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CFPB Proposes “Larger Participants” Rule

February 16, 2012

The Consumer Financial Protection Bureau (CFPB) has issued the first in what it anticipates will be a series of proposed rules defining “larger participants” for purposes of establishing CFPB supervisory jurisdiction over nonbanks. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB is given jurisdiction over nonbanks that offer or provide consumers with services related to residential mortgage loans, private education loans and payday loans, as well as other nonbanks that are “larger participants” offering financial products or services. The CFPB is authorized by the Dodd-Frank Act to define a category of “larger participants” that will be subject to its supervision. The proposed rule, slated to appear in the Federal Register on February 17, 2012, proposes thresholds for determining which consumer reporting agencies and debt collectors will be subject to CFPB supervision. Proposed rules defining “larger participants” in other areas of financial services will be issued shortly. Final rules defining “larger participants” are required by July 21, 2012.

Under the proposed rule, a nonbank covered person that offers or provides consumer debt collection services will be considered a “larger participant” if its annual receipts resulting from consumer debt collection are more than $10 million. The rule would apply to persons engaged in offering or providing such services, as well as their affiliates if the affiliate acts as a service provider to such persons. “Consumer debt collection” would include third party debt collection as well as debt buying activities. The CFPB indicates that the entities typically engaged in consumer debt collection are third party debt collectors, debt buyers, collection attorneys and law firms. The larger participant threshold for consumer reporting agencies would be $7 million in annual receipts. According to the CFPB, the proposed threshold will result in approximately 175 larger participants in the consumer debt collection market (approximately 4 percent of all collection firms) and 30 larger participants in the consumer reporting market (approximately 7.5 percent of all consumer reporting agencies).

The proposed rule sets forth a formula for determining the amount of a nonbank covered person’s annual receipts. The proposed rule also provides a mechanism for a nonbank covered person to appeal the CFPB's determination that it met the definition of “larger participant.” Once a person qualifies as a “larger participant,” the designation will remain in place until two years after the first day of the tax year in which the person last met the annual receipt threshold.

Comments on the proposed rule will be due 60 days after publication in the Federal Register.

For more information on how this proposed rule affects you or your business, please contact Donald C. Lampe at (704) 335-2736 or dlampe@dykema.com; or the authors of this alert, Heather C. Hutchings at (202) 906-8616 or hhutchings@dykema.com; or Arthur B. Axelson at (202) 906-8607 or aaxelson@dykema.com.


As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2012 Dykema Gossett PLLC.  
 

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2017 Dykema Gossett PLLC.