On Friday (Aug. 8), and as detailed in the Federal Register, the Bureau published four advance notices of proposed rulemaking that would apply to companies in the debt collection, international money, consumer reporting and automobile financing sectors.
At a high level, the four entries share a common goal and a common heading: “Defining the larger participants” of the markets. What’s up for debate, public comment and possibly significant change is whether the attributes used to define those participants should be revised.
As It Stands Now
The aforementioned attributes vary from market to market and have been dependent on volumes or revenues. The commentary periods stretch out toward the end of September.
We note that the rules defining the participants stretch back to 2012 and 2015, so it’s reasonable to expect that at least some of the comments will argue that rules formulated at least a decade ago could not have anticipated that ways in which FinTechs and other providers have evolved.
“The Bureau is concerned that the benefits of the current threshold[s] may not justify the compliance burdens for many of the entities that are currently considered larger participants in this market, and that the current threshold[s] may be diverting limited Bureau resources to determine whom among the universe of providers may be subject to the Bureau’s supervisory authority and whether these providers should be examined in a particular year,” the CFPB stated in last week’s disclosures.
There’s a duality at play here, where the bureau noted the burden of its supervised firms and the burdens the supervisors themselves face. On this second point, as PYMNTS has reported, funding for the agency is on track to be cut by nearly half by Congress, where the monies would equate to about 6.5% of the Federal Reserve’s earnings, down from 12%.
The Parameters for Debt Collection
Within the consumer debt collection sphere, the notice details that nonbank entities with over $10 million in annual receipts are “larger participants” and raises concerns that the rules do not reflect the realities that “some of the facts that were used to justify a threshold of $10 million have changed in the intervening years” since the threshold was established.
Back then, the Small Business Administration (SBA) size definition for a ”small business concern,” has risen from $7 million in 2013 (measured in receipts) to a more recent $19.5 million.
“There are thus a number of collection agencies that are small businesses according to the SBA, but are larger participants according to the Bureau,” the statement of proposed rulemaking noted. Feedback would discuss changes to the threshold, and per the CFPB, “the Bureau is particularly concerned that smaller businesses that currently qualify as larger participants are being disproportionately impacted by the current threshold.”
Automobile Financing Thresholds
The advance notice seeking input also extends to auto financing, where thresholds were set in 2015. That threshold stood, and stands, at 10,000 in annual originations. But in raising the threshold to a hypothetical 1 million annual transactions, the CFPB disclosed, the tally of covered entities would be reduced from 63 entities — covering 94% of originations in the market — to five, which account for 42% of the market.
Consumer Reporting Market Larger Participants
Proposed rulemaking governing consumer reporting would look for commentary delving into thresholds that had been established in 2012. Within that segment, entities with more than $7 million in annual receipts have fallen under the scope of the CFPB’s supervisory efforts.
But by using the SBA’s $41 million “small business” threshold in this industry, “the Bureau estimates that increasing the annual receipts threshold to match the SBA annual revenue threshold of $41 million would leave at least six larger participants in the market,” rather than the 30 that fall between the $7 million to $41 million range.
The Parameters for International Money Transfers
For international money transfers, the advance notice of proposed rulemaking would similarly introduce the process of examining whether the nonbank larger entity threshold — of at least 1 million annual transfers — should still hold.
The CFPB wrote: “The largest eight non-depository financial institutions by transfer volume conducted approximately 77% of estimated remittance transfers. This concentration supports the fact that a higher threshold might better balance the goals of protecting consumers while also not unnecessarily imposing costs on covered [entities].”
