102, and for the period provided in Sec.  
1090.103 of this part.
    (k) Nonbank covered person means, except for persons described in 
sections 1025(a) and 1026(a) of the Act:
    (1) Any person that engages in offering or providing a consumer 
financial product or service; and
    (2) Any affiliate of a person described in paragraph (k)(1) of this 
section if such affiliate acts as a service provider to such person.
    (l) Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, 
cooperative organization, or other entity.
    (m) Supervision or supervisory activity means the Bureau's 
exercise, or intended exercise, of supervisory authority by initiating 
or undertaking an examination, or requiring a report of a person 
pursuant to section 1024 of the Act.


Sec.  1090.102  Covered markets and tests for determining larger 
participants of those markets.

    (a) Consumer debt collection. A nonbank covered person that offers 
or provides consumer debt collection is a larger participant of the 
consumer debt collection market if the person's annual receipts 
resulting from consumer debt collection are more than $10 million.
    (b) Consumer reporting. A nonbank covered person that offers or 
provides consumer reporting is a larger participant of the consumer 
reporting market if the person's annual receipts resulting from 
consumer reporting are more than $7 million.


Sec.  1090.103  Status as larger participant subject to supervision.

    A person qualifying as a larger participant under Sec.  1090.102 
shall not cease to be a larger participant under this part until two 
years from the first day of the tax year in which the person last met 
the applicable test under Sec.  1090.102.


Sec.  1090.104  Determination of status as a larger participant.

    (a) If a nonbank covered person receives a written communication 
from the Bureau initiating a supervisory activity, such person may 
respond by asserting that the person does not meet the definition of a 
larger participant of a market covered by this part within 30 days of 
the date of the communication. Such response must be sent to the 
Assistant Director by electronic transmission at the address included 
in the communication and must include an affidavit setting forth an 
explanation of the basis for the person's assertion that it does not 
meet the definition of larger participant of a market covered by this 
part and therefore is not subject to the Bureau's supervisory authority 
under section 1024 of the Act. In addition, a person may include with 
the response copies of any records, documents, or other information on 
which the person relied to make the assertion.
    (b) A person shall be deemed to have waived the right, at any time 
that it may dispute that it qualifies as a larger participant, to rely 
on any argument, records, documents, or other information that it fails 
to submit to the Assistant Director under paragraph (a) of this 
section. A person who fails to respond to the Bureau's written 
communication within 30 days will be deemed to have acknowledged that 
it is a larger participant.
    (c) The Assistant Director shall review the affidavit, any attached 
records, documents, or other information submitted pursuant to 
paragraph (a) of this section, and any other information the Assistant 
Director deems relevant, and thereafter send by electronic transmission 
to the person a statement setting forth the Bureau's conclusion as to 
whether the person meets the definition of a larger participant of a 
market covered by this part.
    (d) At any time, including prior to issuing the written 
communication referred to in paragraph (a) of this section, the 
Assistant Director may require that a person provide to the Bureau such 
records, documents, and information as the Assistant Director may deem 
appropriate to determine whether a person qualifies as a larger 
participant. Persons must provide the requisite records, documents, and 
other information to the Bureau within the time period specified in the 
request.
    (e) The Assistant Director, in her or his discretion, may modify 
any timeframe prescribed by this section on his or her own initiative 
or for good cause shown.

    Dated: February 8, 2012.
Richard Cordray,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2012-3775 Filed 2-16-12; 8:45 am]
BILLING CODE 4810-AM-P