[Federal Register Volume 77, Number 140 (Friday, July 20, 2012)]
[Rules and Regulations]
[Pages 42874-42900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17603]



[[Page 42873]]

Vol. 77

Friday,

No. 140

July 20, 2012

Part III





Bureau of Consumer Financial Protection





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12 CFR Part 1090





Defining Larger Participants of the Consumer Reporting Market; Final 
Rule

  Federal Register / Vol. 77 , No. 140 / Friday, July 20, 2012 / Rules 
and Regulations  

[[Page 42874]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1090

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


Defining Larger Participants of the Consumer Reporting Market

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
publishing a final rule pursuant to the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. That statute grants the Bureau authority 
to supervise certain nonbank covered persons for compliance with 
Federal consumer financial law 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]'' of markets for other consumer financial 
products or services, as the Bureau defines by rule. An initial rule to 
define such larger participants must be issued by July 21, 2012. The 
Bureau issues this final rule to define larger participants of a market 
for consumer reporting. The final rule thereby facilitates the 
supervision of nonbank covered persons active in that market.

DATES: Effective September 30, 2012.

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 20552.

SUPPLEMENTARY INFORMATION: On February 17, 2012, the Bureau published a 
notice of proposed rulemaking proposing tests for defining larger 
participants of two markets identified by the Bureau: consumer 
reporting and consumer debt collection. The Bureau issues this final 
rule to define larger participants of a market for consumer reporting. 
After the issuance of this final rule, the Bureau will take further 
action regarding the proposed consumer debt collection market. This 
initial rule to define larger participants will be followed by a series 
of rulemakings covering additional markets for consumer financial 
products and services.

I. Overview

    Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) \1\ established the Bureau of Consumer 
Financial Protection (Bureau) on July 21, 2010. One of the Bureau's 
responsibilities under the Dodd-Frank Act is the supervision of certain 
nonbank covered persons,\2\ and very large banks, thrifts, and credit 
unions and their affiliates.\3\
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    \1\ Public Law 111-203 (12 U.S.C. 5301 et seq.).
    \2\ The provisions of 12 U.S.C. 5514 apply to nondepository 
(nonbank) covered persons and expressly exclude from coverage 
persons described in 12 U.S.C. 5515(a) or 5516(a). 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.'' 12 U.S.C. 5481(6); see also 12 
U.S.C. 5481(5) (defining ``consumer financial product or service''). 
Under 12 U.S.C. 5514(d), 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 the exclusive authority to * * * 
conduct examinations [and] require reports * * * with regard to a 
[nonbank covered person], subject to those provisions of law.''
    \3\ See 12 U.S.C. 5515(a). The Bureau also has certain 
authorities relating to the supervision of other banks, thrifts, and 
credit unions. See 12 U.S.C. 5516(c)(1), (e). The Bureau notes that 
one of the objectives of the Dodd-Frank Act is to ensure that 
``Federal consumer financial law is enforced consistently without 
regard to the status of a person as a depository institution, in 
order to promote fair competition.'' 12 U.S.C. 5511(b)(4).
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    Under 12 U.S.C. 5514, the Bureau has supervisory authority over 
nonbank covered persons of any size offering or providing three 
enumerated types of consumer financial products or services: (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.\4\ The Bureau also has supervisory authority over 
``larger participant[s] of a market for other consumer financial 
products or services,'' as the Bureau defines by rule.\5\ The Bureau is 
authorized to supervise nonbank entities subject to 12 U.S.C. 5514 of 
the Dodd-Frank 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 consumer financial markets.\6\ The Bureau is 
required to issue an initial larger participant rule by July 21, 2012.
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    \4\ 12 U.S.C. 5514(a)(1)(A), (D), and (E).
    \5\ 12 U.S.C. 5514(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 to the covered 
person 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.'' 12 U.S.C. 5514(a)(1)(C). 
The Bureau has published a notice of proposed rulemaking to 
establish uniform procedures relating to this provision of the Dodd-
Frank Act. 77 FR 31226 (May 25, 2012).
    \6\ 12 U.S.C. 5514(b)(1).
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    This final rule establishes, in part, the scope of the Bureau's 
supervision authority for nonbank covered persons \7\ under 12 U.S.C. 
5514, by defining ``larger participants'' of a market for consumer 
reporting.\8\ The Bureau intends the final rule to be the first in a 
series of rules to define larger participants of other markets. After 
the issuance of this rule, the Bureau will take further action relating 
to its notice of proposed rulemaking to define larger participants of a 
market for consumer debt collection.
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    \7\ The Bureau's supervision authority also extends to service 
providers of covered persons subject to supervision under 12 U.S.C. 
5514. See 12 U.S.C. 5514(e) (establishing the Bureau's supervisory 
authority relating to service providers); see also 12 U.S.C. 
5481(26) (defining ``service provider'').
    \8\ The final rule describes one market for consumer financial 
product or services, which the rule labels ``consumer reporting.'' 
The definition in the rule does not encompass all activities that 
could be considered consumer reporting. Any reference herein to 
``the consumer reporting market'' means only the particular market 
for consumer reporting identified by the final rule.
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    The final rule pertains only to defining larger participants of a 
specified market and thereby delineating, in part, the scope of the 
Bureau's nonbank supervision authority. It does not impose new 
substantive consumer protection requirements. Nor does it delineate the 
scope of the Fair Credit Reporting Act (FCRA), provisions of the Dodd-
Frank Act related to consumer reporting activities, or any other 
Federal consumer financial law. Nonbank covered persons generally 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. Background

    On June 29, 2011, through a notice and request for comment 
(Notice), the Bureau solicited public comment on developing a proposed 
larger participant rule.\9\ The Bureau also held a series of roundtable 
discussions with industry, consumer and civil rights groups, and State 
regulatory agencies and associations.\10\ The Bureau considered

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the comments it received in connection with the Notice in developing a 
proposed rule to define larger participants of two markets for consumer 
financial products or services: consumer debt collection and consumer 
reporting. The Bureau published a notice of proposed rulemaking on 
February 17, 2012 (Proposed Rule or Proposal).\11\ The Bureau requested 
and received public comment on the Proposed Rule.
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    \9\ 76 FR 38059 (June 29, 2011).
    \10\ In July 2011, the Bureau held four roundtable discussions 
on the 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 how to define larger participants, including what 
criteria to measure, where to set thresholds, available data 
sources, and which markets to cover. Also in July 2011, the Bureau 
held a multistate regulator and regulatory association conference 
call that had more than 40 participants.
    \11\ 77 FR 9592 (Feb. 17, 2012).
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    The Proposed Rule defined certain terms, including ``affiliated 
company,'' ``annual receipts,'' ``consumer reporting,'' and ``nonbank 
covered person.'' The Proposed Rule also set forth a test for 
determining whether a nonbank covered person is a larger participant of 
the consumer reporting market.\12\ Under this test, a nonbank covered 
person with more than $7 million in annual receipts resulting from 
consumer reporting activities described in the Proposed Rule would be a 
larger participant of the consumer reporting market. As defined in the 
Proposed Rule, the determination of annual receipts is generally 
derived from a three-year average of receipts. Under the Proposed Rule, 
once a nonbank covered person met a larger-participant test for a 
particular market, the person would retain larger-participant status 
for a period of at least two years. The Proposed Rule also set forth a 
procedure for a person to challenge an assertion by the Bureau that the 
person qualified as a larger participant of a covered market and a 
mechanism by which the Bureau could request information to assess 
whether a person is a larger participant.
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    \12\ As noted above, the Proposed Rule also addressed a market 
for consumer debt collection; that market will be the subject of a 
later publication.
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    The Bureau received 82 comments on the Proposed Rule from, among 
others, consumer groups, industry trade associations, companies, State 
financial services agencies, and individuals. These comments are 
discussed in more detail below in the section-by-section analysis of 
the final rule.

III. Summary of the Final Rule

    The final rule is the first in what the Bureau intends to be a 
series of rules to define ``larger participants'' of specific markets 
for purposes of establishing, in part, the scope of coverage of the 
Bureau's nonbank supervision program. The rule contains two main 
components. Subpart A establishes general definitions, concepts, 
protocols, and procedures relating to the Bureau's supervision of 
larger participants and assessment of whether entities are larger 
participants. Subpart B identifies a market for consumer reporting, 
defines the term ``annual receipts'' for purposes of measuring 
participation in that market, and sets forth the test for assessing 
which entities are larger participants of that market. As the Bureau 
identifies additional markets in which to supervise larger 
participants, the Bureau expects to include the relevant market 
descriptions and larger-participant tests in Subpart B.
    In its general provisions under Subpart A, the final rule defines 
terms relevant to the rule, such as ``affiliated company,'' ``consumer 
financial product or service,'' and ``nonbank covered person,'' 
adopting (with minor modifications) the proposed definitions for these 
terms. The final rule adopts the provision of the Proposed Rule 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 final rule also adopts the proposed 
procedure for a person to challenge that it qualifies as a larger 
participant, during a specified time period after being notified by the 
Bureau that the Bureau intends to conduct some type of supervision 
activity in connection with the person. However, in response to 
comments, the Bureau has extended the specified time period from 30 
days to 45 days. To facilitate the Bureau's supervision of nonbank 
covered persons, to enable the Bureau to carry out the purposes and 
objectives of the Dodd-Frank Act relating to supervision, and to 
prevent evasion, the final rule also adopts the proposed provision that 
the Bureau may require submission of records, documents, and other 
information for purposes of assessing whether a person is a larger 
participant of a covered market.
    Under Subpart B, the final rule defines the term ``consumer 
reporting'' by describing market-related activities; defines the term 
``annual receipts,'' the criterion by which entities' level of 
participation in the consumer reporting market is measured; and sets 
forth the test for which participants are larger participants. The 
consumer reporting market, as defined in the final rule, includes 
consumer reporting agencies selling consumer reports, consumer report 
resellers, analyzers of consumer reports and other account information 
(analyzers), and specialty consumer reporting agencies (collectively 
referred to as consumer reporting entities). As a general matter, some 
consumer reporting agencies collect, among other information, 
information about credit accounts, items sent for collection, and 
public records such as judgments and bankruptcies. Resellers purchase 
consumer information from one or more of the agencies that collect 
information, 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. Analyzers apply statistical and other methods 
to consumer reports and other account information to facilitate the 
interpretation of such information and its use in decisions regarding 
other products and services. Certain analyzers develop and sell credit 
scoring services and products. Specialty consumer reporting agencies 
primarily collect and provide specific types of information that may be 
used to make decisions regarding 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, some of these specialty consumer reporting agencies, depending 
on their activities, may not be engaged in offering or providing 
consumer financial products or services within the meaning of the Dodd-
Frank Act, and therefore would not, on the basis of their activities, 
become ``covered persons'' subject to the Bureau's supervisory 
authority.\13\ These exclusions are implemented in the definition of 
``consumer reporting'' in the final rule.
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    \13\ See 12 U.S.C. 5481(15)(A)(ix). Under the final rule, 
``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 
regarding a decision for employment, government licensing, or a 
residential lease or tenancy involving a consumer, or 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.
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    As detailed in the Proposal, consumer reporting is a consumer 
financial product or service that is of fundamental importance to 
markets for many other consumer financial products and services. 
Consumer reports (sometimes referred to as ``credit reports''), which 
may contain information about consumers' credit histories and other 
transactions, and the

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credit scores derived from credit files, 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, such as checking accounts. 
The consumer reporting market affects hundreds of millions of 
consumers. The Consumer Data Industry Association (CDIA), a trade 
association that represents, among others, the consumer reporting 
industry, estimates that each year there are more than 36 billion 
updates made to consumer files at consumer reporting agencies,\14\ and 
three billion reports issued.\15\ It also estimates that each of the 
three largest consumer reporting agencies maintains credit files on 
more than 200 million consumers.\16\ Because of the significant 
connections between consumer reporting and other consumer financial 
products and services, supervision of consumer reporting will further 
the Bureau's mission to ensure that all consumers have access to fair, 
transparent, and competitive markets for such products and 
services.\17\
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    \14\ Stuart Pratt, President, 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 at (http://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).
    \15\ See Stuart Pratt, President, CDIA, Statement Before House 
Committee on Financial Services, ``Credit Reports: Consumers' 
Ability to Dispute and Change Inaccurate Information,'' at 23 (June 
19, 2007), available at http://archives.financialservices.house.gov/hearing110/ospratt061907.pdf.
    \16\ 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 at http://ntia.doc.gov/files/ntia/comments/100402174-0175-01/attachments/Consumer%20Data%20Industry%20Association%20Comments.pdf.
    \17\ 12 U.S.C. 5511(a).
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    The final rule establishes a test, based on ``annual receipts,'' to 
assess whether a nonbank covered person is a larger participant of the 
consumer reporting market. The definition of ``annual receipts'' is 
adapted from the definition of the term used by the Small Business 
Administration (SBA) for purposes of defining small business concerns. 
The final rule adopts the proposed test for qualifying as a larger 
participant of the consumer reporting market: More than $7 million in 
annual receipts resulting from relevant consumer reporting activities. 
Covered persons meeting the test qualify as larger participants and are 
subject to the Bureau's supervision authority under 12 U.S.C. 5514. The 
test to assess larger-participant status set forth in the final rule is 
tailored to the consumer reporting market identified by the rule. The 
Bureau has not determined that annual receipts, or a threshold of $7 
million in annual receipts, would be appropriate for any other market 
that may be the subject of a future larger participant rulemaking. 
Rather, the Bureau will tailor each test for defining larger 
participants to the market to which it will be applied.

IV. Legal Authority and Effective Date

A. Rulemaking Authority

    The Bureau is issuing this final rule pursuant to its authority 
under: (1) 12 U.S.C. 5514(a)(1)(B) and (a)(2), which authorize the 
Bureau to supervise larger participants of markets for consumer 
financial products or services, as defined by rule, and require the 
Bureau to issue an initial such rule by July 21, 2012; \18\ (2) 12 
U.S.C. 5514(b)(7), which, among other things, authorizes the Bureau to 
prescribe rules to facilitate the supervision of covered persons under 
12 U.S.C. 5514; and (3) 12 U.S.C. 5512(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 Federal consumer financial law, and to prevent evasions 
of such law.
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    \18\ July 21, 2012, is one year after the Bureau's ``designated 
transfer date.'' This was the date on which certain authorities 
transferred from other Federal agencies to the Bureau. 12 U.S.C. 
5581; see 12 U.S.C. 5582 (mechanism for setting ``designated 
transfer date''); 75 FR 57252 (Sept. 20, 2010) (establishing 
``designated transfer date'' as July 21, 2011).
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B. Effective Date of Final Rule

    The Bureau proposed an effective date of 30 days after the 
publication of the final rule, noting that the Administrative Procedure 
Act generally requires that rules be published not less than 30 days 
before their effective dates.\19\ The Bureau received a few comments 
requesting a postponement of the effective date.
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    \19\ 5 U.S.C. 553(d).
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    Two industry commenters urged the Bureau to adopt an effective date 
at least 180 days after issuance of the final rule. One of these 
commenters, representing the consumer reporting industry, asked the 
Bureau to consider the fact that some of the companies affected by the 
final rule have never been examined at the Federal or State level and 
will need time to develop processes and engage in training to prepare 
for examinations. Another commenter, representing online payday 
lenders, stated that the Bureau should adopt an effective date no 
earlier than six months after issuance of the final rule and one year 
after publication by the Bureau of final examination manuals and 
procedures for the markets covered in the Proposed Rule. This commenter 
noted that, unlike the various examination procedures for banks and 
lenders that the Bureau has released, any such procedures with respect 
to the covered markets published by the Bureau will be completely new, 
and industry will need time to prepare for examinations.
    The Bureau appreciates the fact that supervision by a Federal 
agency will be new to many larger participants of the consumer 
reporting market. The Bureau does not believe, however, that this is a 
sufficient reason for a substantial delay of the effective date of the 
final rule. The final rule itself does not impose substantive conduct 
requirements with respect to which larger participants might require 
time to come into compliance. Although larger participants might choose 
to increase their compliance with Federal consumer financial law in 
response to the possibility of supervision, market participants are 
already obligated to comply, and should already be in compliance with, 
applicable Federal consumer financial law, regardless of whether they 
are subject to supervision. Thus, entities that qualify as larger 
participants under the final rule should not require additional time to 
come into compliance with Federal consumer financial law. In addition, 
the Bureau is concerned that postponing the effective date by too much 
would unnecessarily delay the Bureau's supervision of larger 
participants of the consumer reporting market. This could adversely 
affect consumers because, among other reasons, the Bureau would be 
delayed, with respect to the consumer reporting activities covered by 
the rule, in assessing compliance with Federal consumer financial law, 
detecting and assessing risk to consumers, and obtaining information 
about activities and compliance systems or procedures, and thus delayed 
in taking any appropriate corrective action.
    The Bureau believes that, for the reasons described above, a long 
postponement of the effective date as suggested by the commenters is 
not warranted. However, in balancing the requests for a longer pre-
effective date period with the Bureau's view that too lengthy a period 
would be detrimental to consumers, the Bureau believes it is

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reasonable to extend the effective date to September 30, 2012, to give 
entities some time to prepare for Federal supervision, and adopts this 
effective date for the final rule. As compared with the Proposal, this 
new effective date will provide more than double the time between the 
publication date and the date when entities may be subject to Bureau 
supervision under the rule.

V. Section-By-Section Analysis of the Final Rule \20\
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    \20\ The Bureau notes that the final rule is structured 
differently than the Proposed Rule. Unlike the Proposed Rule, the 
final rule is divided into Subparts A and B, as described in the 
Summary of Final Rule (Section III) above, resulting in different 
section numbers. This section-by-section analysis refers to the 
section numbers in the final rule except as otherwise noted.
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Subpart A--General

Section 1090.100--Scope and Purpose
    Proposed Sec.  1090.100 set forth the scope and purpose of Part 
1090. It stated that the Part defines those nonbank covered persons 
that qualify as larger participants of certain markets for consumer 
financial products or services, pursuant to 12 U.S.C. 5514(a)(1)(B) and 
(a)(2). Proposed Sec.  1090.100 further explained that a larger 
participant of a market covered by the Part will be subject to the 
supervisory authority of the Bureau under 12 U.S.C. 5514. Finally, 
Sec.  1090.100 provided that the Part establishes rules to facilitate 
the Bureau's supervisory authority over larger participants pursuant to 
12 U.S.C. 5514(b)(7).
    The Bureau received one comment recommending that the Bureau 
clarify that the scope and purpose of the final rule does not include 
the supervision of nonprofit organizations engaged in offering credit 
counseling services. This comment relates specifically to the market 
for consumer debt collection and will be addressed in the final rule 
for that market. The Bureau notes, however, that the Bureau does not 
believe that the scope and purpose section is the appropriate place to 
exclude any type of activity from a market covered by the final rule. 
Subpart B addresses the nature and scope of activities included in the 
market covered by the rule.
    Section 1090.100 is adopted as proposed, with minor technical 
amendments for consistency.
Section 1090.101--Definitions
    Section 1090.101 defines terms used in the final rule that are 
applicable both to the consumer reporting market and to other markets 
that may be addressed in future rulemakings. If a term is defined in 
the Dodd-Frank Act, the final rule generally incorporates that 
definition, with clarifications and modifications as appropriate. The 
Bureau received comments on a number of definitions set forth in the 
Proposed Rule and discusses the comments below in the context of the 
definition to which they relate.
    Affiliated company. To compute activity levels for purposes of 12 
U.S.C. 5514(a)(1) and its implementing rules, 12 U.S.C. 5514(a)(3)(B) 
provides that 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 Dodd-
Frank Act. The Proposed Rule defined the term ``affiliated company'' in 
a manner guided by the definition of ``affiliate'' set forth in the 
Dodd-Frank Act,\21\ with modifications to track the requirements of 12 
U.S.C. 5514(a)(3)(B). Thus, the Proposed Rule stated that the term 
``affiliated company'' of a person means any company (other than an 
insured depository institution or insured credit union) that controls, 
is controlled by, or is under common control with the person.
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    \21\ 12 U.S.C. 5481(1).
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    For purposes of the definition of ``affiliated company,'' the 
Proposed Rule provided that the term ``company'' means any corporation, 
limited liability company, business trust, general or limited 
partnership, proprietorship, cooperative, association, or similar 
organization. The Bureau received one comment suggesting that this 
definition be revised to include professional corporations and 
professional limited liability companies. The Bureau believes that the 
proposed definition, which encompasses ``similar organization[s]'' to 
those expressly enumerated, is sufficiently broad to cover professional 
corporations and professional limited liability companies, as well as 
other forms of organization comparable to those on the enumerated list 
that exist or may arise. Thus, the Bureau deems the suggested amendment 
unnecessary.
    Also for purposes of the definition of ``affiliated company,'' the 
Proposed Rule set forth when a person would be considered to have 
control over another person, guided by the definitions of the term 
``control'' provided in section 2 of the Bank Holding Company Act 
(BHCA) (12 U.S.C. 1841) and rules issued by other Federal financial 
regulators.\22\ The proposed definition provided 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.
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    \22\ See, e.g., 12 CFR 41.3(i) (Office of the Comptroller of the 
Currency (OCC) rule defining ``common ownership or common corporate 
control'' in connection with the FCRA); 12 CFR 336.3(b) (Federal 
Deposit Insurance Corporation (FDIC) rule defining ``control'' in 
connection with post-employment restrictions on former FDIC 
examiners); 12 CFR 1805.104(q) (Department of the Treasury rule 
defining ``control'' in connection with the Community Development 
Financial Institutions Program).
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    The Bureau received a number of comments from consumer groups 
requesting that the Bureau include in the final rule provisions to 
prevent market participants from structuring business forms and 
activities to evade coverage as larger participants. For example, one 
commenter suggested that the Bureau should prevent evasion by 
aggregating not only the revenues of ``affiliated companies,'' but also 
those of ``joint enterprises,'' defined as two or more companies that 
act with a common purpose, in coordination, or through a contractual 
relationship to provide consumer financial products or services. 
Similarly, many consumer groups suggested aggregating the receipts of a 
firm's agents and contractors.
    The Bureau understands commenters' concern regarding possible 
evasion of the final rule that could potentially occur by a market 
participant's structuring business activities through separate 
entities. For example, a covered person might attempt evasion by 
dividing its consumer reporting tasks among several unaffiliated 
companies, each having less than $7 million in annual receipts, to 
avoid Bureau supervision. However, control or common control is a 
prerequisite for being an ``affiliate'' under the Dodd-Frank Act; and 
the Bureau likewise proposed to make control or common control a 
prerequisite for being an ``affiliated company.'' \23\ The Bureau 
further believes that the test for control in the Proposal, which 
considered, among other things, whether one person directly or 
indirectly exercises a controlling influence over the management or 
policies of another, provides an adequate tool to address the type of 
structuring to evade supervision coverage that the commenters describe. 
The Bureau therefore declines to amend

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the Proposal to require aggregation of the annual receipts of ``joint 
enterprises'' or of companies that have only a cooperative or 
contractual relationship but otherwise do not satisfy a test for 
control in the final rule.
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    \23\ See 12 U.S.C. 5481(1) (definition of ``affiliate'').
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    A few industry commenters objected more generally to one concept of 
control recognized in the proposed definition, in which one person 
directly or indirectly exercises a controlling influence over the 
management or policies of another. These commenters stated that a 
potential larger participant would not know in advance which companies 
it is deemed to exercise a controlling influence over, and therefore 
how to calculate its aggregated annual receipts. Normally, the Bureau 
believes, a market participant could use reasonable judgment to 
determine whether it has an affiliated company whose annual receipts 
would be aggregated with its own. In addition, under the final rule, 
prior to undertaking supervisory activity in connection with a market 
participant, the Bureau would notify the participant of its intent; the 
market participant would then have the opportunity, pursuant to Sec.  
1090.103 of the final rule, to challenge its status as a larger 
participant, including on the ground that its annual receipts should 
not be aggregated with those of certain other companies. Accordingly, 
the Bureau believes that, in the context of the procedures set forth in 
the final rule, the proposed definition of ``control'' provides market 
participants sufficient advance guidance regarding their status as 
larger participants and does not believe it is necessary to amend the 
proposed test for control to address these commenters' concerns. 
Moreover, as indicated above, the Bureau believes it is necessary and 
appropriate to have a definition of ``control'' that is sufficiently 
flexible to prevent evasion of the rule.
    One commenter also expressed concern that if a large company 
handles a small firm's day-to-day operations, as a service, the larger 
firm would be considered to exercise a controlling influence. 
Therefore, according to this commenter, the ``controlling influence'' 
test for control could distort the market for such services. It could 
also, this commenter said, unfairly sweep a small firm into the 
category of larger participants, based solely on the small firm's use 
of a larger participant for such operational services. As defined in 
the Proposed Rule, mere execution of certain of another company's 
activities would not constitute ``control'' over that company. Rather, 
under the proposed definition of the term, to constitute control, one 
person must directly or indirectly exercise a controlling influence 
over the management or policies of another person. The Bureau notes 
that under the Proposal, the Bureau would evaluate for each company it 
reviews whether one person has a controlling interest over another, 
based on the particular facts and circumstances of the 
relationship.\24\ If one company does in fact have a controlling 
influence over another's management or policies, the Bureau believes 
that it is appropriate to aggregate the annual receipts of the 
companies for purposes of assessing larger-participant status, and that 
this would not be unfair to a smaller company that is controlled by a 
larger one. Therefore the Bureau declines to amend the Proposal to 
delete the ``controlling influence'' test.
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    \24\ If two companies might be considered affiliates due to a 
``controlling influence,'' the Bureau might assert that their 
aggregated receipts placed them over the threshold for a relevant 
market. After issuing correspondence initiating supervisory 
activity, pursuant to Sec.  1090.103 of the final rule, the Bureau 
would entertain arguments that the companies were not linked by a 
``controlling influence,'' along with other arguments relating to 
larger-participant status. The Proposed Rule's use of the phrase 
``as determined by the Bureau'' was not meant to suggest that the 
Bureau would make a prior determination with respect to 
``controlling influence.'' The Bureau therefore omits that phrase 
from the definition of ``control'' in the final rule.
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    Commenters also argued that before determining that one person 
exercises a controlling influence over another, the Bureau should 
provide notice and an opportunity for a hearing. The Bureau recognizes 
that some other Federal statutes, such as the BHCA, provide for 
hearings in assessing whether one company has a controlling influence 
over another.\25\ At the same time, a number of other Federal statutes 
and regulations that contain ``controlling influence'' provisions do 
not contain hearing provisions.\26\ The Bureau believes that the need 
for a hearing, as under the BHCA, is not present here. Under the BHCA, 
the Board of Governors of the Federal Reserve System must approve the 
establishment of a bank holding company.\27\ A person that controls a 
bank holding company is itself a bank holding company under the 
BHCA.\28\ The activities of a bank holding company are highly regulated 
by the Board of Governors.\29\ Thus, a finding of control under the 
BHCA has a much more significant consequence than a finding of control 
would have under the final rule. In the case of the final rule, the 
consequence of companies' being affiliated by means of a ``controlling 
influence'' is that their annual receipts would be aggregated for 
purposes of assessing whether they are larger participants of a covered 
market, and thus subject to supervision by the Bureau's supervisory 
authority.\30\ The companies would not be subject to any new 
substantive conduct requirements as a result. As discussed below, being 
subject to supervision is not a consequence that necessitates a 
hearing, as a matter of due process, on the general question whether a 
company is a larger participant. A hearing is similarly not necessary 
on the predicate issue of whether two companies are affiliated. 
Therefore, the Bureau believes that a hearing provision is not 
warranted for the final rule and declines to add such a provision.
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    \25\ 12 U.S.C. 1841.
    \26\ 12 CFR 41.3(i) (the OCC's definition of ``control'' under 
the FCRA); 12 CFR 717.3(i) (the National Credit Union 
Administration's (NCUA) definition of ``control'' under the FCRA); 
12 CFR 1805.104(q) (Treasury Department's definition of ``control'' 
for purposes of the Community Development Financial Institutions 
Program); 12 CFR 336.3 (the FDIC's definition of ``control'' for 
purposes of post-employment restrictions on former FDIC examiners).
    \27\ 12 U.S.C. 1842.
    \28\ 12 U.S.C. 1841(a)(1).
    \29\ See, e.g., 12 U.S.C. 1843 (restricting activities in which 
a bank holding company may engage).
    \30\ 12 U.S.C. 5514(b)(1).
---------------------------------------------------------------------------

    Several industry commenters argued that owning voting securities or 
similar interests should not constitute control until a person owns 50 
percent, rather than 25 percent, of any class of voting securities or 
similar interest. One pointed out that if the threshold is only 25 
percent, a given entity could be an ``affiliated company'' of several 
persons, if each such person owned just over 25 percent of a class of 
voting securities. The Bureau notes the 25 percent threshold test is 
used in a number of statutes and regulations to determine whether one 
person controls another in the context of financial institutions.\31\ 
The Bureau believes that this widely used threshold is appropriate for 
the final rule. The Bureau is concerned that increasing the ownership 
threshold from 25 percent to 50 percent would mean that if one person 
owns 49 percent of a company, and three others separately owned the 
remaining 51 percent of that company, no person would be deemed to 
control that company, absent the presence of a ``controlling 
influence.'' The Bureau believes that raising the ownership threshold 
as requested would too easily

[[Page 42879]]

permit evasion of, or attempts to evade, the aggregation requirement. 
The Bureau therefore declines to increase the ownership threshold to 50 
percent.
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    \31\ 12 U.S.C. 1841 (BHCA); 12 CFR 41.3(i) (the OCC's definition 
of ``control'' under the FCRA); 12 CFR 717.3(i) (the NCUA's 
definition of ``control'' under the FCRA); 12 CFR 1805.104(q) 
(Treasury Department's definition of ``control'' with respect to 
Community Development Financial Institutions Program); 12 CFR 336.3 
(the FDIC's definition of ``control'' for purposes of post-
employment restrictions on former FDIC examiners).
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    Finally, one commenter argued that when a company acquires another 
firm, the acquiring company cannot immediately exercise control over 
the target's operations. This commenter requested a grace period of 12 
months after the acquisition, during which the target firm would not be 
considered an ``affiliated company'' for purposes of this rule. The 
Bureau believes that when one company acquires another, the acquiring 
company in fact controls the acquired company at the time of the 
transaction. This is true even if the acquiring company chooses to 
exercise that control by maintaining the status quo. The Bureau also 
notes that ``control'' is a concept used only to implement the 
aggregation requirement under 12 U.S.C. 5514(a)(3)(B) in connection 
with assessing whether a person is a larger participant of a market for 
consumer financial products or services. Even assuming the acquirer 
lacks effective control over the acquired company immediately after the 
acquisition, the annual receipts of the combined company are 
nonetheless an appropriate measure of the resulting company's market 
participation. Accordingly, the Bureau declines to amend the Proposed 
Rule to provide a 12-month grace period as requested.
    For all of the foregoing reasons, the Bureau adopts the definition 
of ``affiliated company'' with minor technical amendments for 
consistency.
    Assistant Director. The Proposed Rule stated that the term 
``Assistant Director'' means the Bureau's Assistant Director for 
Nonbank Supervision or her or his designee. The Proposed Rule further 
stated that the Director of the Bureau may perform the functions of the 
Assistant Director as set forth in the Proposed Rule, and that, in the 
event there is no Assistant Director, the Director of the Bureau may 
designate an alternative Bureau employee to fulfill the duties of the 
Assistant Director. The Bureau received no substantive comments on this 
definition and adopts the definition as proposed, with minor technical 
amendments for consistency.
    Bureau. The Proposed Rule stated that the term ``Bureau'' means the 
Bureau of Consumer Financial Protection. The Bureau received no 
substantive comments on this definition and adopts the definition as 
proposed, with minor technical amendments for consistency.
    Completed fiscal year. The Proposed Rule stated that the term 
``completed fiscal year'' meant any tax year including any short tax 
year. The Bureau did not receive any objections to the proposed 
definition. However, the Bureau believes that a calendar year, a 12-
month period ending on December 31, could be an appropriate tax year 
for purposes of this Part. For this reason, and for clarification 
purposes, the final rule amends the Proposed Rule to define ``completed 
fiscal year'' as a tax year including any fiscal year, calendar year, 
or short tax year,\32\ with other minor technical amendments for 
consistency.
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    \32\ The final rule provides that a ``fiscal year'' is 12 
consecutive months ending on the last day of any month except 
December 31. A ``calendar year'' is 12 consecutive months beginning 
on January 1 and ending on December 31. 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.
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    Consumer. The Proposed Rule's definition of ``consumer'' is the 
same as that set forth in 12 U.S.C. 5481(4). The Proposed Rule provided 
that the term ``consumer'' means an individual or an agent, trustee, or 
representative acting on behalf of an individual. The Bureau did not 
receive any substantive comments addressing the proposed definition and 
adopts the definition as proposed, with minor technical amendments for 
consistency.
    Consumer financial product or service. The Proposed Rule 
incorporated the definition of the term ``consumer financial product or 
service'' set forth in 12 U.S.C. 5481(5). Thus, the Proposed Rule 
stated that the term ``consumer financial product or service'' means 
any financial product or service as defined in 12 U.S.C. 5481(15) that 
is described in one or more categories under: (a) 12 U.S.C. 5481(15)(A) 
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 12 U.S.C. 5481(15)(A) \33\ and is delivered, offered, or provided in 
connection with a consumer financial product or service referred to in 
the immediately preceding subparagraph. The Bureau did not receive 
substantive comments on the definition of the term ``consumer financial 
product or service'' and adopts the definition as proposed, with minor 
technical amendments for consistency.
---------------------------------------------------------------------------

    \33\ Under these clauses, the term ``financial product or 
service'' is generally defined to include, subject to certain 
exclusions: (1) Extending credit and servicing loans, 12 U.S.C. 
5481(15)(A)(i); (2) providing real estate settlement services or 
performing appraisals of real estate or personal property, 12 U.S.C. 
5481(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, 12 U.S.C. 5481(15)(A)(ix); and (4) collecting debt 
related to any consumer financial product or service, 12 U.S.C. 
5481(15)(A)(x).
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    Dodd-Frank Act. The Proposed Rule stated that the term ``Act'' 
means the Consumer Financial Protection Act of 2010. The Bureau did not 
receive any substantive comments on the proposed definition. For 
purposes of consistency with other Bureau rulemakings, the final rule 
replaces the defined term ``Act'' with ``Dodd-Frank Act,'' and 
otherwise adopts the definition as proposed with minor technical 
amendments for consistency.
    Larger participant. The Proposed Rule defined the term ``larger 
participant'' to mean a nonbank covered person that meets a test under 
Subpart B, and which remains a larger participant for the period 
provided in Sec.  1090.102. The Bureau did not receive substantive 
comments on this definition and adopts the definition as proposed, with 
minor technical amendments for consistency.
    Nonbank covered person. The scope of coverage of the Bureau's 
supervisory authority under 12 U.S.C. 5514 relates to ``covered 
persons,'' as defined in 12 U.S.C. 5481(6), that are neither insured 
depository institutions or credit unions, nor affiliates of those 
insured depository institutions or credit unions with assets of more 
than $10 billion, as set forth in 12 U.S.C. 5515(a) and 5516(a). Thus, 
the proposed definition excluded persons described in 12 U.S.C. 5515(a) 
and 5516(a) and provided that the term ``nonbank covered person'' 
means, except for persons described in those sections: (1) Any person 
that engages in offering or providing a consumer financial product or 
service; and (2) any affiliate of a person described in subparagraph 
(1) of this paragraph if such affiliate acts as a service provider to 
such person. The Bureau did not receive any substantive comments on the 
definition of ``nonbank covered person'' and adopts the definition as 
proposed, with minor technical amendments for consistency.
    Person. The Proposed Rule incorporated the definition of ``person'' 
set forth in 12 U.S.C. 5481(19). The Proposed Rule thus stated that the 
term ``person'' means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, 
cooperative organization, or other entity. The Bureau did not receive 
any substantive comments on the definition of ``person'' and adopts the 
definition as proposed, with minor technical amendments for 
consistency.
    Supervision and supervisory activity. The Proposed Rule defined the 
terms ``supervision'' and ``supervisory activity'' to mean the Bureau's 
exercise,

[[Page 42880]]

or intended exercise, of supervisory authority, including by initiating 
or undertaking an examination, or requiring a report, of a nonbank 
covered person pursuant to 12 U.S.C. 5514. The Bureau did not receive 
any substantive comments suggesting changes to the definition of 
``supervision'' and ``supervisory activity'' and adopts the definition 
as proposed, with minor technical amendments for consistency.
    The Bureau did, however, receive several comments related to the 
scope and exercise of the Bureau's supervisory authority. One group 
representing industry participants requested further detail about what 
an examination or supervision report would entail. Supervision may 
involve requests for information or records, on-site or off-site 
examinations, or some combination of these activities. While the 
specifics of an examination may vary by market and by firm, the 
following applies generally to the supervision process. Typically, 
Bureau officials begin an on-site examination by contacting the firm 
for an initial conference with management, and often by also requesting 
records and information. Based on these discussions and an initial 
review of the information received, examiners will determine the scope 
of an on-site examination, and then coordinate with the firm to 
initiate the on-site portion of the examination. While on-site, 
examiners will spend a period of time holding discussions with 
management about the company's processes and procedures; reviewing 
documents, records, and accounts for compliance; and evaluating the 
firm's compliance management systems. As with the Bureau's bank 
examinations, examinations of nonbanks will involve issuing 
confidential examination reports and compliance ratings.
    The Bureau additionally notes that it has published a general 
examination manual describing the Bureau's supervisory approach and 
processes, as well as substantive legal areas subject to examination. 
This manual is available on the Bureau's Web site.\34\ As explained in 
the examination manual, reports of examination will be structured to 
address various factors related to a supervised entity's compliance 
with Federal consumer financial law and other relevant considerations. 
The Bureau intends to release examination procedures specific to 
consumer reporting prior to beginning examinations.
---------------------------------------------------------------------------

    \34\ Available at http://www.consumerfinance.gov/guidance/supervision/manual/.
---------------------------------------------------------------------------

    One consumer group commented that where the Bureau has supervisory 
authority over a larger participant by virtue of its participation in a 
particular market, the Bureau should examine all of the entity's 
activities related to consumer financial products or services, even 
those that pertain to markets in which the entity is not a larger 
participant. A commenter from the consumer reporting industry, on the 
other hand, asked the Bureau to make clear that it will exclude from 
its examination of a larger participant of a market areas of the 
company's operations outside that particular market.
    The Dodd-Frank Act authorizes the Bureau to supervise ``covered 
person[s]'' described in 12 U.S.C. 5514(a)(1)(A) through (E). By 
granting the Bureau supervisory authority over such ``covered 
persons,'' as opposed to over particular activities in which they 
engage, the Dodd-Frank Act establishes that the Bureau's supervisory 
authority is not limited to the products or services that qualified a 
person for supervision, but also includes other activities of such a 
person that involve other consumer financial products or services or 
are subject to Federal consumer financial law.\35\ This broad 
supervisory scope is consistent with the purposes that the Dodd-Frank 
Act sets out for the Bureau's supervisory activities. Specifically, the 
Dodd-Frank Act directs the Bureau to require reports and conduct 
examinations on a periodic basis of the ``persons'' described in 12 
U.S.C. 5514(a)(1) for purposes of (a) assessing compliance with the 
requirements of Federal consumer financial law, (b) obtaining 
information about the activities and compliance systems or procedures 
of such persons, and (c) detecting and assessing risks to consumers and 
to markets for consumer financial products and services.\36\ In many 
cases, these broad purposes could not be accomplished if the scope of 
the Bureau's examinations and report requests were limited to the 
particular products or services that qualified a person for the 
Bureau's supervision. For example, an entity's violation of a provision 
of the FCRA in connection with activities that fall outside the final 
rule's definition of consumer reporting would still be relevant to 
whether the entity has violated a Federal consumer financial law and to 
whether the entity may pose risks to consumers. Moreover, such a 
violation of the FCRA may indicate weaknesses in compliance systems and 
the potential for other violations and related consumer harms.
---------------------------------------------------------------------------

    \35\ For specific references in the Dodd-Frank Act to 
supervision authority over ``persons'' rather than particular 
activities see, e.g., 12 U.S.C. 5514(b)(1) (``The Bureau shall 
require reports and conduct examinations on a periodic basis of 
`persons' described in subsection (a)(1) * * *.'') (emphasis added); 
12 U.S.C. 5514(a)(1) (``[T]his section shall apply to any covered 
`person' who * * *.'') (emphasis added).
    \36\ 12 U.S.C. 5514(b)(1).
---------------------------------------------------------------------------

    Accordingly, the Bureau concludes that if an entity is subject to 
the Bureau's supervisory authority, the Bureau may examine the entire 
entity for compliance with all Federal consumer financial law, assess 
enterprise-wide compliance systems and procedures, and assess and 
detect risks to consumers or to markets for consumer financial products 
and services posed by any activity of the entity, not just the 
activities that initially rendered the entity subject to Bureau 
supervision.
    A commenter representing the consumer reporting industry urged the 
Bureau to publish examination manuals and procedures sufficiently far 
in advance of any examination or other supervision activity so that 
affected companies could incorporate such manuals and procedures into 
their procedures and training. As noted above, the Bureau has published 
its general examination manual as well as examination procedures for 
mortgage origination and servicing, and for short-term, small-dollar 
loans. The examination manual outlines legal requirements under the 
various laws applicable to the relevant products and services and 
guides examiners on information they should evaluate regarding 
compliance with those laws. Many of the laws addressed in the 
examination manual, including but not limited to the FCRA, are directly 
applicable to consumer reporting entities, and the Bureau intends to 
supplement the manual to include procedures specifically addressed to 
consumer reporting before beginning examinations. As noted in the 
discussion on the effective date above (Section IV(B)), however, market 
participants are required to be in compliance with applicable Federal 
consumer financial law, regardless of whether they are subject to 
supervision by the Bureau.
    The Bureau received several comments regarding the supervision of 
service providers to larger participants. Neither the Proposed Rule nor 
the final rule addresses the scope or manner of the Bureau's 
supervisory authority over service providers to nonbanks pursuant to 12 
U.S.C. 5514. The Proposal simply observed that the Dodd-Frank Act vests 
the Bureau with supervisory authority over service providers.\37\ 
Consequently,

[[Page 42881]]

comments regarding which service providers the Bureau may supervise, 
and how, are not germane to the final rule.\38\
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    \37\ A service provider is a person that provides a material 
service to a covered person in connection with a consumer financial 
product or service. 12 U.S.C. 5481(26)(A). The Dodd-Frank Act 
provides a non-exhaustive set of examples of such material services. 
12 U.S.C. 5481(26)(A).
    \38\ One commenter suggested that the Bureau publish a policy 
that it will not examine any service provider until after it has 
examined the entity receiving the services. The Bureau will consider 
this comment in the course of its supervision.
---------------------------------------------------------------------------

Section 1090.102--Status as Larger Participant Subject to Supervision
    The Proposed Rule stated that a person qualifying as a larger 
participant 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 threshold to be defined as a larger 
participant.\39\ One industry commenter objected to supervision's 
continuing for a minimum of two years, even if the business immediately 
falls below the applicable threshold. The Bureau believes that it is 
important to have sufficient time to undertake and complete supervisory 
activities, including any necessary follow-up examinations relating to 
a larger participant, and that less than two years would not be 
adequate to achieve this goal. Moreover, the threshold is not a precise 
demarcation of what market participants are ``larger.'' For example, a 
firm with annual receipts falling below the threshold for the consumer 
reporting market may still be a relatively large participant of the 
market, especially if its annual receipts, calculated using the 
procedures specified in the final rule, were above the threshold within 
the previous two years. To conclude that such a firm should still be a 
larger participant within the Bureau's supervisory authority is 
consistent with setting the threshold at more than $7 million. Indeed, 
the two-year period is part of the Bureau's definition of ``larger 
participant,'' a fact the Bureau took into account in setting the 
threshold for the consumer reporting market at more than $7 million in 
annual receipts. Accordingly, the Bureau adopts Sec.  1090.102, as 
proposed in Sec.  1090.103 of the Proposed Rule, with minor technical 
amendments for consistency.
---------------------------------------------------------------------------

    \39\ For example, assume a nonbank consumer reporting entity's 
fiscal year ran from July 1 to June 30. Assume the entity had $8 
million in receipts in each of the fiscal years of 2011, 2012, and 
2013 (July 1, 2010 to June 30, 2011; July 1, 2011 to June 30, 2012; 
and July 1, 2012 to June 30, 2013, respectively). During the 2014 
tax year, beginning on July 1, 2013, the three most recently 
completed fiscal years would be 2011, 2012, and 2013, with an 
average of $8 million in receipts. The entity would therefore be a 
larger participant during its 2014 tax year. Because that status 
lasts for two years, the entity would also be a larger participant 
during its 2015 tax year (from July 1, 2014 through June 30, 2015), 
even if its 2014 ``annual receipts'' were below $7 million. For 
example, suppose the entity had only $2 million in receipts for the 
completed 2014 fiscal year. The decreased receipts would first 
factor into the ``annual receipts'' calculation for 2015, when they 
would reduce the company's ``annual receipts'' to $6 million. But 
the company would still be a larger participant during that year, as 
a result of the above-threshold annual receipts calculated for the 
2014 tax year.
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Section 1090.103--Assessing Status as a Larger Participant
    The Bureau explained in the Proposal that it expects to use various 
data sources, including publicly available data, to identify which 
nonbank covered persons appear to qualify as larger participants. One 
commenter asked the Bureau to describe the nature of these ``various 
data sources.'' The Bureau intends to use any data sources that it 
determines are appropriate, which may include SEC filings, public 
shareholder information, industry surveys, or data obtained through 
proprietary sources. In some instances, if sufficient information is 
not available to the Bureau to assess a person's larger-participant 
status, the Bureau may, as discussed below, request information to 
facilitate such an assessment.
    As explained in the Proposal, the Bureau recognizes that there may 
be instances when the Bureau seeks to supervise a person but that 
person disputes whether it is a larger participant. The Proposed Rule 
therefore sets forth a procedure for such a person to challenge its 
status 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. The Proposed Rule further 
permitted a person to include with the response copies of any records, 
documents, or other information on which the person relied to make the 
assertion. The Proposed Rule also provided that a person waives the 
right to rely, in disputing whether it qualifies as a larger 
participant, on any argument, records, documents, or other information 
that it failed to submit to the Assistant Director under this section. 
Moreover, the Proposed Rule stated that a person that fails to respond 
to the Bureau's written communication within 30 days would be deemed to 
have acknowledged that it is a larger participant. Under the Proposed 
Rule, after reviewing the affidavit and any other information submitted 
by the person challenging its status as a larger participant or deemed 
relevant by the Assistant Director, the Assistant Director would send 
the person an electronic transmission explaining whether the person 
meets the definition of a larger participant. Additionally, the 
Proposed Rule stated 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 for assisting 
assessments of entities' status as larger participants.\40\
---------------------------------------------------------------------------

    \40\ The Bureau believes that while it would have this authority 
under 12 U.S.C. 5514 even absent a regulation, a regulation is 
useful to provide clarity on the issue.
---------------------------------------------------------------------------

    These provisions were proposed pursuant to the Bureau's authority 
under 12 U.S.C. 5514(b)(7). Subparagraph (7)(A) authorizes the Bureau 
to ``prescribe rules to facilitate [its] supervision'' of, among other 
things, larger participants of the markets to be covered by regulations 
like the Proposed Rule. The ability to acquire information to support 
an assessment of whether a person meets the test for being a larger 
participant will serve that purpose.\41\ In addition, subparagraph 
(7)(B) authorizes the Bureau to require persons described in 12 U.S.C. 
5514(a)(1) to provide records to facilitate the Bureau's supervision. 
Section 1090.103 of the final rule was also proposed pursuant to 12 
U.S.C. 5512(b)(1), which grants the Director of the Bureau 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 Federal consumer financial law, such as the Bureau's 
supervision of larger participants, and to prevent evasions of such 
law. Providing a process whereby entities must come forward with 
information if they wish to challenge their status as larger 
participants, and providing the Bureau the ability to obtain 
information related to the status of persons as larger participants 
under the rule, is necessary and appropriate for the Bureau to 
implement and efficiently exercise its supervision authority and to 
prevent evasion of 12 U.S.C. 5514.
---------------------------------------------------------------------------

    \41\ 12 U.S.C. 5514(b)(7)(D) provides that in developing 
requirements or systems under that provision, the Bureau shall 
consult with State agencies regarding requirements or systems 
(including coordinated or combined systems for registration) where 
appropriate. Given the focus of these provisions of the Proposal on 
obtaining particularized information relevant to larger-participant 
status, the Bureau does not believe that such consultation is 
necessary or appropriate in connection with this final rule. The 
Bureau, however, requested comments from relevant State agencies on 
the Proposal, and did receive comments from a couple of State 
regulatory agencies expressing their belief that a certain company 
providing information services relating to payday lending should be 
excluded from the rule's coverage.
---------------------------------------------------------------------------

    The Bureau received a number of comments on the proposed process 
for

[[Page 42882]]

allowing a person to submit to the Bureau documents and information 
supporting the person's assertion that it is not a larger participant. 
A representative of the consumer reporting industry suggested that the 
Bureau create a mechanism and procedures for appeal. Another commenter 
stated that the proposed method of challenging larger-participant 
status violates due process.
    The Bureau believes that the proposed procedure is an appropriate 
method by which a person may provide documents, records or other 
information to the Bureau if it wishes to dispute whether it meets the 
larger-participant threshold for a market. Due process concerns, as put 
forward by commenters, do not mandate any particular procedures for the 
initiation of supervision,\42\ because a decision to initiate 
supervision does not implicate an interest protected by the Fifth 
Amendment. Supervision alone does not impose any penalty on an entity, 
does not deprive it of any property, and does not restrict its ability 
to engage in a viable business. Moreover, even if a protected interest 
were at stake, the rule provides procedures that are comparable to 
those offered in numerous other situations that implicate protected 
interests.\43\ The Bureau will provide notice of its intent to 
supervise an entity; receive written submissions, accompanied by 
evidence; and entertain entities' arguments that they do not qualify as 
larger participants. Due process does not necessitate a hearing in 
every instance, and the evidence involved in assessing a larger 
participant's annual receipts from consumer reporting is not of the 
kind that requires oral presentation.\44\ The Bureau proposed to 
respond to entities' challenges to larger-participant status because 
the Bureau believed it would be useful to have an informal method for 
resolving whether a person is a larger participant. For all the above 
reasons, the Bureau does not believe additional procedures are 
necessary to comport with due process.
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    \42\ In addition, the Dodd-Frank Act does not mandate any 
mechanism like what the rule provides.
    \43\ See, e.g., Karpova v. Snow, 497 F.3d 262 (2d Cir. 2007); 
FDIC v. Coushatta, 930 F.2d 1122 (5th Cir. 1991).
    \44\ See Mathews v. Eldridge, 424 U.S. 319, 344-45 (1976).
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    Other commenters suggested that the 30-day time period allowed to 
challenge larger-participant status and provide the documents relied on 
for the challenge was not sufficient. One commenter representing the 
consumer financial services industry stated that nonbanks identified as 
larger participants should be able to provide additional arguments, 
records, documents, or other information to the Assistant Director as 
needed, particularly since the initial 30-day period is a narrow window 
and there is no deadline for a decision by the Assistant Director. 
Another industry representative said that it believes that 30 days is a 
wholly inadequate time period for a business to identify all of the 
relevant information and to prepare its argument, especially because of 
the difficulty of apportioning receipts. Similarly, a commenter 
representing the consumer reporting industry suggested eliminating or 
significantly revising the provision whereby a person that fails to 
respond to the Bureau within 30 days will be deemed to acknowledge that 
it is a larger participant. This commenter also stated that an entity 
should be able to challenge its status as a larger participant at any 
time if it has a good-faith basis for doing so, and failure to respond 
in any manner to a notice from the Bureau should not constitute waiver 
of the opportunity to submit evidence.\45\ Various industry commenters 
suggested that the final rule allow greater response times to challenge 
larger-participant assessments that ranged from 60 to 90 days, to an 
unlimited period.
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    \45\ Waiver, under this provision of the Proposed Rule, would 
apply with respect to the particular year for which an entity's 
status as a larger participant was at issue. If an entity's annual 
receipts declined in later years, and the Bureau nevertheless 
initiated supervisory activity, provided it is outside of the two-
year supervision period, the entity would have a chance to dispute 
whether it was a larger participant in those later years.
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    The Bureau, however, believes that it is necessary to have a firm 
time limit for this dispute process. Eliminating the deadlines and 
permitting additional records, documents, or other information to be 
presented to the Bureau at any time would create unnecessary 
uncertainty and be administratively difficult to implement. A firm 
deadline for submission of records, documents, or other information, on 
the other hand, would permit the timely and orderly resolution of an 
assessment of larger-participant status. Holding firms to have waived 
the opportunity to offer information and arguments that they do not 
present during the specified timeframe is an appropriate mechanism for 
enforcing the deadline.
    At the same time, the Bureau recognizes that entities may need time 
to collect and assemble relevant documentation regarding larger-
participant status. The Proposed Rule included a provision under which 
the Assistant Director might modify the response time on her or his own 
initiative or at the request, based on a showing of good cause, of the 
person responding. The Bureau adopts in the final rule this provision 
for requesting an extension. In addition, the Bureau concludes that 
increasing the general time limit for response from the proposed 30 
days to 45 days strikes an appropriate balance between providing a 
reasonable opportunity to challenge larger-participant status and not 
allowing so much time as to be disruptive to the supervisory program.
    A representative of the consumer reporting industry suggested that 
the final rule should require that the Bureau have a reasonable basis 
to believe that a person is a larger participant before sending a 
written communication initiating supervisory activity. As the Bureau 
has explained above, the Bureau expects to use various data sources, 
including publicly available data, to identify which nonbank covered 
persons appear to qualify as larger participants. The Bureau intends to 
use the best available data to make assessments regarding a person's 
status as a larger participant. If needed, the Bureau will request 
relevant information to help assess whether a person is a larger 
participant. Thus, the Bureau will make an informed assessment of 
larger-participant status. The Bureau believes neither that the Dodd-
Frank Act requires, nor that it would be appropriate or necessary, for 
the Bureau to set forth in the regulation a specific standard regarding 
larger-participant status that must be met before the Bureau can 
undertake supervisory activity. The Bureau therefore declines to amend 
the Proposal in the manner suggested by this commenter.
    An industry commenter suggested that the dispute process could be 
an inefficient and costly exercise if there is no intent to supervise a 
person. The Bureau notes, however, that the response process only comes 
into play if the Bureau informs a person that it intends to undertake a 
supervisory activity in connection with that person, and if that person 
decides to dispute whether it is a larger participant.
    The Bureau also received a comment suggesting that the final rule 
provide a way for a person to request and obtain from the Bureau an 
advance larger-participant determination. The Bureau believes that 
providing an assessment as to whether a person qualifies as a larger 
participant, absent any intent of the Bureau to initiate supervisory 
activities in connection with the person, would be unnecessary and 
burdensome to the Bureau. A market participant should be

[[Page 42883]]

capable of evaluating whether its activities qualify it as a larger 
participant. Additionally, such a process would be burdensome to the 
Bureau because, in addition to making such assessments with respect to 
market participants it considered examining, the Bureau could also be 
placed in the position of responding to myriad requests from market 
participants it does not have near-term plans to supervise. For these 
reasons the Bureau declines to amend the Proposed Rule to provide for 
advance determinations as described.
    Finally, the Bureau received comments from attorney and industry 
representatives expressing concern that nonbank covered persons will be 
obligated to provide attorney-client privileged information when 
challenging larger-participant status, or when the Bureau requires a 
person to provide information to support the Bureau's evaluation of 
entities' larger-participant status. But the Proposal did not require 
that any covered person provide privileged documents to the Bureau to 
support a challenge of larger-participant status. Of course, a person 
may choose to submit privileged documents in the course of such a 
challenge, although it is difficult to conceive of a need to submit 
privileged information to document an entity's representations as to 
its annual receipts. Pursuant to a rule recently adopted by the Bureau, 
such a submission would not result in a waiver of any applicable 
privilege as to third parties.\46\ Similarly, while under Sec.  
1090.103(d) the Bureau may require the submission of documents, the 
Bureau does not presently anticipate that, absent unusual 
circumstances, it would request attorney-client privileged material 
under this provision. In any event, the Bureau's recently adopted rule 
regarding submissions of privileged information would apply to material 
provided in response to such a request.
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    \46\ 77 FR 39617 (July 5, 2012), codified at 12 CFR Part 1070.
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau adopts Sec.  1090.103, 
as proposed in Sec.  1090.104 of the Proposed Rule, amended to increase 
the response period for disputing larger-participant status from 30 
days to 45 days with additional minor technical amendments for 
consistency.

Subpart B--Markets

Section 1090.104--Consumer Reporting Market
    As discussed in the Summary of the Final Rule, above, the consumer 
reporting market is of fundamental importance to markets for many other 
consumer financial products and services, affecting hundreds of 
millions of consumers. The market includes consumer reporting agencies 
selling comprehensive consumer reports, consumer report resellers, 
analyzers, and specialty consumer reporting agencies (collectively 
these market participants are referred to as consumer reporting 
entities).
    Several commenters criticized the Bureau's decision to supervise 
larger participants of the proposed consumer reporting market. They 
contended that the Dodd-Frank Act requires the Bureau to consider four 
specific factors in issuing a rule under 12 U.S.C. 5514(a)(2): ``The 
asset size of the covered person,'' ``the volume of transactions 
involving consumer financial products or services in which the covered 
person engages,'' ``the risks to consumers created by the provision of 
such consumer financial products or services,'' and ``the extent to 
which such institutions are subject to oversight by State authorities 
for consumer protection.''\47\ These commenters argued that a failure 
to consider these four factors would be arbitrary and capricious.
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 5514(b)(2).
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    The Bureau believes that these commenters have misinterpreted the 
scope and purpose of 12 U.S.C. 5514(b)(2). That subsection describes 
how the Bureau must ``exercise its authority under paragraph 
[(b)](1),'' \48\ which in turn authorizes the Bureau to supervise 
``persons described in subsection (a)(1).'' The final rule does not 
exercise authority provided by subsection (b)(1). Rather, it 
``describe[s],'' in part, a set of persons falling within subsection 
(a)(1), by defining a category of ``larger participant[s].'' In 
choosing which persons subject to that authority to supervise, the 
Bureau will consider the factors set forth in paragraph (b)(2). The 
Dodd-Frank Act does not mandate consideration of those factors before 
issuing the rule that establishes the category itself under paragraph 
(a)(1).\49\
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    \48\ 12 U.S.C. 5514(b)(2).
    \49\ The rule defining larger participants must be promulgated 
``in accordance with paragraph (2),'' which means paragraph (a)(2), 
not paragraph (b)(2). Paragraph (a)(2) does not refer to the 
multiple considerations listed in paragraph (b)(2).
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    The text of paragraph (b)(2) supports this interpretation. The 
factors to consider include ``the asset size of the covered person'' 
and the transaction volume of ``the covered person.'' These factors are 
relevant with respect to a particular person being considered for 
supervision. The reference to a single covered person suggests this 
provision does not apply to a rule, like the instant one, defining a 
category of many covered persons.
    These commenters also asked the Bureau to explain why it is 
choosing consumer reporting as the subject of this rule, instead of 
some other market for a different consumer financial product or 
service. The Bureau has wide discretion in choosing markets in which to 
define larger participants. The Bureau need not conclude before issuing 
a rule defining larger participants of a given market that the market 
identified in the rule has a higher rate of non-compliance, poses a 
greater risk to consumers, or is in some other sense more important to 
supervise than other markets. Indeed, 12 U.S.C. 5514(b)(1), by 
recognizing that supervision's purposes include assessing compliance 
and risks posed to consumers, suggests that the Bureau need not 
determine the level of compliance and risk in a market before issuing a 
rule that renders larger participants of the market subject to 
supervision. Choosing consumer reporting as the subject of this rule is 
reasonable because consumer reporting, as defined in the rule, is an 
important activity that affects hundreds of millions of consumers and 
because supervision of larger participants of this market will be 
beneficial to consumers and markets and will further the Bureau's 
mission to ensure consumers' access to fair, transparent, and 
competitive markets for consumer financial products and services.
Section 1090.104 (a)--Market-Related Definitions
    Annual receipts. The proposed definition of ``annual receipts'' was 
informed by the method of calculating ``annual receipts'' used by the 
SBA in determining whether a firm is a ``small business'' concern.\50\ 
Under the proposed definition, 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. Under the Proposal, the term would not 
include net capital gains or losses. As proposed, annual receipts are 
measured as the average of a person's three most recently completed 
fiscal years, as appropriate, or over the entire period the person has 
been in business if that is less than three

[[Page 42884]]

completed fiscal years.\51\ The proposed calculation of annual receipts 
would also implement the aggregation requirement in 12 U.S.C. 
5514(a)(3)(B) by providing that the annual receipts of a person shall 
be added to the annual receipts of each of its affiliated companies. As 
proposed, such aggregation includes the receipts of both the acquired 
and acquiring companies in the case of an acquisition occurring during 
any relevant measurement period.
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    \50\ 13 CFR 121.104.
    \51\ ``Completed fiscal year'' is a defined term under Sec.  
1090.101 of the final rule. A ``completed fiscal year'' means a 
``tax year'' including any ``fiscal year,'' ``calendar year,'' or 
``short tax year.'' A ``fiscal year'' is 12 consecutive months 
ending on the last day of any month except December 31. A ``calendar 
year'' is 12 consecutive months beginning on January 1 and ending on 
December 31. 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.
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    The Bureau received a number of comments relating to ``annual 
receipts.'' \52\ Many commenters expressed concerns or raised 
objections to the use of annual receipts to measure participation in 
the consumer reporting market. One commenter asked whether the Bureau 
intends to bind itself to IRS guidance and related tax law and 
recommended that the Bureau provide examples of how different industry 
participants should calculate annual receipts under the final rule. The 
Bureau notes that to the extent IRS tax forms are utilized by a nonbank 
covered person to calculate receipts, which consist of ``total income'' 
(or in the case of a sole proprietorship, ``gross income'') plus ``cost 
of goods sold,'' the person should rely on IRS guidance. Additionally, 
the Bureau believes that there may be a variety of circumstances facing 
covered persons and the Bureau is not in a position to ascertain the 
most appropriate or useful examples to include in the final rule. 
Therefore, the Bureau declines to provide examples of how market 
participants should calculate annual receipts.
---------------------------------------------------------------------------

    \52\ Comments relating solely to the debt collection market will 
be addressed in the final rule for that market.
---------------------------------------------------------------------------

    Several industry commenters argued that the definition of ``annual 
receipts'' counts part of a company's revenue twice, by including both 
total sales and cost of goods sold. These commenters suggested raising 
the threshold for qualifying as a larger participant of the consumer 
reporting market from more than $7 million to $14 million in annual 
receipts. Properly understood, the measurement of ``annual receipts'' 
does not involve double counting. In calculating total income, cost of 
goods sold is subtracted from various sources of income.\53\ Thus, in 
calculating annual receipts, cost of goods sold is added back in to 
offset the original subtraction of the identical figure. The Bureau 
therefore declines to amend the definition of ``annual receipts'' based 
on this comment.
---------------------------------------------------------------------------

    \53\ See IRS tax forms 1120 and 1120S.
---------------------------------------------------------------------------

    The Bureau received several comments on the appropriate measurement 
period for assessing larger-participant status (and thus when the 
supervision period begins). One consumer group suggested that to 
capture participants whose annual receipts are increasing, a person 
should be deemed a larger participant if the person had annual receipts 
meeting the applicable threshold either as an average of annual 
receipts over the last three fiscal years, or in the most recent fiscal 
year. Conversely, some commenters, believing the Proposal already 
specified that larger-participant status would be triggered by a single 
year's results, argued that businesses would forego growing in order to 
avoid accidentally coming within the Bureau's supervisory authority. 
One commenter suggested that an entity should qualify as a larger 
participant only if its receipts were above the threshold for three 
years in a row.
    To clarify, under the rule ``annual receipts'' generally are not 
based solely on the receipts of a single year.\54\ The Bureau agrees 
with those commenters who suggested that temporary fluctuations 
generally should not render an entity a larger participant. The 
proposed definition, by averaging a company's receipts over a three-
year period, reduces the impact of sudden and potentially temporary 
fluctuations in receipts a company may experience--both decreases and 
increases. Thus the Bureau declines to include generally as larger 
participants persons who have receipts above the threshold in only the 
most recent fiscal year. For the reasons discussed above, the Bureau 
adopts the definition of annual receipts as proposed, with minor 
technical amendments, including a relocation of the definition into the 
section for consumer reporting market-specific definitions (Subpart B, 
Sec.  1090.104(a)).
---------------------------------------------------------------------------

    \54\ As noted in the Proposal, if an entity has not completed 
three fiscal years, its ``annual receipts'' will reflect the shorter 
period of its existence.
---------------------------------------------------------------------------

    Consumer reporting. The final rule defines a market for ``consumer 
reporting,'' which is among the consumer financial products or services 
described in 12 U.S.C. 5481(15)(A)(ix) and (5)(B). Activities covered 
under these provisions of the Dodd-Frank Act include, 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.'' 
\55\ Under 12 U.S.C. 5481(5)(B), such activity is a ``consumer 
financial product or service'' when ``delivered, offered, or provided 
in connection with a consumer financial product or service.''
---------------------------------------------------------------------------

    \55\ 12 U.S.C. 5481(15)(A)(ix).
---------------------------------------------------------------------------

    The final rule describes a market for products and services that 
fall within the category of consumer financial products and services 
described by these provisions of the Dodd-Frank Act. The final rule's 
definition of ``consumer reporting'' is not meant to track related 
provisions in the Dodd-Frank Act. The final rule has a different 
purpose: rather than describing the scope of a certain consumer 
financial product or service, it identifies a specific market for such 
a product or service. That market is not necessarily co-extensive with 
the statutory category into which the market activities fit. Indeed, 
the final rule excludes from ``consumer reporting'' the activities of 
persons that furnish information about their own, or their affiliates', 
experiences or transactions with consumers to consumer reporting 
entities and persons that use consumer report or other account 
information for their own purposes. Such activities may be within the 
ambit of the consumer financial products or services described in 12 
U.S.C. 5481(15)(A)(ix) and (5)(B), but the Bureau does not regard them 
as part of the market covered by the final rule, for the reasons 
discussed in the paragraphs below.
    The Proposal stated 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 Bureau stated that 
the proposed definition would cover different types of consumer 
reporting entities such as credit bureaus, consumer report resellers, 
analyzers, and specialty consumer reporting agencies like those 
specializing in consumer check verification and reporting of payday 
lending transactions.\56\ The proposed definition

[[Page 42885]]

also excluded several activities from the consumer reporting market. 
First, a person's providing information on its own transactions or 
experiences with consumers to its affiliates would not constitute 
consumer reporting. Second, a person's providing information on its own 
(or its affiliates') transactions or experiences to a consumer 
reporting entity would also be excluded. Third, the proposed definition 
incorporated the exclusion detailed in 12 U.S.C. 5481(15)(A)(ix) for 
information used solely in a decision regarding employment, government 
licensing, or residential leasing.
---------------------------------------------------------------------------

    \56\ This definition might 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 proposed definition. Several consumer groups 
suggested that the Bureau should explicitly state in the text of the 
regulation that credit scoring providers or developers are service 
providers. Assessing whether a particular entity is a service 
provider to a larger participant under the Dodd-Frank Act requires 
an evaluation of the person's activities. The Bureau declines to 
identify specific activities that might make a person a service 
provider to a larger participant, or to provide an exhaustive list 
of such activities.
---------------------------------------------------------------------------

    The final rule adopts the proposed definition of ``consumer 
reporting'' with several modifications. The final rule prescribes a 
broader exclusion for providing a company's information on its own 
transactions and experiences with consumers; the Bureau will not treat 
a company's provision of such information to any other person to be 
``consumer reporting.'' The final rule also adds an exclusion for 
information that amounts to an authorization or approval of a specific 
extension of credit, directly or indirectly, by the issuer of a credit 
card or similar device.
    The Bureau received many comments on the definition of the term 
``consumer reporting.'' One category of comments focused on the 
relationship between the consumer reporting activities covered by the 
Proposed Rule and those subject to the FCRA. First, a number of 
commenters criticized the definition for departing from the definitions 
of ``consumer report'' and ``consumer reporting agency'' in the 
FCRA.\57\ Several of these commenters suggested that the difference 
between the Proposed Rule and the FCRA would cause uncertainty and 
confusion. They argued that some persons that do not consider 
themselves to be in the consumer reporting market would, unknowingly, 
nevertheless be subject to Bureau supervision. Other persons, the 
commenters contended, would erroneously believe they were subject to 
supervision and would waste effort preparing for examinations.\58\
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    \57\ The FCRA defines ``consumer report'' as ``any written, 
oral, or other communication of any information by a consumer 
reporting agency bearing on a consumer's credit worthiness, credit 
standing, credit capacity, character, general reputation, personal 
characteristics, or mode of living which is used or expected to be 
used or collected in whole or in part for the purpose of serving as 
a factor in establishing the consumer's eligibility for--(A) credit 
or insurance to be used primarily for personal, family, or household 
purposes; (B) employment purposes; or (C) any other purpose 
authorized under [the FCRA].'' 15 U.S.C. 1681a(d)(1). There are 
several statutory exclusions, including one for reports of 
information relating solely to transactions or experiences between 
the consumer and the person making the report. 15 U.S.C. 
1681a(d)(2). The definition of ``consumer reporting agency'' covers 
any person that, for monetary fees, dues, or on a cooperative 
nonprofit basis, regularly engages in the practice of assembling or 
evaluating information on consumers for the purpose of furnishing 
consumer reports to third parties. 15 U.S.C. 1681a(f).
    \58\ The Bureau received several comments asserting that 
specific activities that the commenters described, or in a few cases 
specific companies, were not within the market described by the 
rule. For example, one commenter suggested that providing a credit 
report on the owner of a small business to support a lender's 
decision whether to extend credit to the business should not be 
within the scope of the consumer reporting market. The Bureau does 
not believe it is appropriate to address whether each activity or 
firm mentioned by a commenter would be covered by the final rule. 
Whether specific activities fall within the definition of ``consumer 
reporting'' will be assessed by the Bureau when considering whether 
to initiate supervisory activities relating to a given company.
---------------------------------------------------------------------------

    The Bureau did not intend the Proposal's definition of ``consumer 
reporting'' to mirror the scope of the FCRA's definitions of ``consumer 
report'' and ``consumer reporting agency.'' \59\ In some respects the 
proposed definition of ``consumer reporting'' was narrower than these 
FCRA definitions because it excluded information to be used solely in a 
decision for employment, government licensing, or residential leasing 
or tenancy. In other respects the proposed definition may have been 
somewhat broader than the coverage of the FCRA. For example, ``consumer 
report information, or other account information,'' for purposes of the 
Proposed Rule, could include information beyond what would be 
considered a ``consumer report'' under the FCRA. Similarly, certain 
entities that are not ``consumer reporting agencies'' within the 
meaning of the FCRA--such as certain analyzers of consumer report 
information--may be larger participants of the consumer reporting 
market delineated by the final rule. The Bureau's rule and the FCRA 
serve two different purposes. The FCRA is a substantive consumer 
protection statute that governs the activities of consumer reporting 
agencies (and other persons that furnish information to or receive 
information from such agencies). The rule, by contrast, defines larger 
participants of a market for consumer reporting for purposes of 
initially delineating the scope of coverage of the Bureau's supervision 
authority.
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    \59\ The Bureau also does not believe that it is necessary to 
define the term ``consumer reporting agency'' in the regulation, as 
one commenter requested. A person may look to the definition of 
``consumer reporting'' to determine whether it engages in activities 
that may qualify it as a larger participant of that market. The 
Bureau refers to the various participants of the market, including 
credit bureaus, resellers, analyzers, and specialty consumer 
reporting agencies, collectively as consumer reporting entities.
---------------------------------------------------------------------------

    The Bureau's supervisory activities will extend beyond assessing 
consumer reporting agencies' compliance with the FCRA. The Bureau will 
also assess compliance with other Federal consumer financial law, and 
compliance with such law by persons other than those that the FCRA 
defines as consumer reporting agencies. Moreover, the Bureau's 
supervisory activities will seek to obtain information regarding 
activities and compliance systems and procedures of supervised persons 
and to detect and assess risks to consumers and markets for consumer 
financial products or services.\60\ The Bureau emphasizes that the 
proposed definition of ``consumer reporting'' is relevant only to the 
final rule and has no applicability to the scope, coverage, 
definitions, or any other provisions of the FCRA or any other law or 
regulation. Therefore, the Bureau declines to conform the proposed 
definition of ``consumer reporting'' to the FCRA's definitions of 
``consumer report'' and ``consumer reporting agencies.''
---------------------------------------------------------------------------

    \60\ 12 U.S.C. 5514(b)(1).
---------------------------------------------------------------------------

    Second, several commenters pointed to what they said was a 
particularly important departure from the FCRA. According to these 
commenters, the proposed definition of ``consumer reporting'' covered 
circumstances in which a person does not provide information to a third 
party, for the third party's use in connection with a decision 
regarding the offering or provision of a consumer financial product or 
service. As an initial matter, it should be noted in this context that 
the final rule excludes a person's provision for any purpose of 
information about its own transactions or experiences with consumers. 
Moreover, under the proposed definition, the consumer reporting market 
covered collecting, analyzing, maintaining, or providing consumer 
report or other account information for its use or expected use ``by 
another person'' in a decision regarding the offering or provision of a 
consumer

[[Page 42886]]

financial product or service. Thus, the person using or expected to use 
the information must be different from the market participant 
collecting, analyzing, maintaining, or providing the information. It 
bears emphasizing, however, that the person using or expected to use 
the information in a decision regarding a consumer financial product or 
service need not be a market participant's immediate customer. For 
example, resellers generally assemble and merge information contained 
in the databases of other consumer reporting agencies, and then provide 
reports including that information to third parties such as creditors 
that use the information to make a credit decision. Providing consumer 
report information to a reseller is included in the market, even though 
the reseller itself may not make decisions regarding the offering or 
provision of consumer financial products or services.
    Third, commenters also suggested dividing the consumer reporting 
market identified by the Proposal into submarkets. One commenter 
suggested, for example, defining a separate market to cover consumer 
reporting entities over which the Bureau wishes to exercise supervisory 
authority but that are not consumer reporting agencies under the FCRA. 
Another proposed having two markets, demarcated by a distinction that, 
the commenter said, the FCRA makes between national credit repositories 
and consumer report resellers.
    The Bureau believes that resellers, national credit repositories, 
specialty consumer reporting agencies, analyzers, and others engaged in 
consumer reporting activities as defined in the final rule are properly 
included in a single market. These different types of firms all 
participate in the process of preparing consumer financial information 
for use in decisions regarding consumer financial products or services. 
Moreover, many of the same legal requirements cover repositories, 
resellers, and specialty consumer reporting agencies. To the extent 
that the activities of larger participants of the consumer reporting 
market differ, the Bureau can adjust the scope and focus of its 
supervision activities accordingly. Therefore, the Bureau declines to 
revise the definition of consumer reporting to establish separate 
markets for consumer report resellers, the national repositories, and 
others engaged in consumer reporting activities.
    Another category of comments asked the Bureau to alter the scope of 
the proposed exclusions from the consumer reporting market. First, the 
Bureau received comments both in favor of expanding the exclusion for 
furnishing information and in favor of deleting that exclusion.
    Commenters opposing the exclusion expressed the view that the 
Bureau must ensure that it supervises major furnishers of information 
to consumer reporting entities, in addition to such entities as 
depositories and payday lenders that are otherwise subject to the 
Bureau's supervisory authority. The Bureau believes that companies' 
supplying information to consumer reporting entities on their own, or 
their affiliate's, transactions or experiences with consumers was 
properly excluded from the Proposed Rule. Furnishing information of 
that type is typically incidental to the furnisher's primary business, 
and an enormously wide variety of businesses furnish such information 
to consumer reporting entities. Therefore, including such activity in 
the definition of ``consumer reporting'' could have the unintended 
consequence of delineating such a broad consumer reporting market that 
it would encompass, for example, many types of consumer creditors. 
Because furnishing a company's own transaction and experience data is 
fundamentally different from the activities defined by the rule as 
consumer reporting, the Bureau does not believe such furnishing should 
be included in the same market for purposes of implementing the nonbank 
supervision program for consumer reporting entities.\61\
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    \61\ The Bureau also noted in the Proposal that many large 
furnishers of information to consumer reporting entities are already 
subject to the Bureau's supervisory authority under the Dodd-Frank 
Act, and future larger participant rules may bring additional 
furnishers of information under the Bureau's supervisory authority. 
As noted above, 12 U.S.C. 5514 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. Additionally, the 
Bureau has the authority to supervise nonbank covered persons it has 
a reasonable cause to believe pose risks to consumers, after 
providing notice and a reasonable opportunity to respond. 12 U.S.C. 
5514(a)(1)(C). Thus to the extent a significant nonbank covered 
person engaged in furnishing not otherwise covered is posing risks 
to consumers, the Bureau could exercise supervisory authority over 
the person on some other basis. Furthermore, under 12 U.S.C. 5515, 
the Bureau has the authority to supervise other furnishers such as 
very large banks, thrifts, and credit unions, and their affiliates.
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    Other commenters suggested broadening in various ways the exclusion 
for furnishing information. One commenter asked the Bureau to clarify 
that agents and contractors that transmit information about a company's 
transactions or experiences with consumers on that company's behalf do 
not thereby become participants of the consumer reporting market. It is 
the Bureau's view that such agents or contractors would not be 
participating in the consumer reporting market merely by providing 
technical or operational support services to facilitate a person's 
furnishing of its own transaction and experience information to a 
consumer reporting entity.\62\
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    \62\ Because the Bureau is adding a broad exclusion permitting a 
person to provide its own transaction and experience information 
with other persons to the final rule, the exclusion for furnishing 
information to a consumer reporting entity has been amended to 
address only the activity of a person providing transaction and 
experience information of an affiliate to a consumer reporting 
entity.
---------------------------------------------------------------------------

    Another commenter provided the example of a depository institution 
that provides information about a consumer's account balances to a 
mortgage lender deciding whether to extend a loan to the consumer. 
Because the Proposed Rule excluded only an entity's provision of its 
transaction or experience information to its affiliates or to consumer 
reporting entities, this commenter believed the provision of 
information in its hypothetical example would fall within the scope of 
consumer reporting activities. The Bureau agrees that an entity's 
providing its own transaction or experience information in this context 
should not be treated as a consumer reporting activity. Accordingly, 
the Bureau is adopting, in the final rule, a simpler, broader 
exclusion. The final rule excludes a person's collecting, maintaining, 
analyzing, or providing its own transaction or experience information 
for use or expected use by another person in a decision regarding a 
consumer financial product or service. Such activity is excluded from 
the consumer reporting market defined by the rule, regardless of what 
person receives the information.
    A commenter also suggested excluding from the final rule providing 
information to process a transaction requested by a consumer, a 
possible activity of payment systems that process account transactions. 
The Bureau agrees that such payment system activities should be 
excluded from the final rule and amends the final rule by excluding any 
authorization or approval of a specific extension of credit directly or 
indirectly by the issuer of a credit card or similar device.\63\
---------------------------------------------------------------------------

    \63\ A similar exclusion is also included in the FCRA. 15 U.S.C. 
1681a(d)(2)(B) (exclusion from the definition of ``consumer 
report'').
---------------------------------------------------------------------------

    Another commenter stated that companies that provide information 
outside the scope of the FCRA, but for use by third parties in 
decisions regarding the offering or provision of

[[Page 42887]]

consumer financial products or services, do not operate in a market 
that could reasonably be considered a ``consumer reporting market.'' 
This commenter specifically referenced what it described as Gramm-
Leach-Bliley Act (GLBA)-covered products, including consumer 
identification authentication, or fraud detection and identity theft 
protection, over which the commenter asserted the Bureau has no 
jurisdiction, as a result of 12 U.S.C. 5481(15)(B)(i). However, the 
cited provision says expressly that it applies ``[f]or purposes of 
(A)(xi)(II),'' and it does not purport to affect whether an activity 
constitutes a consumer financial product or service under any provision 
other than (A)(xi). For this and other reasons, the provision in 
question is not pertinent to this rulemaking. The Bureau therefore 
declines to alter the definition of ``consumer reporting'' in the way 
this commenter suggested.\64\
---------------------------------------------------------------------------

    \64\ Should appropriate circumstances arise, the Bureau will 
consider whether the activities the commenter describes fit within 
the rule's definition of consumer reporting.
---------------------------------------------------------------------------

    Another commenter asserted that the proposed definition of 
``consumer reporting'' included too broad a scope of ``analytical 
services.'' The commenter suggested either excluding all analytical 
services or, at a minimum, providing other more limited exclusions for 
certain types of such services. The commenter also argued that 
analytical services should be excluded because the activity has a low 
risk of harm to consumers.
    Analyzing consumer report information is an important activity in 
the consumer reporting market, and, as with collecting, maintaining, 
and providing information, can be an important factor in decisions 
regarding the offering or provision of consumer financial products or 
services. Additionally, the Bureau is aware of some entities that 
engage in reporting of consumer information and also analyze that 
information, deriving receipts from that analysis. Just as businesses 
extending credit rely on the collecting, maintaining, or providing of 
consumer report information, some also purchase analyses of the 
underlying consumer report information. Analyzing activity generally is 
done for compensation and may result in annual receipts for the entity 
providing analytical services, and a company that meets the threshold 
on the basis of its analyzing activities will likely affect many 
consumers. For these reasons, the Bureau declines to exclude analyzing 
consumer information in general from the consumer reporting market.\65\
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    \65\ Moreover, as to the assertion that analyzers pose low risk 
to consumers, the Bureau notes that, as discussed in the Summary of 
Final Rule (Section III), above, the market for consumer reporting 
identified by the rule, which includes analyzers of consumer report 
information, is a significant market that affects hundreds of 
millions of consumers. The extent to which specific activities 
within that market may pose greater or lower risks to consumers does 
not determine whether to include the activities within the market; 
risk posed by a particular larger participant within the market for 
consumer reporting will be considered pursuant to 12 U.S.C. 
5514(b)(2), in the course of the Bureau's exercise of its 
supervisory authority.
---------------------------------------------------------------------------

    The commenter also suggested that if analytical services are not 
generally excluded, the Bureau should exclude analytical services 
rendered for a particular consumer financial services provider using 
that provider's own information. The commenter argued that such 
services could be supervised in the context of examinations of the 
financial service provider itself, and that the Bureau's supervision 
program should not be duplicative by covering providers of such 
analytical services as ``larger participants.'' The commenter 
additionally suggested excluding analytical services other than certain 
modeling services,\66\ arguing that the Bureau should focus its 
resources elsewhere.
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    \66\ Modeling in the consumer reporting market often consists of 
licensing a statistical algorithm to other participants of the 
consumer reporting market. These statistical systems or tools that 
establish numerical values or categorizations can be used by a 
person who makes or arranges a loan to predict the likelihood of 
certain credit behaviors. These algorithms produce figures commonly 
known as ``credit scores,'' ``risk predictors,'' or ``risk scores.'' 
See 15 U.S.C. 1681g(f)(2)(A).
---------------------------------------------------------------------------

    The Bureau clarifies that the consumer reporting market delineated 
in the final rule does not include the activity of providing analytical 
services regarding another person's own information to that other 
person, where such analysis is used solely by that other person and is 
not provided to a third party (other than the other person's affiliated 
companies). Such activity is not treated differently, in the final 
rule, from a person's conducting its own analysis for its own use. A 
person's analyzing its own consumer report or other account 
information, without the expectation that the information will be used 
in connection with a decision ``by another person,'' is not included in 
the defined consumer reporting market. It is the Bureau's view that 
agents or contractors who analyze a person's data on that person's 
behalf, solely for that person's use, are similarly not analyzing 
consumer report or other account information for use ``by another 
person.''
    The Bureau also received comments from consumer groups and 
consumers arguing that the market for consumer reporting should include 
background screening for employment purposes. The Bureau notes that the 
proposed definition of ``consumer reporting'' excluded collecting, 
analyzing, maintaining, or providing consumer report or other 
information to the extent that the information is used solely in a 
decision regarding employment, government licensing, or residential 
leasing, because these are explicit exclusions under 12 U.S.C. 
5481(15)(A)(ix). Accordingly, the Bureau declines to amend the Proposal 
to include the activity of employment background screening in the final 
rule's definition of ``consumer reporting.'' \67\
---------------------------------------------------------------------------

    \67\ As indicated above, the Bureau may supervise a larger 
participant's provision of consumer report information for 
employment screening, even though such activity does not count in 
the calculation of annual receipts that determines larger-
participant status.
---------------------------------------------------------------------------

    For the reasons stated above, the Bureau adopts the Proposal's 
definition of ``consumer reporting,'' amended as described above and 
with minor technical amendments for consistency.
Section 1090.104(b)--Test To Define Larger Participants
    Criteria. As noted in the Proposal, the Bureau has broad discretion 
in choosing criteria for measuring whether a nonbank entity is a larger 
participant of any given market. In issuing the Proposal, the Bureau 
considered several criteria for measuring participants of the consumer 
reporting market. These included, 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 proposed to use annual receipts as the measure of 
participation in the consumer reporting market. As explained in the 
Proposal, the Bureau believes that annual receipts resulting from 
consumer reporting activities is a reasonable indication of a person's 
level of market participation and impact on consumers. Consumer 
reporting entities earn income from selling consumer reports and from 
other market-related activities that directly affect consumers. As a 
result, the greater the annual receipts of a consumer reporting entity, 
the greater its market participation and the greater its impact on 
consumers.
    In addition, as set forth in the Proposal, the proposed definition 
of

[[Page 42888]]

``annual receipts'' is adapted from the existing measure used by the 
SBA. Because the SBA uses a similar measure in its small business loan 
programs,\68\ the proposed test is expected to be sufficiently 
straightforward so as not to put undue burden on nonbank covered 
persons in determining whether they are subject to the Bureau's nonbank 
supervision program. However, it bears noting that the Bureau's 
definition of ``annual receipts'' differs from the SBA's in important 
respects. For example, as discussed below, the Bureau's rule counts 
only receipts resulting from activities in the identified consumer 
reporting market; the SBA, by contrast, counts all receipts of entities 
engaged in certain consumer reporting activities. This difference 
excludes some receipts from the amount being counted toward the 
threshold that marks a larger participant.\69\
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    \68\ Information concerning the SBA's loan programs is available 
at: http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs.
    \69\ As another example, the Bureau's definition of control, 
which establishes an affiliation between companies such that their 
receipts are aggregated during the calculation of ``annual 
receipts,'' is broader than the SBA's definition of control.
---------------------------------------------------------------------------

    As further explained in the Proposal, the Bureau analyzed data from 
the 2007 Economic Census on annual receipts for businesses in North 
American Industry Classification System (NAICS) code 561450 (credit 
bureaus). One commenter noted that analyzers may not all be included in 
this NAICS code. The Bureau acknowledges that the Economic Census data 
have certain limitations and do not perfectly reflect the set of 
participants of the market defined by this rule. First, the Proposed 
Rule's definition of ``consumer reporting'' does not correspond 
precisely to the NAICS code, which encompasses both ``consumer credit 
reporting agencies'' and ``mercantile reporting agencies,'' \70\ but 
may not include other participants covered by the final rule's 
definition of consumer reporting. Second, entities in NAICS code 561450 
may report to the Census revenues that are not included in annual 
receipts resulting from consumer reporting as defined in the rule. 
Third, entities that fall within the NAICS code may not correctly 
identify themselves or may otherwise fail to respond to the Census. The 
Economic Census data are likely therefore both over- and under-
inclusive. An additional limitation of the Economic Census data for 
these codes is that the Census keeps aggregated annual receipts data 
confidential in certain tiers.\71\ Notwithstanding these limitations, 
the data reveal the general distribution of the size of participants of 
the consumer reporting market described in the final rule. In the 
Proposal, the Bureau invited commenters to provide additional data 
sources. None relevant to the consumer reporting market were 
identified.\72\
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    \70\ For the purposes of the Economic Census, mercantile 
reporting agencies are ``primarily engaged in compiling information 
on business firms, such as credit histories, and providing the 
information to financial institutions and others who have a need to 
evaluate the credit worthiness of those businesses.'' Consumer 
reporting agencies are ``primarily engaged in compiling information 
on individuals, such as credit and employment histories, and 
providing the information to financial institutions, retailers, and 
others who have a need to evaluate the credit worthiness of those 
persons.'' http://www.census.gov/epcd/ec97/def/5614502.HTM and 
http://www.census.gov/epcd/ec97/def/5614501.HTM.
    \71\  Available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll to NAICS code 561450. 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.
    \72\ In the Proposal, the Bureau made estimates based on data 
available from the 2007 Economic Census for NAICS code 561450. Since 
issuing the Proposal, the Bureau has learned of additional detailed 
Economic Census data for NAICS code 5614501, which encompasses 
``consumer credit reporting agencies'' but not ``mercantile 
reporting agencies,'' in contrast to code 561450. These additional 
data have permitted the Bureau to refine its original estimates. 
First, the Bureau originally concluded that the consumer reporting 
market includes about 401 entities. This estimate was based on 
summary data for NAICS code 561450. The more detailed data permit 
the Bureau to refine its estimate to 410 consumer reporting 
entities. Second, the summary data for NAICS code 561450 informed 
the Bureau that about 75 percent of establishments in the code, over 
all sizes of firms, were consumer reporting entities. The more 
detailed data for NAICS code 5614501 reveal that the 75 percent 
figure is fairly consistent throughout the distribution of firm 
sizes. Third, the more detailed data for NAICS code 5614501 permit a 
closer estimate of the number of firms with receipts between the 
threshold and $10 million. This estimate does not change the 
Bureau's basic conclusions about how many firms are larger 
participants given the $7 million threshold; what fraction of the 
market they constitute; and what proportion of total receipts in the 
market they represent. The discussion of the threshold, below, will 
be based on the more refined data from NAICS code 5614501. The 
Bureau also received one comment suggesting that the Bureau use the 
Nationwide Mortgage Licensing System as a data source. However this 
source does not yet include data on the consumer reporting market. 
Another commenter suggested using a database maintained by the 
Federal National Mortgage Association. But that database only 
includes the names of a small set of reporting entities, and does 
not provide any other data.
---------------------------------------------------------------------------

    Commenters suggested a variety of alternative criteria such as the 
total number of unique consumer reports sold, the number of individual 
consumers on which an entity provides consumer reports, the number of 
complaints about an entity, an entity's relative market share, or the 
annual receipts of an entity in a given geographic or demographic 
segment. The Bureau has broad discretion in choosing criteria to define 
larger participants of a given market, and does not believe these 
criteria are superior alternatives. 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 of the consumer reporting market on the basis of them or 
to apply the test efficiently. Further, as set forth in the Proposal, 
the Bureau believes that the number of employees is not a suitable 
alternative criterion because it could be difficult for a multi-line 
company to apportion employee time between market-related and other 
activities, and many responsibilities may be fulfilled by contractors 
rather than employees.
    Several commenters in or representing the consumer report reseller 
industry asserted that using annual receipts would result in double 
counting of cost of goods sold and thus result in the rule's covering 
much smaller businesses than intended. As discussed in connection with 
the definition of ``annual receipts'' above, the cost of goods sold is 
not double counted.
    For the reasons set forth above, the Bureau declines to amend the 
Proposed Rule to change the criterion used in the larger-participant 
test for the consumer reporting market and adopts the use of annual 
receipts as proposed.
    Threshold. As noted in the Proposal, the Bureau has broad 
discretion in setting the threshold above which a nonbank covered 
person will qualify as a larger participant of the consumer reporting 
market. The Bureau proposed more than $7 million in annual receipts as 
the threshold to define larger participants of the consumer reporting 
market and adopts this threshold in the final rule for the following 
reasons.
    Available data indicate that a threshold of $7 million in annual 
receipts from consumer reporting activities will enable the Bureau to 
cover in its nonbank supervision program the largest consumer reporting 
repositories as well as a range of other larger consumer reporting 
entities that play an important role in the consumer financial 
marketplace. Coverage likely will include a number of larger specialty 
consumer reporting agencies, resellers, and analyzers. The Bureau 
believes that this threshold will cover a sufficient number of market 
participants to enable the Bureau effectively to assess

[[Page 42889]]

compliance and identify and assess risks to consumers, but at the same 
time cover only entities that can reasonably be considered ``larger'' 
participants of the market.
    As explained in the Proposal, while there are hundreds of consumer 
reporting entities, according to the 2007 Economic Census, a threshold 
of more than $7 million in annual receipts will cover approximately 30 
consumer reporting entities, or 7 percent of market participants. The 
Bureau continues to estimate that a threshold of more than $7 million 
will cover approximately 30 out of 410 consumer reporting agencies,\73\ 
which collectively generate 94 percent of industry receipts among 
consumer reporting agencies.\74\ However, some of those consumer 
reporting entities may be specialty consumer reporting agencies 
providing, for example, consumer reports only for employment background 
screening or rental decisions. As noted above, such entities do not 
come within the market as defined by the final rule. For comparison, 
the Bureau estimates that the median value of annual receipts in this 
industry is less than $500,000, significantly below the proposed 
threshold.\75\ Thus, the rule plainly brings within the scope of Bureau 
supervision only consumer reporting entities that can reasonably be 
described as larger participants of the consumer reporting market.
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    \73\ As noted above, the Bureau now has access to more detailed 
data relating solely to consumer reporting entities than it did when 
it published the Proposal. The more detailed supplemental data 
confirm the Bureau's original estimates; the Bureau relies on these 
data for the sake of improved accuracy. The Census data indicate 
there are 410 consumer reporting businesses in NAICS code 5614501. 
This figure is quite close to the number (401) estimated in the 
Proposal based on data for NAICS code 561450. The Bureau still 
regards 410 as only an estimate for the number of firms in the 
consumer reporting market, because, as discussed above, some firms 
may not report their activities properly and some firms (such as 
certain analyzers) may not fall within this NAICS code.
    \74\ See http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, 
scroll to NAICS code 5614501. This calculation assumes that the 14 
firms in the Census-defined tier between $5 million and $10 million 
are evenly distributed throughout the tier. Because of uncertainty 
over the distribution within this tier, the Bureau acknowledges that 
its estimate of 30 consumer reporting agencies is only approximate, 
and that between 21 and 35 consumer reporting agencies may meet the 
threshold based on Census data. The Bureau based the 94 percent 
calculation on the amount of annual receipts generated by the 30 
largest consumer reporting agencies. The 20 largest consumer 
reporting agencies generate 92 percent of annual receipts in the 
industry. The Bureau estimates that the next 10 largest firms 
generate about 2 percent of annual receipts in the industry, for a 
total of 94 percent.
    \75\ The median is estimated from data available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 5614501.
---------------------------------------------------------------------------

    As explained in the Proposal, 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.\76\ Thus, a company with 
more than $7 million in annual receipts likely impacts several million 
consumers. Further, as stated above, the entities meeting the proposed 
threshold generate approximately 94 percent of industry receipts. The 
Bureau believes that this level of coverage is appropriate in light of 
the highly concentrated nature of the consumer reporting market and the 
different types of firms encompassed in the market. For example, based 
on the more granular Economic Census data recently made available, the 
Bureau estimates that the six largest consumer reporting entities 
account for 85 percent of industry receipts. The Bureau believes that 
there are firms in addition to the largest six entities that have such 
a high level of participation in the market that they are reasonably 
deemed larger participants, and thus covering a substantial portion of 
the annual receipts in this market is warranted.
---------------------------------------------------------------------------

    \76\ As noted in the Proposal, the Bureau produced these 
estimates by analyzing General Services Administration schedules and 
other publicly available price quotes from several consumer 
reporting firms. The Bureau acknowledges that in some instances 
consumer reports may cost more.
---------------------------------------------------------------------------

    The Bureau received comments from some consumer groups arguing that 
the threshold for qualifying as a larger participant of the consumer 
reporting market should be lowered. Other consumer group commenters 
suggested that the threshold should be revised to include any firm that 
has annual receipts of $7 million or more from any source, provided 
that at least $3.5 million are from consumer reporting--which would 
effectively lower the threshold for multi-line businesses. For the 
reasons discussed above, the Bureau believes that a threshold of $7 
million in annual receipts from consumer reporting activities serves 
the purposes and objectives of the larger-participant supervision 
program. Accordingly, the Bureau declines to alter the threshold for 
the consumer reporting market in either manner suggested by these 
commenters.
    As discussed in connection with the definition of ``annual 
receipts,'' other commenters suggested raising the threshold from more 
than $7 million to more than $14 million in annual receipts. The Bureau 
does not believe that setting the threshold higher than that proposed 
would result in sufficient coverage of the participants of the consumer 
reporting market. Defining the larger participants of the consumer 
reporting market as including more than just the largest firms serves 
the purposes and objectives of the Dodd-Frank Act. 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. Likewise, resellers 
may have a large impact on consumers in certain credit markets, such as 
the mortgage market.\77\ Setting the threshold too high would make it 
less likely that the larger resellers and larger specialty consumer 
reporting entities that compile information about consumers in 
alternative financial markets would be subject to supervision.
---------------------------------------------------------------------------

    \77\ In the mortgage market, originators routinely purchase 
``three-merged'' and other credit reports sold by resellers, in 
order to facilitate their credit decisions. For example, the Federal 
Home Loan Mortgage Corporation, a government-sponsored entity that 
securitizes mortgages, has a Loan Prospector service that aids 
mortgage credit decisions. Loan Prospector, in turn, draws on a 
large network of resellers to provide originators these types of 
credit reports. See http://www.loanprospector.com/about/features/mergedcreditoptions.html.
---------------------------------------------------------------------------

    Some commenters argued that the proposed threshold would cover 
firms with a relatively small amount of earnings. Implicitly, these 
commenters take issue with the use of annual receipts as a criterion 
and would prefer earnings as an alternative criterion. As discussed 
above, the Bureau believes annual receipts reasonably measure market 
participation and has not identified a superior alternative criterion 
for measuring such participation. Other commenters pointed out that the 
$7 million threshold would capture a relatively high percentage of 
firms in various market segments. The Bureau recognizes that the 
particular threshold of more than $7 million may capture more or fewer 
firms in specific market segments

[[Page 42890]]

within the consumer reporting market. Any threshold that operates 
market-wide will inevitably draw in more firms in some market segments 
than in others. Given the range of consumer reporting entities in the 
consumer reporting market identified by the final rule, the Bureau does 
not think it is practical to prescribe differing thresholds for more 
narrowly defined segments of the market. Doing so would effectively 
segregate the consumer reporting market covered by the final rule, 
which, for the reasons described above, the Bureau has determined would 
be inappropriate.
    One commenter, referring to the Bureau's supervisory authority, 
pursuant to 12 U.S.C. 5515, over ``very large'' depository institutions 
and credit unions, i.e., those with over $10 billion in assets and 
their affiliates, argued that the Bureau correspondingly should 
supervise only very large nonbank entities. But the Dodd-Frank Act's 
division of supervisory authority for insured depository institutions 
and credit unions does not govern the supervision of nonbank entities. 
Unlike depository institutions and credit unions that are not subject 
to Bureau supervision under 12 U.S.C. 5515, nonbanks in the consumer 
reporting market that are not subject to supervision under 12 U.S.C. 
5514 generally will not be subject to other Federal supervision for 
assessing compliance with Federal consumer financial law or for other 
purposes. Moreover, 12 U.S.C. 5514 authorizes the Bureau to supervise 
entities that are ``larger'' participants in a market, not merely 
``very large'' participants. Accordingly, the Bureau declines to raise 
the proposed annual receipts threshold for the consumer reporting 
market in response to this comment.
    The Bureau also received a comment asserting that the proposed 
threshold would not acknowledge the existence of a middle market in 
consumer reporting. A pre-existing SBA regulation classifies a business 
in the consumer reporting market to be a ``small business,'' for SBA 
purposes, if its annual receipts are below $7 million. The commenter 
argued that if a business with over $7 million in annual receipts is a 
``larger participant'' under the Bureau's rule, then every business in 
the market is either ``small'' or ``larger,'' a result the commenter 
considered nonsensical.
    The commenter appears to have assumed that ``larger participants,'' 
in 12 U.S.C. 5514(a)(2), refers to the absolute size of the businesses 
in question. That is not how the Bureau understands the term. The 
Bureau interprets ``larger participants'' to mean those persons that 
participate to a relatively large degree in the relevant market. Market 
participation often increases with the size of a business, but a small 
business for SBA purposes can in principle be a larger participant, 
depending on market structure. If the Bureau recognized a market in 
which all the participants happened to qualify as small businesses, 
under an SBA definition, that market could still have ``larger 
participants'' for purposes of the Dodd-Frank Act--a result the 
commenter's assumption would foreclose. As described above, in NAICS 
code 5614501, corresponding to consumer reporting, the median figure 
for annual receipts is less than $500,000.\78\ Thus, many consumer 
reporting businesses that qualify as ``small businesses'' under the SBA 
regulation are actually larger than at least 50 percent of market 
participants.
---------------------------------------------------------------------------

    \78\ The median is estimated from data available at http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, scroll 
to NAICS code 5614501.
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    The Bureau notes that the SBA has proposed to amend its size 
standard for the category corresponding to consumer reporting.\79\ 
Under the SBA's proposed rule, a consumer reporting business would be a 
``small business'' if it had $14 million or less in annual receipts. 
However, even if the SBA finalizes a regulation in accordance with this 
proposal, that change would not alter the degree to which various 
entities participate in the consumer reporting market.
---------------------------------------------------------------------------

    \79\ 76 FR 63510 (Oct. 12, 2011).
---------------------------------------------------------------------------

    Commenters may have misunderstood the relationship between the 
SBA's size standards and the measurement of ``larger participants'' of 
a market because the Bureau adapted its definition of ``annual 
receipts'' from the SBA's measure. The Bureau chose this approach for 
the convenience of covered persons. It did not intend, by doing so, to 
connect the SBA's ``small business'' size standard to the Bureau's 
larger-participant test, or to suggest that $7 million in annual 
receipts was chosen on that basis.\80\ The SBA's measure and the 
Bureau's threshold are used for different purposes and targeted to 
different statutory objectives. In setting its size standard, the SBA 
considers myriad factors--such as eligibility for Federal small-
business assistance and Federal contracting programs; startup costs, 
entry barriers, and industry competition; and technological change 
\81\--that differ from the concerns that motivate the Bureau's 
definition of ``larger participants'' in this rule. In addition, the 
Bureau's ``annual receipts'' criterion differs in important respects 
from the SBA's. For example, the SBA counts all of a person's receipts 
in calculating annual receipts, while the Proposed Rule counted only 
receipts resulting from a market-related activity. Additionally, for 
purposes of aggregating annual receipts, the SBA and the final rule use 
different tests to assess whether persons are affiliates. Under the SBA 
test, one person controls another (thus making the two affiliates), 
where one person owns at least 50 percent of voting stock of the other. 
Under the final rule, by contrast, for the reasons explained above, the 
power to vote 25 percent of a class of securities counts as control. 
Because of these differences, an entity's receipts as calculated under 
the SBA regulation may be greater than its receipts for purposes of 
this rule.
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    \80\ The Proposal noted that with a threshold of more than $7 
million, the category of larger participants would not include any 
small businesses (as defined by the SBA). The Bureau did not mean to 
suggest that small businesses cannot, in general, be ``larger 
participants.''
    \81\ 76 FR 63513.
---------------------------------------------------------------------------

    Another consumer reporting industry commenter stated that the 
Bureau should proceed very cautiously in setting the thresholds for 
coverage in the consumer reporting market until it has sufficient 
quantifiable data for establishing these thresholds. Although the 
Bureau has limited data, as described in the preceding section, the 
Bureau believes that these data are sufficient to understand the 
contours of the consumer reporting market and rationally set a 
threshold for larger participants of the market. In particular, the 
available data provide detail beyond summary statistics by grouping 
firms into size tiers, allowing the Bureau to estimate the general 
distribution of receipts throughout the market. This distribution of 
receipts, which the Bureau has relied upon for the estimates presented 
above, is adequate for defining a category of ``larger participants.''
    In addition, the Bureau believes that one of the purposes of the 
nonbank supervision program as conceived by Congress is to gather more 
information about industries as to which little is known as compared to 
depository institutions. Congress underlined the importance of this 
effort by setting a one-year deadline for the initial larger 
participant rule. Thus, the Bureau believes that it should not delay 
its rulemaking because of imperfect data and acknowledges that the 
information gained from its supervisory and other activities may lead 
it to revise its thresholds over time.

[[Page 42891]]

    Finally, a few commenters recommended that the Bureau index the 
threshold for annual receipts for inflation. At this time, the Bureau 
does not intend to index for inflation because, to the extent necessary 
or appropriate, it expects to make adjustments to the threshold through 
future rulemakings to reflect not only inflation, but also other shifts 
in the nature and structure of the consumer reporting market and 
additional data as it becomes available to the Bureau.
    Apportionment. As noted in the Proposal, the Bureau recognizes that 
there are multi-line companies that derive only a portion of their 
annual receipts from activities related to the consumer reporting 
market. The Proposed Rule provided that the only annual receipts to be 
considered are those ``resulting from'' activities related to the 
consumer reporting market.
    The Bureau received a number of comments on the issue of 
apportionment. One consumer reporting industry representative supported 
the concept of apportionment, but suggested that it would be difficult 
and unduly burdensome unless the Bureau defines the consumer reporting 
market in a manner consistent with applicable statutes and industry 
practices. Another industry representative said that apportionment 
would present substantial difficulties for multi-line companies because 
IRS forms generally do not differentiate between income streams within 
organizations, and a multi-line company will need to perform burdensome 
calculations beyond the calculations IRS forms require.\82\ A group 
representing attorneys engaged in commercial law stated that the 
Proposed Rule would likely require participants to overhaul their 
accounting systems to segregate revenue by activity type, at a 
significant cost, in order to determine whether they are larger 
participants or to respond to Bureau assertions on that point. A 
consumer group suggested that the Bureau should count a company's total 
annual receipts, from any of its revenue streams, toward the larger-
participant threshold. This commenter stated that determining a 
company's status as a larger participant using total annual receipts 
would be much simpler than trying to segregate annual receipts from 
market-related activities, and would serve to prevent evasion by 
reducing the temptation for companies to misclassify the source of 
their revenues to avoid supervision. A group representing attorneys 
recommended that the Bureau provide greater clarity in the definition 
of the categories of annual receipts to be calculated to put regulated 
parties on notice of the applicable measurement. Another commenter said 
that the Bureau should define the term ``apportionment'' and use that 
definition when describing the aggregation of annual receipts for 
affiliated companies.
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    \82\ This commenter appears to have misapprehended the Proposed 
Rule to mandate that IRS forms are the only permissible source of 
information about a company's annual receipts. The commenter 
recommended that the final rule state expressly that a market 
participant may make a good faith determination of its annual 
receipts based on records maintained in the ordinary course of 
business. The Bureau does not believe such an addition to the 
regulation is necessary, because the rule does not restrict 
companies to relying solely on their IRS forms. The criterion by 
which market participation is measured is annual receipts resulting 
from consumer reporting; the Bureau is aware that this specific 
quantity does not necessarily correspond, for every company, to a 
figure reported to the IRS. In addition, the Proposal explained that 
a person wishing to dispute whether it is a larger participant may 
provide the Bureau records, documents, or other evidence reasonably 
identifying what portion of its annual receipts result from 
activities falling outside a covered market.
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    The Bureau believes it is appropriate to permit apportionment of 
annual receipts. In some instances there may be nonbank covered persons 
that have significantly different business lines, with certain business 
lines not relating to the consumer reporting market. At the same time, 
the Bureau acknowledges the concerns regarding burdens associated with 
apportionment. The Bureau, however, believes that participants of the 
consumer reporting market are reasonably aware of the sources of their 
revenue, and should thus be able to apportion without undue burden. 
Moreover, it bears noting that market participants are not required to 
apportion their annual receipts on a periodic or other basis under the 
final rule. On the contrary, the Bureau has decided to permit 
apportionment, in part, to enable a nonbank covered person to apportion 
its annual receipts if it wished to challenge an assertion by the 
Bureau that it qualified as a larger participant. In such a case, the 
person may provide records, documents or other evidence to the Bureau 
reasonably identifying that portion of its annual receipts that do not 
result from market-related activities. Furthermore, if the person 
wishes not to apportion receipts in challenging such an assertion, it 
may forego doing so, with the sole result being that it will have 
higher annual receipts counted toward the $7 million threshold for 
larger-participant status. Many larger participants would be above the 
threshold with or without apportionment.
    The Bureau does not believe that it would be helpful to provide 
specific guidance on what accounting methods entities should use to 
apportion annual receipts. The Bureau believes that nonbank covered 
persons facing different circumstances may appropriately use different 
apportionment methods that fairly reflect those circumstances and their 
business operations. Therefore the Bureau declines to set forth 
specific requirements or guidance on how to apportion annual receipts. 
The Bureau also declines to define the term ``apportionment.'' The term 
is not used in the regulatory text; rather, apportionment is a concept 
that conveys the inclusion of receipts ``resulting from'' activities 
related to the consumer reporting market. Accordingly, the Bureau 
adopts in the final rule the provision that the only receipts counting 
toward the calculation of ``annual receipts'' are those ``resulting 
from'' activities related to the covered market.

VI. Section 1022(b)(2)(A) of the Dodd-Frank Act

A. Overview

    In developing the final rule, the Bureau has considered potential 
benefits, costs, and impacts.\83\ The Proposal set forth a preliminary 
analysis of these effects, and the Bureau requested and received 
comments on the topic. In addition, the Bureau has consulted or offered 
to consult with the Federal Trade Commission, 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 in connection with this rulemaking, including 
regarding consistency with any prudential, market, or systemic 
objectives administered by such agencies.
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    \83\ Specifically, 12 U.S.C. 5512(b)(2)(A) calls for the Bureau 
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 12 U.S.C. 5516, and the 
impact on consumers in rural areas. In addition, 12 U.S.C. 
5512(b)(2)(B) directs the Bureau to consult, before and during the 
rulemaking, with appropriate prudential regulators or other Federal 
agencies, regarding consistency with objectives those agencies 
administer. The manner and extent to which the provisions of 12 
U.S.C. 5512(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 analysis and 
consultations described in those provisions of the Dodd-Frank Act.
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    The final rule establishes, in part, the scope of the Bureau's 
nonbank supervision program, particularly with respect to ``larger 
participants of other

[[Page 42892]]

markets for consumer financial products or services,'' made subject to 
supervision by 12 U.S.C. 5514(a)(1)(B). The rule establishes general 
definitions, concepts, protocols, and procedures relating to the 
Bureau's supervision of larger participants and the assessment of 
larger-participant status. The rule also identifies a market for 
consumer reporting in which the Bureau will conduct supervision and 
defines the ``larger participants'' of that market. Participation in 
this market is assessed on the basis of annual receipts, generally 
averaged over three years, resulting from consumer reporting 
activities. If a nonbank covered person's annual receipts from consumer 
reporting are over a threshold of $7 million, the entity is a larger 
participant subject to the Bureau's supervisory authority. With the 
rule in place, the Bureau will be able to commence supervisory 
activities in the identified consumer reporting market.

B. Potential Benefits and Costs to Consumers and Covered Persons

    The analysis considers the benefits, costs, and impacts of the key 
provisions of the rule against a pre-statutory baseline; that is, the 
analysis evaluates the benefits, costs, and impacts of the relevant 
statutory provisions and the regulation combined.\84\ Before the Dodd-
Frank Act, there was no Federal program for supervision of nonbank 
participants of the consumer reporting market. With the statute and the 
final rule in effect, the Bureau will be able to supervise participants 
of the consumer reporting market who have annual receipts from consumer 
reporting of more than $7 million.
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    \84\ 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. The Bureau, as a matter of 
discretion, has chosen to describe a broader range of potential 
effects to more fully inform the rulemaking.
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    The Bureau notes at the outset that limited data are publicly 
available with which to quantify the potential benefits, costs, and 
impacts of the rule. For example, although the Bureau has general 
quantitative information, discussed above, on the number of market 
participants and their receipts, the Bureau lacks detailed information 
about their rate of compliance or non-compliance with Federal consumer 
financial law (including the FCRA) and about the range of compliance 
mechanisms and their costs to market participants. The Proposal 
requested information to support the analysis of benefits, costs, and 
impacts, but commenters did not provide, or identify sources for, 
relevant data.\85\ Over time, the Bureau expects to develop information 
related to these topics through its supervisory activities.
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    \85\ One commenter asserted without explanation that medium-
sized firms would need to dedicate between three and eight employees 
to the supervision process during the two weeks before and two weeks 
of an examination. Several others suggested, also without 
explanation, that they would each need to hire an additional 
employee to respond to Bureau supervision.
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    In light of these data limitations, this analysis generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the final rule. General economic principles, together with the 
limited data that are available, provide insight into these benefits, 
costs, and impacts. Where possible, the Bureau has made quantitative 
estimates based on these principles and data as well as its experience 
of supervision.
    The discussion below describes three categories of benefits and 
costs. First, after the rule authorizes Bureau supervision in the 
consumer reporting market, participants of the market may respond to 
the possibility of supervision by changing their systems and conduct. 
Second, when the Bureau undertakes supervisory activity at specific 
firms, those firms will incur costs from participating in supervision, 
and the results of these individual supervisory activities may also 
produce benefits and costs.\86\ Third, the Bureau analyzes the costs 
associated with firms' efforts to assess whether they qualify as larger 
participants under the rule.
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    \86\ Pursuant to section 12 U.S.C. 5514(e), the Bureau also has 
supervision authority over service providers to nonbank covered 
persons encompassed by 12 U.S.C. 5514(a)(1), which includes larger 
participants. The service providers to consumer reporting larger 
participants might 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 or 
characteristics of service providers to the roughly 30 larger 
participants of the consumer reporting market. The discussion herein 
of potential costs, benefits, and impacts that may result from this 
Proposal generally applies to service providers to larger 
participants.
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1. Benefits and Costs of Responses to the Possibility of Supervision
    The final rule subjects larger participants of the consumer 
reporting market to the possibility of Bureau supervision. 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 the Bureau will in fact undertake such activities 
regarding that covered person in the near future or at all. Rather, as 
explained in the Proposal, supervision of any particular larger 
participant will be probabilistic in nature. For example, the Bureau 
will examine certain larger participants on a periodic or occasional 
basis. The Bureau's decisions about supervision will be informed by the 
factors set forth in 12 U.S.C. 5514(b)(2), relating to the size and 
transaction volume of individual participants, the risks their consumer 
financial products and services pose to consumers, the extent of State 
consumer protection oversight, and other factors the Bureau may 
determine are relevant. Each entity that believes it qualifies as a 
larger participant will know that it might be supervised and may gauge, 
given its circumstances, the likelihood that the Bureau will initiate 
an examination or other supervisory activity.
    As the Proposal pointed out, the prospect of potential supervisory 
activity may create an incentive for larger participants to increase 
compliance with Federal consumer financial law. They may anticipate 
that by doing so (and thereby decreasing risks to consumers), they can 
decrease their chances of actually being subject to supervision as the 
Bureau evaluates the factors outlined above. In addition, an actual 
examination would likely reveal any past or present noncompliance, 
which the Bureau may seek to correct through supervisory activity or, 
in some cases, enforcement actions. Larger participants may therefore 
judge that the prospect of supervision has increased the potential 
consequences of noncompliance with Federal consumer financial law, and 
they may seek to decrease that risk by curing any noncompliance.
    The Bureau believes it is likely that market participants will 
increase compliance in response to the Bureau's supervisory activities 
authorized by this rule. However, because the rule itself does not 
require any entity to alter its provision of consumer reporting 
products or services, any estimate of the amount of increased 
compliance would be a prediction of market participants' behavior. The 
data the Bureau currently has do not support a specific quantitative 
prediction. But, to the extent that entities increase their compliance 
in response to the rule, that response will result in both benefits and 
costs.\87\
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    \87\ Another approach to considering the benefits, costs, and 
impacts of the rule would be to focus almost entirely on the 
supervision-related costs for larger participants and omit a broader 
consideration of the benefits and costs of increased compliance. As 
noted above, the Bureau has, as a matter of discretion, chosen to 
describe a broader range of potential effects to more fully inform 
the rulemaking.

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[[Page 42893]]

a. Benefits From Increased Compliance
    Increased compliance would be beneficial to consumers that are 
affected by consumer reporting. As discussed above, the potential pool 
of affected consumers is very broad. Consumer reporting is integrally 
connected with many consumer financial products and services and plays 
a key role in decisions regarding such products and services. A number 
of Federal consumer financial laws, including, among others, the FCRA 
and Title X of the Dodd-Frank Act, and related regulations, offer 
substantive protections to consumers regarding consumer reporting 
products and services. Increasing the rate of compliance with such laws 
will benefit consumers by providing more of the protections mandated by 
those laws.
    For example, the FCRA encourages providers of consumer reports (as 
defined in the FCRA) to ensure that they provide accurate 
information.\88\ Therefore, increased compliance with the FCRA would 
likely result in the availability of more accurate consumer report 
information in the marketplace. Because consumer report information is 
often critical in decisions regarding consumer financial products and 
services, more accurate information could lead to better decisions.\89\ 
Inaccurate information, for example, could lead to a consumer's being 
denied a loan that the consumer could afford to and would be likely to 
repay. Inaccurate information could also lead to a consumer's being 
offered credit at an interest rate higher than would be available if 
the creditor knew the consumer's true credit history. Conversely, some 
inaccuracies, by exaggerating some consumers' credit worthiness, may 
enable such consumers to receive lower interest rates than they 
otherwise would but understate their risk of default. In all these 
cases, increasing the accuracy of consumer report information should 
improve the pricing and allocation of credit.
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    \88\ See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 52 (2007) 
(``Congress enacted the FCRA in 1970 to ensure fair and accurate 
credit reporting, promote efficiency in the banking system, and 
protect consumer privacy.''); see also Gelman v. State Farm Mut. 
Auto. Ins. Co., 583 F.3d 187, 191 (3d Cir. 2009); Vassalotti v. 
Wells Fargo Bank, 815 F.Supp.2d 856, 863 (E.D. Penn. 2011).
    \89\ Several studies have identified the problems that 
inaccurate consumer reporting creates in credit markets. E.g., 
Avery, Robert B., et al., Credit Report Accuracy and Access to 
Credit, 2004 Federal Reserve Bulletin 297, 314-15 (estimating 
fraction of individuals for whom inaccuracies in credit reports 
might affect credit terms); see also id. 301-02 (citing prior 
research).
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    As another example, consumers have relatively little control over 
when and with whom a consumer reporting business shares information 
about them. Federal consumer financial law protects consumers by 
restricting the dissemination of certain information about them. 
Increased compliance would mean less disclosure of consumer information 
to improper recipients or in inappropriate circumstances.
b. Costs of Increased Compliance
    On the other hand, as discussed in the Proposal, increasing 
compliance involves costs. In the first instance, those costs will be 
paid by the market participants that choose to increase compliance. 
Entities may need to hire or train additional personnel to effectuate 
any changes in their practices that are necessary to produce the 
increased compliance. They may need to invest in systems changes to 
carry out their revised procedures. In addition, entities may need to 
develop or enhance compliance management systems, to ensure that they 
are aware of any gaps in their compliance. Such changes would also 
require investment and incur operating costs.
    An entity that does incur costs in support of increasing compliance 
may try to recoup those costs by increasing the prices of its consumer 
reporting products and services.\90\ Whether and to what extent this 
increase occurs will depend on competitive conditions in the consumer 
reporting market. For example, if changed procedures produced more 
valuable consumer report information--for example, due to improved 
accuracy--a company might be able to charge more for the information. 
If demand for consumer report information is fairly inelastic, consumer 
reporting entities may, in the short or medium term, be able to shift 
to the users of consumer reports a larger portion of the cost of 
increased compliance.
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    \90\ Sometimes the providers of consumer financial products and 
services bear the cost of consumer reports; sometimes consumers pay 
directly for consumer reports, as when a creditor requires a 
consumer to pay for the report the creditor uses in reviewing the 
consumer's loan application.
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2. Benefits and Costs of Individual Supervisory Activities
    In addition to the responses of market participants anticipating 
supervision, the possible consequences of the rule include the effects 
of individual examinations or other supervisory activity that the 
Bureau may conduct in the consumer reporting market.
a. Benefits of Supervisory Activities
    The information gathered during supervisory activity will be useful 
in several ways. For example, when an examination uncovers deficiencies 
in a company's policies and procedures, both the company and the Bureau 
will become aware of those deficiencies. The Bureau's examination 
manual calls for the Bureau to prepare a report of each examination and 
to assess the strength of the subject firm's compliance mechanisms and 
the risks the firm poses to consumers, among other topics. The Bureau 
will share the examination report with the subject firm, because one 
purpose of supervision is to inform the firm of problems detected by 
examinations.
    Thus, for example, an examination may reveal that, due to the 
design of its procedures, a company has an unexpectedly high rate of 
errors in its consumer report information. Or an examination may 
determine that a company's handling of consumer information poses 
inappropriately high risk of improper disclosure. Examiners may find 
evidence of widespread noncompliance with Federal consumer financial 
law, or they may identify specific areas where a company has 
inadvertently failed to comply. The Bureau might conclude that an 
inadequacy in a company's information system poses avoidable risks to 
consumers. These examples are only illustrative of what kinds of 
information an examination might deliver.
    Detecting and informing companies about such problems should be 
beneficial to consumers. When the Bureau notifies a company about risks 
associated with an aspect of its activities, the company is expected to 
adjust its practices to reduce those risks. That response may result in 
increased compliance with Federal consumer financial law, with benefits 
like those described above. Or it may avert a violation that would have 
occurred had Bureau supervision not detected the risk promptly. The 
Bureau may also inform companies about risks they pose to consumers 
short of violating the law. Action to reduce those risks would be a 
benefit to consumers.
    Given the obligations consumer reporting entities have under 
Federal consumer financial law and the existence of efforts to enforce 
such law, the results of supervision may also benefit firms under 
supervision by detecting compliance problems early. When a firm's level 
of noncompliance has attracted an enforcement action, the company must 
both face the penalties for noncompliance and adjust its systems to 
cure the breach. Changing practices at this point can be expected to be 
relatively difficult, because a level of noncompliance that has 
attracted the attention of enforcement authorities or

[[Page 42894]]

private plaintiffs will sometimes be severe enough to represent a 
serious failing of a company's systems. Supervision may detect flaws at 
a point when correcting them is relatively inexpensive. And catching 
problems before they involve a company in costly enforcement or private 
litigation, and potentially the payment of legal penalties or other 
forms of relief, could save the company substantial time and money. In 
short, supervision might benefit firms under supervision by reducing 
the need for other activities, like enforcement and private litigation, 
to achieve a given compliance rate. Accordingly, a shift of some amount 
of regulatory oversight from enforcement to supervision would be 
beneficial to market participants.
    Further potential benefits, to consumers, to covered persons, or to 
both, may arise from the Bureau's gathering of information during 
supervisory activities. The goals of supervision include informing the 
Bureau about activities of market participants and assessing risks to 
consumers and to markets for consumer financial products and services. 
The Bureau may use this information to improve regulation of consumer 
financial products and services and enforcement of Federal consumer 
financial law, and to better serve its mission of ensuring consumers' 
access to fair, transparent, and competitive markets for such products 
and services. Benefits of this type will depend on what the Bureau 
learns during supervision and how it uses that knowledge.
b. Costs of Supervisory Activities
    The potential costs of actual supervision arise in two categories. 
The first involves the costs of individual firms' increasing compliance 
in response to the Bureau's findings during supervisory activity and to 
supervisory actions. These costs are similar in nature to the possible 
compliance costs, described above, that larger participants in general 
may incur in anticipation of possible supervisory activity. This 
analysis will not repeat that discussion. The second category is the 
cost of supporting supervisory activity.
    As described in the section-by-section analysis of the definition 
of ``supervision and supervisory activity,'' in Section V above, 
supervisory activity may involve requests for information or records, 
on-site or off-site examinations, or some combination of these 
activities. For example, in an on-site examination, generally, Bureau 
examiners begin by contacting the firm for an initial conference with 
management. That initial contact is often accompanied by a request for 
information or records. Based on the discussion with management and an 
initial review of the information received, examiners will determine 
the scope of the on-site exam. While on-site, examiners will spend some 
time in further conversation with management about the firm's processes 
and procedures. The examiners will also review documents, records, and 
accounts to assess the firm's compliance and evaluate the firm's 
compliance management systems. As with the Bureau's bank examinations, 
examinations of nonbank covered persons will involve issuing 
confidential examination reports and compliance ratings. The Bureau's 
examination manual describes the supervision process and indicates what 
materials and information a firm can expect the examiners to request 
and review, both before they arrive and during their time on-site. The 
primary cost a firm faces in connection with an examination is the cost 
of employees' time to collect and provide the necessary 
information.\91\
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    \91\ The Bureau recognizes that responding to examinations and 
other supervisory requests will entail certain other costs, such as 
photocopying and other costs of producing information. The costs of 
collecting and producing information may include more general costs 
for evaluating how to participate in and respond to supervisory 
activity. The Bureau has focused on staff time in collecting and 
providing information in order to provide an approximate sense of 
the magnitude of the key cost involved.
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    At this early stage in its nonbank supervision program, the Bureau 
does not have precise estimates of the expected duration and frequency 
of its examinations and the resources that firms may expend to 
cooperate with such examinations. Further, the duration of any 
examination of a firm will depend on a number of factors, including the 
size of the firm, the compliance or other risks identified, whether the 
firm has been examined previously, and the demands on the Bureau's 
supervisory resources imposed by other firms and markets. Nevertheless, 
some rough estimates may be useful to provide a sense of the magnitude 
of potential staff costs that firms may incur.
    At firms within the category of larger participants with annual 
receipts close to the threshold of more than $7 million, typical 
examinations might be relatively brief. Bureau examiners might review 
materials and interview employees for four weeks, and a firm might 
devote the equivalent of one full employee during that time and for two 
weeks beforehand to prepare materials for the examination. The typical 
cost of the employee involved in responding to supervision can be 
expected to be roughly $49 per hour.\92\ Six weeks of such an 
employee's time would cost less than $12,000.\93\ For a larger 
participant with annual receipts from consumer reporting of $7 million, 
this cost would represent 0.17 percent of those annual receipts.\94\ 
Even if an examination required twice as much employee time, the cost 
would still come to only 0.34 percent of annual receipts for such a 
firm.\95\
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    \92\ Bureau of Labor Statistics, (BLS), National Compensation 
Survey, Employment Cost Trends, available at http://www.bls.gov/ncs/ect/. BLS data for ``nondepository credit intermediation'' indicate 
that the mean hourly wage of a compliance officer in that sector is 
$33.40. BLS data also indicate that salary and wages constitute 67.5 
percent of the total cost of compensation. Dividing the hourly wage 
by 67.5 percent yields a wage (including total costs, such as 
salary, benefits, and taxes), rounded to the nearest dollar, of $49 
per hour.
    \93\ All figures assume 40 hours of work per week.
    \94\ The Proposal described four business-weeks of employee time 
as ``a fraction of a percent'' of revenues, for a service provider 
that was a small business. Six business-weeks is also a fraction of 
a percent, as estimated above.
    \95\ One commenter, the National Credit Reporting Association, 
reported that a survey of its members in April 2012 found that 
consumer reporting businesses with annual receipts near the 
threshold typically have net profit margins of six to eight percent. 
The commenter did not explain the methodology for its survey or 
explain what statistical concept it meant by ``typical.'' 
Accordingly, the Bureau does not regard the commenter's six to eight 
percent figure as scientifically reliable. However, if the commenter 
is correct that this range represents a profit margin the Bureau 
could reasonably assume for the smallest businesses qualifying as 
larger participants under the rule, the estimated upper bound for 
the cost of examinations (0.17 percent for businesses at the 
threshold of qualifying as larger participants and 0.008 percent 
industry-wide) is relatively minor.
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    By contrast, at the very largest firms in the market, supervisory 
activity could last much longer. Given the complexity of a very large 
company, Bureau examiners might need months to review the relevant 
materials. Such a company might dedicate the equivalent of two full-
time employees to participate in the examination.\96\ The cost of eight 
months of employee time (four months each for two employees) would be 
about $68,000, or about 0.07 percent of annual receipts for a firm with 
$100 million in receipts.
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    \96\ Of course, multiple individuals, both inside and outside a 
firm, might participate in a supervisory activity. This rough 
estimate is meant to represent the aggregate amount of labor 
resources a company might dedicate to responding to supervisory 
activity.
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    For a firm of a more typical size, which would be between the two 
size groupings discussed above, Bureau examiners might review materials 
and interview employees for eight weeks, and a firm might devote the 
equivalent of one full employee during that time

[[Page 42895]]

and for two weeks beforehand to prepare materials for the examination. 
Thus, a typical exam would take ten weeks of such an employee's time 
and would cost less than $20,000.
    To put the market-wide impact of supervision in perspective, the 
Bureau estimates that the average annual market-wide cost of 
supervision is 0.008 percent of receipts. The Bureau does not expect to 
supervise every larger participant in every year. For purposes of 
estimation, the Bureau assumes that each of the six largest market 
participants will be examined every other year, at a cost of $68,000 
each, giving an average annual cost of $204,000. The Bureau assumes 
that each of the remaining larger participants will be examined once 
every three years, at a cost of $20,000 each, giving an average annual 
cost of $160,000. The total staff cost of responding to supervision 
comes to approximately $364,000 annually.\97\ This figure represents 
0.008 percent of the aggregate annual receipts--$4.3 billion \98\--of 
the larger participants of the consumer reporting market.
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    \97\ As noted above, there are roughly 30 entities whose annual 
receipts from consumer reporting exceed the $7 million threshold.
    \98\ See http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table, 
scroll to NAICS code 5614501. $4.3 billion represents 94 percent of 
all receipts for ``consumer credit reporting agencies,'' which total 
$4.55 billion.
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    The Bureau declines to predict, at this point, precisely how many 
examinations in the consumer reporting market it will undertake in a 
given year. Once the rule takes effect, the Bureau will be able to 
undertake supervisory activity in the identified market; neither the 
Dodd-Frank Act nor the final rule specifies a particular level or 
frequency of examination. The frequency of examination will depend on a 
number of factors, including the Bureau's understanding of the conduct 
of market participants and the specific risks they pose to consumers; 
the responses of larger participants to prior examinations; and the 
demands that other markets make on the Bureau's supervisory resources. 
These factors can be expected to change over time, and the Bureau's 
understanding of these factors may change as it gathers more 
information about the market through its supervision and by other 
means.
3. Costs of Assessing Larger-Participant Status
    Finally, the Bureau acknowledges that in some cases companies may 
incur costs in assessing whether they qualify as larger participants 
and potentially disputing their status. The rule is designed to 
minimize those costs.
    Larger-participant status depends on a quantity, annual receipts, 
that for many companies should correspond to data they already report 
to the IRS. For such companies, assessing whether they satisfy the 
rule's definition of larger participants will involve minimal expense. 
Potential differences from the IRS figures arise only for companies 
that have annual receipts arising from activities besides consumer 
reporting as defined in the rule. Some firms may have multiple distinct 
lines of business. The Bureau believes that such firms ordinarily have 
records for each division of the accounting quantities--income and 
costs--underlying the calculation of annual receipts.
    If, in addition, a company provides consumer report information 
sometimes for purposes excluded from the market, such as employment 
screening, and sometimes for purposes that fit within the rule's 
definition of consumer reporting, the company's accounting systems 
might not distinguish the two types of sale. However, most larger 
participants should not need such detailed information. The rule does 
not require market participants to submit data regularly on their 
annual receipts. Most of the time, a firm only needs to know its annual 
receipts to the extent it wants to determine in advance of any 
supervisory activity by the Bureau whether it is a larger participant. 
A firm with receipts from all activities that are above the threshold 
will not necessarily need to trace precisely what quantity derives from 
activities other than consumer reporting (as defined by the rule). A 
rough estimate would suffice to inform such a firm whether its 
consumer-reporting receipts cross the threshold. Most likely, the only 
firms that might need a more precise calculation of annual receipts 
would be those that have total receipts near the threshold and 
significant receipts from activities (like supporting employment 
screening) that would be excluded from the calculation.
    The data the Bureau currently has do not support a detailed 
estimate of how many companies will incur such costs, or how much they 
might spend. Regardless, firms would be unlikely to spend significantly 
more on accounting systems than it would cost them to be supervised by 
the Bureau as larger participants. It bears emphasizing that 
expenditures on an accounting system intended to prove a firm is not a 
larger participant cannot necessarily protect a firm from being 
supervised. The Bureau can supervise a firm whose conduct the Bureau 
determines, pursuant to 12 U.S.C. 5514(a)(1)(C), poses risks to 
consumers. Thus, a firm choosing to spend significant amounts on an 
accounting system directed toward the larger-participant test could not 
be sure it would not be subject to Bureau supervision notwithstanding 
those expenses. The Bureau therefore believes it is unlikely that any 
but a very few firms would undertake such expenditures.
4. Consideration of Alternatives
    The Bureau considered selecting different thresholds for larger-
participant status in the consumer reporting market. If the threshold 
were much higher, say $100 million, then the Bureau's supervisory 
authority under the rule would reach only the very largest firms--about 
six entities--in the market. Such an approach would reduce both the 
expected benefits to consumers and the costs to covered persons, 
because fewer firms would be subject to the Bureau's supervisory 
authority. As the Proposal explained, if a change in a firm's systems 
or practices results in increased compliance with Federal consumer 
financial law, such a change would produce greater benefit at a large 
firm than at a smaller one. The largest firms are expected to affect 
the most consumers, and any increase in compliance by such firms would 
benefit a large number of consumers.
    At which market participants supervision produces the greatest 
benefits or costs due to increased compliance depends on where the 
greatest risks to consumers lie. If some firms below $100 million in 
annual receipts have particular compliance problems, bringing such 
firms within the Bureau's supervisory authority, and conducting actual 
examinations at those firms, can be expected to produce larger 
increases in compliance than would supervising larger firms. The 
statutory criteria regarding supervision should ensure that those 
larger participants that are supervised are the same firms where the 
benefits from supervision are likely to be highest.\99\ The selected 
threshold of $7 million gives the Bureau the flexibility to direct its 
supervisory resources to the firms where supervision will be of 
greatest use, even if they are not the very largest in the market.
---------------------------------------------------------------------------

    \99\ 12 U.S.C. 5514(b)(2).
---------------------------------------------------------------------------

5. Responses to Comments
    The Bureau received a number of comments on its preliminary 
analysis under 12 U.S.C. 5512(b)(2).
    Several comments related to the Bureau's characterization of 
supervision as probabilistic. One commenter

[[Page 42896]]

criticized the Bureau for asserting that the rule only authorizes 
supervisory activities and that the Bureau will likely not supervise 
all larger participants in any given year. According to this commenter, 
the Bureau was trying to avoid acknowledging the costs of supervision. 
Later, when the Bureau actually undertakes supervisory activity, the 
commenter claims that the Bureau will not consider the benefits, costs, 
and impacts because such consideration is only necessary for 
rulemaking, not supervision. Another commenter argued that the Bureau 
had assumed the rule would produce increased compliance yet had 
discounted the costs as ``probabilistic.'' One commenter suggested that 
firms will make additional efforts at compliance, in anticipation that 
they might be supervised, and will therefore bear the resulting costs 
regardless of how often the Bureau actually conducts supervisory 
activity.
    As reflected above, the Bureau continues to believe that 
supervision of specific entities is probabilistic in nature. The Bureau 
has recognized two stages in which the rule could increase compliance, 
with its attendant benefits and costs. First, the Bureau acknowledges 
that companies may respond to the possibility of the Bureau's 
supervision activity by changing their systems and conduct to produce 
more compliance with Federal consumer financial law. The discussion 
above presented benefits and costs associated with entities' changing 
their conduct in anticipation of possible supervision. Second, in the 
course of actual examinations, the Bureau may uncover specific problems 
that companies then correct.
    Commenters offered somewhat contradictory comments regarding the 
rate of existing compliance. Some suggested that the Bureau had 
underestimated the power of firms' existing incentives--from sources 
such as enforcement and supervision by State regulators--to comply with 
law. Such commenters asserted that market participants are already 
aware of the risks of enforcement action and regulatory oversight and 
have effective compliance mechanisms. Thus, the commenter concluded, 
the benefits of the rule are smaller than the Proposal assumed. Another 
commenter stated that the rule will be more costly than the Proposal 
acknowledged, because firms will have to develop compliance policies 
and procedures, including by hiring new staff and developing new 
systems. Yet another commenter contended that because the rule is not 
substantive, but only establishes the possibility of supervision, the 
Bureau cannot assume that companies will increase their legal 
compliance in response.
    The comments do not lead the Bureau to different conclusions 
regarding the benefits and costs of increased compliance as a potential 
effect of the rule. If the rule incentivizes companies to develop 
compliance management systems that they do not already have, that 
result would produce benefits in the form of improved compliance and 
costs involved in creating and administering such systems. As a general 
matter, the Bureau believes it is unlikely that companies can 
consistently comply with the law without having reasonably thorough 
systems for promoting and monitoring compliance. Without such systems, 
a company may happen to comply with law, but it cannot be assured 
whether it is doing so; cannot reliably learn of problems and fix them; 
and cannot modify its practices to keep up with changes in the law. If, 
therefore, the rule will motivate firms to develop compliance systems, 
the current rate of compliance is unlikely to be as high as some 
commenters suggested.
    If, on the other hand, compliance levels are already high--in part 
because of incentives one commenter pointed out, arising from Federal 
and State enforcement and State supervisory activity--then the benefits 
of the rule will be lower. However, to achieve high levels of 
compliance, firms presumably already incur corresponding costs. The 
compliance-related costs of the rule will therefore be lower as well. 
In addition, the Bureau's likely level of supervisory activity over 
time will also be lower. The commenters provided no evidence of the 
existing level of compliance of firms in the consumer reporting market. 
In any event, whatever particular increase in compliance may occur as a 
result of the rule, the benefits and costs of that increase are 
associated.\100\
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    \100\ According to several commenters, the Bureau also 
overlooked the cost to firms organizing their compliance management 
policies in a format consistent with the Bureau's supervision 
manual. These commenters asserted that companies would, anticipating 
the possibility of supervisory activity, expand their compliance 
management systems beyond what is appropriate for assuring 
compliance. Yet the Bureau's examination manual does not specify a 
particular format for compliance management policies. Of course, 
some companies may develop more involved compliance management 
systems than would be necessary or appropriate for their 
circumstances. The Bureau has, and commenters provided, no 
information on the basis of which to assess the possible magnitude 
of such an effect.
---------------------------------------------------------------------------

    Commenters also questioned the Bureau's estimates of how much 
supervision would cost firms. An industry association asserted that the 
Bureau's estimate, for actual supervisory activity, of four full weeks 
of employee time at a small firm was a significant underestimate. The 
commenter did not offer an alternative estimate, but the commenter 
argued that even a month of employee time would be burdensome for a 
small business.\101\
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    \101\ Several businesses with annual receipts near the $7 
million threshold suggested they would each need to hire an 
additional employee to respond to Bureau supervision. None provided 
any support for the assertion that the Bureau's supervisory activity 
would require a dedicated employee at a firm of such size.
---------------------------------------------------------------------------

    The Bureau acknowledges that staff time can be a cost for a firm 
responding to particular supervisory activity. The Bureau has estimated 
the magnitude of that cost for firms of various sizes. The amount of 
staff time involved represents the Bureau's experience of supervision. 
That amount may be an underestimate or overestimate for some 
supervisory activities, depending on the circumstances. But even if all 
supervisory activity cost twice as much as the Bureau estimated, the 
cost would still, as noted above, be 0.34 percent of the annual 
receipts of an individual firm at the $7 million threshold.
    Several commenters suggested that the rule would force companies to 
develop new accounting systems to generate data on the amount of 
receipts attributable to consumer reporting. It bears emphasis that the 
rule imposes no such requirement. The Bureau has not required market 
participants regularly to submit accounting data. Market participants 
might be motivated to alter accounting systems to some degree to 
improve their assessments of whether they qualify as larger 
participants, but the Bureau is not persuaded by these commenters that 
firms will spend significant amounts on such alterations. As noted 
above, a firm with multiple lines of business presumably knows basic 
accounting information, such as receipts, for each division. If 
existing accounting systems do not provide detailed information 
corresponding to the rule's definition of annual receipts, the 
discrepancy would only relate to the amount of sales a company makes 
for purposes, like employment screening, that the rule excludes from 
the consumer reporting market. As discussed above, a firm would only 
need to know such information in detail to the degree that the precise 
facts might render the firm not a larger participant. Moreover, firms 
would be unlikely to spend significantly more on accounting systems 
than it would cost them to be supervised by the Bureau.

[[Page 42897]]

    One commenter also discussed how the costs of supervision will 
affect the consumer reporting market. The commenter argued that the 
cost of undergoing examination will be most easily borne by large 
businesses. The commenter inferred that the existence of supervision 
would create an economy of scale that would favor the growth of large 
firms in the market at the expense of smaller participants. The 
commenter did not explain whether this hypothesized market effect would 
be beneficial or harmful, either to consumers or to covered persons.
    Even if, as the commenter contends, a larger firm is better able to 
bear the costs of supervision, the rule as a whole does not necessarily 
burden smaller firms disproportionately. The Bureau may supervise the 
largest firms more frequently than those that are just above the 
threshold of qualifying as larger participants. As the Proposal noted, 
the benefits gained from detecting noncompliance are likely to be 
greater when the firm under examination is larger. Larger firms affect 
larger numbers of consumers. The benefit from any improvement in 
policies and processes will therefore be multiplied across the 
experiences of more consumers. In addition, participants' asset sizes 
and transaction volumes are among the 12 U.S.C. 5514(b)(2) factors that 
the Bureau will consider in prioritizing its supervisory activities. 
There is little reason to believe that the Bureau's general supervision 
of larger participants of this market will skew the playing field in 
favor of the largest firms--particularly in view of the fact, explained 
above, that the staff costs of responding to supervisory activity are 
likely to be small even for firms just above the larger-participant 
threshold.
    This commenter also argued that the costs of examination will be 
passed on to consumers and will therefore increase the cost of credit. 
The commenter offered no data or argument to support this assertion. 
Whether and to what extent newly supervised firms shift the cost of 
supervision, or of increased compliance, to their customers who then 
pass the cost increase on to consumers will depend on complex market 
conditions. The Bureau believes any such effects are likely to be very 
small. In contrast, as discussed above, some consumers may see their 
costs of credit decrease, if the availability of more accurate consumer 
report information helps creditors assess them better as credit risks. 
Conversely, for some consumers, the availability of more accurate 
information may lead their costs of credit to increase. In general, the 
Bureau does not have enough information to assess in detail whether and 
for what fraction of consumers the rule might increase or decrease the 
cost of credit. But the overall result should be a more efficient 
allocation of credit.

C. Impact on Depository Institutions and Credit Unions With Total 
Assets of $10 Billion or Less, and Impact on Consumers in Rural Areas

    The final rule does not apply to depository institutions or credit 
unions of any size.\102\ Nor would the rule have a unique impact on 
rural consumers.
---------------------------------------------------------------------------

    \102\ As potential users of consumer reporting services, 
depository institutions and credit unions might see changes in the 
quality and pricing of such services. The Bureau knows of, and 
commenters have suggested, no reason to think that these entities 
would be negatively affected by the final rule.
---------------------------------------------------------------------------

VII. 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.\103\ 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.\104\
---------------------------------------------------------------------------

    \103\ 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.
    \104\ 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 final 
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.\105\
---------------------------------------------------------------------------

    \105\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    The undersigned certified that the Proposal, if adopted, would not 
have a significant economic impact on a substantial number of small 
entities and that an initial regulatory flexibility analysis was 
therefore not required. The final rule adopts the Proposal, with some 
modifications that do not lead to a different conclusion. Therefore, a 
final regulatory flexibility analysis is not required.
    The rule will define a class of firms as larger participants of the 
consumer reporting market and thereby authorize the Bureau to undertake 
supervisory activities with respect to those firms. Because the rule 
adopts a threshold for larger-participant status of $7 million in 
annual receipts resulting from consumer reporting activities, larger 
market participants would generally be above the existing SBA small-
business size standard for this market: annual receipts at or below $7 
million. Moreover, the rule does not itself impose any obligations or 
standards of conduct on businesses outside the category of larger 
participants. The rule therefore does not have a significant impact on 
a substantial number of small businesses.\106\
---------------------------------------------------------------------------

    \106\ The Proposal hypothesized two circumstances in which a 
business might be a larger participant of the consumer reporting 
market yet be a small business for RFA purposes. First, a nonbank 
covered person that was not a small business might become a small 
business during the second year after it qualified as a larger 
participant. This occurrence would be rare, because relatively few 
nonbank covered persons appear (according to the Economic Census 
data) to have annual receipts near the $7 million threshold. 
Moreover, the general method of averaging a business's receipts over 
three years reduces the sensitivity of the ``annual receipts'' 
criterion to fluctuations from a single year. The second 
hypothesized circumstance involves the rule's definition of 
``control,'' which is somewhat more expansive than the SBA's. A 
company might be affiliated with another company for purposes of 
this rule, so that the two companys' receipts would be aggregated 
towards the $7 million threshold. Yet the SBA's method might not 
treat the two companies as affiliated, and their separate receipts 
might not cross the $7 million line. The Bureau anticipates no more 
than a very few such cases in the market covered by today's rule.
---------------------------------------------------------------------------

    Additionally, and in any event, the Bureau believes that the rule 
would not result in a ``significant impact'' on any small entities that 
could be affected. As previously noted, 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, among others, the Bureau's allocation of resources and the 
application of the statutory factors set forth in 12 U.S.C. 5514(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 
reporting market would be supervised is probabilistic. Moreover, even 
in cases where supervisory activity were to occur, the costs that would 
result from such activity are expected to

[[Page 42898]]

be minimal in relation to the overall activities of the firm.\107\
---------------------------------------------------------------------------

    \107\ As discussed above, the cost of participating in an 
examination might be roughly 0.17 percent of annual receipts for a 
firm near the $7 million threshold. The proportion would be larger 
for a smaller firm, but the impact will still not be substantial.
---------------------------------------------------------------------------

    Finally, 12 U.S.C. 5514(e) authorizes the Bureau to supervise 
service providers to nonbank covered persons encompassed by 12 U.S.C. 
5514(a)(1), which includes larger participants. As the Bureau noted in 
the Proposal, because the 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 continues to 
believe that it is very unlikely that any supervisory activities with 
respect to the service providers to the approximately 30 larger 
participants of the consumer reporting market delineated in the rule 
would result in a significant economic impact on a substantial number 
of small entities.\108\
---------------------------------------------------------------------------

    \108\ As the Bureau noted in the Proposal, it reaches this 
judgment in light of the number of relevant small firms in the 
relevant NAICS codes. For example, 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 5,000 small firms in the first industry 
group and nearly 8,000 in the second. The number of firms connected 
to the 30 larger participants of the consumer reporting market is 
likely to be only a small fraction of these two figures. Moreover, 
the impact of supervisory activities at such service providers would 
likely be no more intensive--and probably much less, given the 
Bureau's exercise of its discretion in supervision--than at the 
larger participants themselves. As discussed above, supervisory 
activities at larger participants would not be expected to give rise 
to a significant economic impact. Finally, because it is very 
unlikely that the Bureau would supervise many of such entities, a 
substantial number of entities would not be involved.
---------------------------------------------------------------------------

    One commenter pointed out that the SBA has issued a notice of 
proposed rulemaking, considering an increase in the small business size 
standard for the consumer reporting market to $14 million in annual 
receipts. The SBA's proposal does not affect the accuracy of the 
Bureau's RFA analysis, because the size standard has not yet changed. 
In any event, even if a $14 million standard applied, the rule would 
still not impact a ``substantial number'' of small entities. The Bureau 
estimates, using the Economic Census data, that the rule treats as 
larger participants approximately 30 consumer reporting entities out of 
approximately 410 firms in the market. Out of these 410 entities, the 
Bureau estimates that approximately 393 market participants would be 
small business entities under the SBA's proposed size standard of $14 
million. Meanwhile, among the about 30 larger participants of the 
consumer reporting market, about 13 might fall below a $14 million 
threshold. Thus, the final rule would impact only 3.3 percent of 
consumer reporting entities that might be considered small businesses 
under the SBA's proposal, and the impact on these entities would not be 
significant anyway. The rule would thus not have a significant impact 
on a substantial number of small entities, even if the SBA were to 
adopt its proposed change to the relevant definition of small business.
    One commenter argued that the Bureau was incorrect in taking the 
positions that ``[t]he rule would not itself impose any obligations or 
standards of conduct on larger participants for purposes of [Regulatory 
Flexibility Act] analysis'' and that ``whether and when an entity in 
the * * * consumer reporting market[] would be supervised is 
probabilistic.'' \109\ This commenter stated that the actual imposition 
of examination requirements will have an effect on small businesses, 
because the consequences of supervision could include an increase in 
the cost of credit and a diminution in access to credit. The commenter 
argued that the Bureau should not have certified the Proposed Rule and 
should have convened a panel and consulted representatives of small 
entities in compliance with the small business protection requirements 
set forth in the Small Business Regulatory Enforcement Fairness Act 
(SBREFA), as amended by Section 1100G of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \109\ 77 FR 9606.
---------------------------------------------------------------------------

    The Bureau believes that its certification of the Proposed Rule was 
appropriate and that, as a result, the convening of a panel to consult 
with small entities was not required under the RFA. The Proposed Rule 
would not have imposed any obligations or standards of conduct on 
entities for purposes of RFA analysis, but rather would have authorized 
the Bureau to exercise its supervisory authority with respect to a 
class of entities. Thus, the Proposal, like the final rule, does not 
give rise to a regulatory compliance burden for small entities. In any 
event, the Bureau properly found (as described above with respect to 
the final rule) that even if the Proposed Rule were considered to 
impose regulatory obligations for purposes of RFA analysis, it would 
not have created a significant impact on a substantial number of small 
entities.
    Accordingly, the undersigned certifies that this rule will not have 
a significant economic impact on a substantial number of small 
entities.

VIII. Paperwork Reduction Act

    The Bureau determined that the Proposed Rule would not impose any 
new recordkeeping, reporting, or disclosure requirements on covered 
entities or members of the public that would constitute collections of 
information requiring approval under the Paperwork Reduction Act, 44 
U.S.C. 3501, et seq. The Bureau did not receive any comments regarding 
this conclusion, to which the Bureau adheres. The Bureau concludes that 
the final rule, which adopts the Proposal in relevant respects, also 
imposes no new information collection requirements subject to the 
Paperwork Reduction Act.

List of Subjects in 12 CFR Part 1090

    Consumer protection, Credit.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau of Consumer 
Financial Protection adds Part 1090 to Chapter X in Title 12 of the 
Code of Federal Regulations to read as follows:

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

Subpart A--General
Sec.
1090.100 Scope and purpose.
1090.101 Definitions.
1090.102 Status as larger participant subject to supervision.
1090.103 Assessing status as a larger participant.
Subpart B--Markets
1090.104 Consumer Reporting Market.

    Authority: 12 U.S.C. 5514(a)(1)(B); 12 U.S.C. 5514(a)(2); 12 
U.S.C. 5514(b)(7)(A); and 12 U.S.C. 5512(b)(1).

Subpart A--General


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 12 U.S.C. 5514(a)(1)(B) and (a)(2). A larger 
participant of a market covered by this part is subject to the 
supervisory authority of the Bureau under 12 U.S.C. 5514. This part 
also establishes rules to facilitate the Bureau's supervision of such 
larger participants pursuant to 12 U.S.C. 5514(b)(7).


Sec.  1090.101  Definitions.

    For the purposes of this part, the following definitions apply:

[[Page 42899]]

    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.
    (1) For purposes of this definition ``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.
    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 part. 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.
    Bureau means the Bureau of Consumer Financial Protection.
    Completed fiscal year means a tax year including any fiscal year, 
calendar year, or short tax year. ``Fiscal year,'' ``calendar 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:
    (1) A ``fiscal year'' is 12 consecutive months ending on the last 
day of any month except December 31.
    (2) A ``calendar year'' is 12 consecutive months ending on December 
31.
    (3) A ``tax year'' is an annual accounting period for keeping 
records and reporting income and expenses, or, if appropriate, a short 
tax year. An annual accounting period does not include a short tax 
year.
    (4) A ``short tax year'' is a tax year of less than 12 months.
    Consumer means an individual or an agent, trustee, or 
representative acting on behalf of an individual.
    Consumer financial product or service means any financial product 
or service, as defined in 12 U.S.C. 5481(15), that is described in one 
or more categories under:
    (1) 12 U.S.C. 5481(15)(A) and is offered or provided for use by 
consumers primarily for personal, family, or household purposes; or
    (2) Clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A) and is 
delivered, offered, or provided in connection with a consumer financial 
product or service referred to in paragraph (1) of this definition.
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.
    Larger participant means a nonbank covered person that has met a 
test under subpart B of this part within the period provided in Sec.  
1090.102 of this part.
    Nonbank covered person means, except for persons described in 12 
U.S.C. 5515(a) and 5516(a):
    (1) Any person that engages in offering or providing a consumer 
financial product or service; and
    (2) Any affiliate of a person that engages in offering or providing 
a consumer product or service if such affiliate acts as a service 
provider to such person.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, 
cooperative organization, or other entity.
    Supervision and supervisory activity mean the Bureau's exercise, or 
intended exercise, of supervisory authority, including by initiating or 
undertaking an examination, or requiring a report of a person, pursuant 
to 12 U.S.C. 5514.


Sec.  1090.102  Status as larger participant subject to supervision.

    A person qualifying as a larger participant under subpart B of this 
part 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 subpart B.


Sec.  1090.103  Assessing status as a larger participant.

    (a) If a person receives a written communication from the Bureau 
initiating a supervisory activity pursuant to 12 U.S.C. 5514, 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 45 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 12 U.S.C. 5514. In addition, a person may 
include with the response copies of any records, documents, or other 
information on which the person relied in making the assertion.
    (b) A person shall be deemed to have waived the opportunity, 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 45 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 explaining whether the person meets the 
definition for 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 assess 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 her or his own initiative 
or for good cause shown.

Subpart B--Markets


Sec.  1090.104  Consumer Reporting Market.

    (a) Market-Related definitions.
    Annual receipts means receipts calculated as follows:
    (i) 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 sole proprietorships). Receipts do not include net capital gains or 
losses; taxes

[[Page 42900]]

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.
    (ii) Period of measurement. (A) Annual receipts of a person that 
has been in business for three or more completed fiscal years means the 
total receipts of the person over its three most recently completed 
fiscal years divided by three.
    (B) Annual receipts of a person that has been in business for less 
than three completed 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.
    (C) Where a person has been in business for three or more completed 
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 or calendar years divided by the 
total number of weeks in the short year and the two full fiscal or 
calendar years, multiplied by 52.
    (iii) Annual receipts of affiliated companies. (A) 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.
    (B) If a person has acquired an affiliated company or been acquired 
by an affiliated company during the applicable period of measurement, 
the annual receipts of the person and the affiliated company are 
aggregated for the entire period of measurement (not just the period 
after the affiliation arose).
    (C) Receipts are calculated separately for the person and each of 
its affiliated companies in accordance with paragraph (ii) of this 
definition 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 (ii)(B) of this definition even 
if the person has been in business for three or more completed fiscal 
years.
    (D) The annual receipts of a formerly affiliated company are not 
included if affiliation ceased before the applicable period of 
measurement as set forth in paragraph (ii) of this definition. This 
exclusion of annual receipts of formerly affiliated companies applies 
during the entire period of measurement, rather than only for the 
period after which affiliation ceased.
    Consumer reporting means:
    (i) 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.
    (ii) Exclusion for transaction and experience information. Consumer 
reporting does not include the activities of a person to the extent 
that a person collects, analyzes, maintains, or provides information 
that relates solely to the person's transactions or experiences with 
consumers.
    (iii) Exclusion for furnishing affiliate 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 an 
affiliate of such person to another person that is engaged in consumer 
reporting.
    (iv) Exclusion for certain authorizations or approvals. Consumer 
reporting does not include any authorization or approval of a specific 
extension of credit directly or indirectly by the issuer of a credit 
card or similar device.
    (v) Exclusion 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 
regarding a decision for employment, government licensing, or a 
residential lease or tenancy involving a consumer, or 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.
    (b) Test to define larger participants. 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.

    Dated: July 13, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-17603 Filed 7-17-12; 4:15 pm]
BILLING CODE 4810-AM-P