In one of its first notices, the CFPB has published a request for comments to inform its forthcoming proposed rule that will define “larger participants” in certain consumer financial products or services markets that will be subject to the CFPB’s supervisory authority (“Notice”).1 Pursuant to the CFPA, the CFPB has direct supervisory authority over depository institutions with more than $10 billion in assets, as well as such authority over certain enumerated nondepository entities (i.e. mortgage originators, brokers and servicers, providers of mortgage modification and foreclosure relief services, payday lenders, and private education lenders). The law further permits the CFPB to extend its supervisory authority over “larger participants” in other non-enumerated consumer financial products or services by rulemaking. The CFPB’s Notice identifies potential areas that may warrant CFPB supervision. Comments are due by August 15, 2011. The CFPB must issue its final rule by July 12, 2012. Highlights from the Notice follow below.

Nondepository Supervisory Authority

While entities subject to federal consumer protection laws must comply with those laws regardless of the CFPB’s rulemaking, this rulemaking would also subject them to CFPB supervision. Section 1024 of the CFPA requires the CFPB to implement a risk-based supervisory program over the enumerated nondepository institutions (i.e. mortgage originators, brokers, and servicers, providers of mortgage modification and foreclosure relief services, payday lenders, and private education lenders) as well as over those “larger participants” that it identifies through rulemaking. Through this program, the CFPB may subject these entities to a range of requirements, including among others:

  • federal registration (which would be established by a separate rulemaking);
  • the submission of reports; and
  • onsite examinations to assess compliance with federal consumer financial law.

The exact scope of the program would vary by consumer financial product or service market.

Identifying Larger Participants

Section 1024(b)(2) of the CFPA directs the CFPB to identify larger participants based on the risks they pose to consumers in relevant product and geographic markets and to consider: (1) asset size; (2) volume of transactions; (3) risks to consumers; (4) extent of state supervision; and (5) any other relevant factors determined by the CFPB.

Initial Markets Under Consideration

In its Notice, the CFPB has identified the following markets for potential inclusion in its proposed rulemaking on “larger participants”:

  • consumer credit and related activities;
  • consumer reporting;
  • debt collection;
  • debt relief services;
  • money transmitting, check cashing and related activities; and
  • prepaid cards.

Even if the CFPB limits its initial rulemaking to identifying the above areas, the CFPB has indicated that it may expand the list of “larger participants” through subsequent rulemakings.

To help it determine the appropriate markets, the CFPB has asked for comments on:

  • what consumer financial products or service markets should be included;
  • how financial product or service markets covered by the rule should be defined; and
  • what criteria should be measured and threshold levels set to define larger participants.

Factors in Determining Size of Larger Participants

To assist it determining the appropriate size for larger participants, the CFPB has asked:

  • whether a larger participant should be defined based on relative size within a market or on an absolute threshold;
  • whether more than one criteria should determine size (e.g., number of annual transactions, number of states where business is conducted); and
  • whether the same criteria should be used to define larger participants for every market.

The Notice also requests comments on how the CFPB should measure the criteria as they relate to market participants and how time frames should factor into size measurements.