The Consumer Financial Protection Bureau issued its Final Rule on July 16 defining what constitutes a "larger participant" in the consumer reporting market. Beginning on September 30, 2012, larger participants will be subject to supervisory examination by the Bureau for compliance with federal consumer financial laws.
Although the Bureau published the proposed larger participant rules for both the consumer reporting and the debt collection markets on February 17, 2012, only the consumer reporting market larger participant final rule was issued on July 16. The Bureau indicated that the final rule defining larger participants in the debt collection market will be issued later this year.
Not much changed in the Final Rule from the proposed rule. Larger participants in the consumer reporting market are still defined as participants that have more than $7 million in annual receipts resulting from applicable consumer reporting activities. We discussed this larger participant threshold in our prior alert on the proposed rule.
Changes in the Final Rule
In some of the few significant changes from the proposed rule, the Final Rule adds two additional exclusions from the definition of "consumer reporting." First, companies are not engaged in consumer reporting where a company provides information to another company in which the information solely relates to transactions or experiences between a consumer and the company that is providing the information. For example, a bank providing deposit account balances to a mortgage lender does not constitute credit reporting. Second, companies are not engaged in consumer reporting where they authorize or approve a specific credit extension by the issuer of the card. For example, payment system activities related to processing credit card transactions are not credit reporting activities.
Larger Participant Rulemaking
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bureau has authority to supervise nonbank providers (regardless of size) of residential mortgage loans and certain related services, payday loans, and private education loans. The Dodd-Frank Act also gave the Bureau supervisory authority over other nonbank providers considered to be "a larger participant of [the relevant] market."
The Final Rule is the first rule defining nonbank larger participants in a market, and the Bureau indicated in its Notice and Request for Comment on Defining Larger Participants, about which we issued an alert, that in addition to the debt collection market, the Bureau might issue larger participant rules for additional markets for consumer financial products and services, including consumer credit and related activities, money transmitting, check cashing and related activities, prepaid cards, and debt relief services. Given that the Bureau recently conducted a field hearing on prepaid cards, we might expect that the prepaid card market will be the subject of the next larger participant rule after the final rule on the debt collection market is issued.
Preparing for Bureau Supervision
The Bureau will exercise broad discretion in deciding which larger participants to examine, looking to such factors as company size and transaction volume, the risks posed to consumers from the company's products or services, and the extent of state consumer protection oversight.
In anticipation of Bureau examinations, companies likely to qualify as larger participants should promptly review their practices and procedures for federal law compliance with experienced counsel. The Bureau will examine the "entire [company] for compliance with all Federal consumer financial laws [and] assess enterprise-wide compliance systems and procedures." In addition to examining their compliance with laws such as the Fair Credit Reporting Act, companies should also expect scrutiny of their practices under the new "unfair, deceptive or abusive" standard contained in Dodd-Frank. Lawyers in Ballard Spahr's Consumer Financial Services Group are currently assisting many clients in preparing for their expected Bureau examinations.
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