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Monday, February 27, 2012

CFPB: Defining "Larger Participant"

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

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

The CFPB is required to issue an initial ''larger participant'' rule not later than July 21, 2012, which will be one year after the designated transfer date to the CFPB of the enumerated laws pursuant to Dodd-Frank.
The CFPB now seeks public comments as to how best to define "larger participants" in the markets for consumer debt collection and consumer reporting.

Comments must be received on or before April 17, 2012.
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IN THIS ARTICLE
Overview
Defining "Nonbanks"
Supervision Mandates
Thresholds
Dates and Timeframes
Submit Comments
Library
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Overview

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

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

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

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

Nonbanks are:
(a) any entity that engages in offering or providing a consumer financial product or service; and
(b) any affiliate of an entity described in (a) if such affiliate acts as a service provider to such entity.
Excluded from the definition of nonbanks are insured depository institutions or credit unions, or, in the case of such entities with assets of more than $10 billion, their affiliates.

The Bureau is authorized to supervise nonbank entities by requiring the submission of reports and conducting examinations to:
(1) assess compliance with Federal consumer financial law;
(2) obtain information about activities and compliance systems or procedures; and
(3) detect and assess risks to consumers and to the consumer financial markets.

The CFPB has previously sought to evaluate criteria that allow it to administer the Program efficiently by readily identifying larger participants based on "objective available data." Dodd-Frank provides that, for purposes of computing the activity levels of a market participant, the activities of the participant "shall be aggregated" with the activities of nondepository "affiliated companies."
Examples of potential criteria (one or in combination with others):
annual number of transactions in the market;
annual value of transactions (i.e., total loan volume);
annual receipts or revenue;
geographic coverage (i.e., number of states where engaged in business);
asset size; and
outstanding loan balances.
The thresholds - not necessarily mutually exclusive - that may be used could be based on an absolute approach (i.e., an entity with certain annual loan volume) or based on a relative approach (i.e., every market participant having an annual loan volume of a certain amount relative to other participants).

Friday, February 17, 2012

CFPB's New "Feedback Tool"

On February 16, 2012, the Consumer Financial Protection Bureau (Bureau or CFPB) launched a new initiative, dubbed the Streamlining Regulations Feedback Web Tool.

According to the Bureau, the tool will enable the public and financial institutions alike to more easily submit suggestions for streamlining regulations that the CFPB received from other Federal agencies on July 21, 2011, which the Bureau calls inherited regulations.

In effect, the Bureau is seeking comments and suggestions about existing regulations. The goal is to identify provisions of the regulations that the CFPB should make the "highest priority" for updating, modifying, or eliminating because they are outdated, unduly burdensome, or unnecessary.

The purpose of the Feedback Tool is to create one means by which the agency may consider ways to reduce the burdens imposed by existing regulations without reducing actual financial protection to consumers.  

This newsletter provides a general outline of the ways and means by which the CFPB will use the information derived from the Feedback Tool, other sources, and an overview of the Federal Register Notice of Streamlining Project of December 5, 2011.


In This Article-Grey-Light-1 (125x24)
Proposal in the Federal Register
Suggestions Criteria
Suggestions Factors
Potential Streamlining Opportunities
Streamlining Regulations Feedback Web Tool
Public View
Line-Webpage

On December 5, 2011, the CFPB published in the Federal Register its proposal to streamline regulations it recently inherited from other Federal agencies. The Bureau indicated that it would ask the public to identify provisions of the inherited regulations that the Bureau should make the highest priority for updating, modifying, or eliminating because they are outdated, unduly burdensome, or unnecessary. Comments on the proposal must be submitted by March 5, 2012 and commenters will have 30 additional days (until April 3, 2012) to respond to other comments.

The proposal itself provided several specific requirements that the CFPB believes may warrant review.

For the next year the Bureau is focusing most of its rulemaking resources various mortgage reforms that Congress instructed the Bureau to implement. This focus is dictated by the January 2013 statutory deadline for most of these rules.

After the Bureau receives public input and determines its priorities, the Bureau will consider whether to issue a notice of proposed rulemaking to streamline specific provisions of regulations.

The CFPB will focus on a particular regulation or set of regulations. It will also focus on a market sector and all of the regulations that apply to that sector. The Bureau states that it is interested in "identifying practical measures it can take, apart from revising regulations, to make compliance with the inherited regulations easier." It is also interested in identifying practical measures to be taken to promote, or remove obstacles to, responsible innovation in consumer financial services markets.

The Bureau announced that it will also consider practical measures to make it easier for firms, especially smaller ones, to comply with the inherited regulations.


Commenters may consider suggesting provisions of regulations that should be:
  • Simplified, rationalized, or consolidated;
  • Relaxed, modified, or eliminated, perhaps for smaller firms or certain classes of transactions, without undermining essential protections;
  • Updated to reflect current practices and technology;
  • Adjusted to avoid unintended consequences; or
Changed to remove an obstacle to responsible innovation.


Commenters are invited to:
  • Offer their highest priorities for updating, modifying, or eliminating specific provisions of regulations that are outdated, unduly burdensome, or unnecessary.
  • Single out their top priority.
Factors to be considered by Commenters are:
  • Suggestions should focus on revisions that would not require Congressional action.
  • Take into account the five factors the Bureau plans to consider to set its priorities:
1. Size,
2. Likelihood, and
3. Speed of potential gains from streamlining;
4. Resources needed to achieve the gains; and
5. Strength of the evidence with which to judge these factors.