# Defining Larger Participants of the Consumer Reporting Market

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2012-17603

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 20, 2012
- **Citation:** 77 FR 42874

## Text

BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1090
[Docket No. CFPB-2012-0005]
RIN 3170-AA00
Defining Larger Participants of the Consumer Reporting Market

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is publishing a final rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. That statute grants the Bureau authority to supervise certain nonbank covered persons for compliance with Federal consumer financial law and for other purposes. The Bureau has the authority to supervise nonbank covered persons of all sizes in the residential mortgage, private education lending, and payday lending markets. In addition, the Bureau has the authority to supervise nonbank “larger participant[s]” of markets for other consumer financial products or services, as the Bureau defines by rule. An initial rule to define such larger participants must be issued by July 21, 2012. The Bureau issues this final rule to define larger participants of a market for consumer reporting. The final rule thereby facilitates the supervision of nonbank covered persons active in that market.

DATES:

Effective September 30, 2012.

FOR FURTHER INFORMATION CONTACT:

Christopher Young, Senior Counsel, (202) 435-7408, or Nicholas Krafft, Consumer Financial Protection Analyst, (202) 435-7252, Office of Nonbank Supervision, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

On February 17, 2012, the Bureau published a notice of proposed rulemaking proposing tests for defining larger participants of two markets identified by the Bureau: consumer reporting and consumer debt collection. The Bureau issues this final rule to define larger participants of a market for consumer reporting. After the issuance of this final rule, the Bureau will take further action regarding the proposed consumer debt collection market. This initial rule to define larger participants will be followed by a series of rulemakings covering additional markets for consumer financial products and services.

I. Overview

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
1

established the Bureau of Consumer Financial Protection (Bureau) on July 21, 2010. One of the Bureau's responsibilities under the Dodd-Frank Act is the supervision of certain nonbank covered persons,
2

and very large banks, thrifts, and credit unions and their affiliates.
3

1
Public Law 111-203 (12 U.S.C. 5301
et seq.
).

2
The provisions of 12 U.S.C. 5514 apply to nondepository (nonbank) covered persons and expressly exclude from coverage persons described in 12 U.S.C. 5515(a) or 5516(a). A “covered person” means “(A) any person that engages in offering or providing a consumer financial product or service; and (B) any affiliate of a person described [in (A)] if such affiliate acts as a service provider to such person.” 12 U.S.C. 5481(6);
see also
12 U.S.C. 5481(5) (defining “consumer financial product or service”). Under 12 U.S.C. 5514(d), subject to certain exceptions, “to the extent that Federal law authorizes the Bureau and another Federal agency to * * * conduct examinations, or require reports from a [nonbank covered person] under such law for purposes of assuring compliance with Federal consumer financial law and any regulations thereunder, the Bureau shall have the exclusive authority to * * * conduct examinations [and] require reports * * * with regard to a [nonbank covered person], subject to those provisions of law.”

3

See
12 U.S.C. 5515(a). The Bureau also has certain authorities relating to the supervision of other banks, thrifts, and credit unions.
See
12 U.S.C. 5516(c)(1), (e). The Bureau notes that one of the objectives of the Dodd-Frank Act is to ensure that “Federal consumer financial law is enforced consistently without regard to the status of a person as a depository institution, in order to promote fair competition.” 12 U.S.C. 5511(b)(4).

Under 12 U.S.C. 5514, the Bureau has supervisory authority over nonbank covered persons of any size offering or providing three enumerated types of consumer financial products or services: (1) Origination, brokerage, or servicing of residential mortgage loans secured by real estate, and related mortgage loan modification or foreclosure relief services; (2) private education loans; and (3) payday loans.
4

The Bureau also has supervisory authority over “larger participant[s] of a market for other consumer financial products or services,” as the Bureau defines by rule.
5

The Bureau is authorized to supervise nonbank entities subject to 12 U.S.C. 5514 of the Dodd-Frank Act by requiring the submission of reports and conducting examinations to: (1) Assess compliance with Federal consumer financial law; (2) obtain information about such persons' activities and compliance systems or procedures; and (3) detect and assess risks to consumers and to consumer financial markets.
6

The Bureau is required to issue an initial larger participant rule by July 21, 2012.

4
12 U.S.C. 5514(a)(1)(A), (D), and (E).

5
12 U.S.C. 5514(a)(1)(B), (a)(2). The Bureau also has the authority to supervise any nonbank covered person that it “has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity * * * to respond,” that such covered person “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.” 12 U.S.C. 5514(a)(1)(C). The Bureau has published a notice of proposed rulemaking to establish uniform procedures relating to this provision of the Dodd-Frank Act. 77 FR 31226 (May 25, 2012).

6
12 U.S.C. 5514(b)(1).

This final rule establishes, in part, the scope of the Bureau's supervision authority for nonbank covered persons
7

under 12 U.S.C. 5514, by defining “larger participants” of a market for consumer reporting.
8

The Bureau intends the final rule to be the first in a series of rules to define larger participants of other markets. After the issuance of this rule, the Bureau will take further action relating to its notice of proposed rulemaking to define larger participants of a market for consumer debt collection.

7
The Bureau's supervision authority also extends to service providers of covered persons subject to supervision under 12 U.S.C. 5514.
See
12 U.S.C. 5514(e) (establishing the Bureau's supervisory authority relating to service providers);
see also
12 U.S.C. 5481(26) (defining “service provider”).

8
The final rule describes one market for consumer financial product or services, which the rule labels “consumer reporting.” The definition in the rule does not encompass all activities that could be considered consumer reporting. Any reference herein to “the consumer reporting market” means only the particular market for consumer reporting identified by the final rule.

The final rule pertains only to defining larger participants of a specified market and thereby delineating, in part, the scope of the Bureau's nonbank supervision authority. It does not impose new substantive consumer protection requirements. Nor does it delineate the scope of the Fair Credit Reporting Act (FCRA), provisions of the Dodd-Frank Act related to consumer reporting activities, or any other Federal consumer financial law. Nonbank covered persons generally are subject to the Bureau's regulatory and enforcement authority, and any applicable Federal consumer financial law, regardless of whether they are subject to the Bureau's supervisory authority.

II. Background

On June 29, 2011, through a notice and request for comment (Notice), the Bureau solicited public comment on developing a proposed larger participant rule.
9

The Bureau also held a series of roundtable discussions with industry, consumer and civil rights groups, and State regulatory agencies and associations.
10

The Bureau considered

the comments it received in connection with the Notice in developing a proposed rule to define larger participants of two markets for consumer financial products or services: consumer debt collection and consumer reporting. The Bureau published a notice of proposed rulemaking on February 17, 2012 (Proposed Rule or Proposal).
11

The Bureau requested and received public comment on the Proposed Rule.

9
76 FR 38059 (June 29, 2011).

10
In July 2011, the Bureau held four roundtable discussions on the Notice. More than 70

stakeholders participated, representing a diverse mix of nonbank and bank trade associations and consumer advocacy and civil rights groups. The roundtables focused on key issues regarding how to define larger participants, including what criteria to measure, where to set thresholds, available data sources, and which markets to cover. Also in July 2011, the Bureau held a multistate regulator and regulatory association conference call that had more than 40 participants.

11
77 FR 9592 (Feb. 17, 2012).

The Proposed Rule defined certain terms, including “affiliated company,” “annual receipts,” “consumer reporting,” and “nonbank covered person.” The Proposed Rule also set forth a test for determining whether a nonbank covered person is a larger participant of the consumer reporting market.
12

Under this test, a nonbank covered person with more than $7 million in annual receipts resulting from consumer reporting activities described in the Proposed Rule would be a larger participant of the consumer reporting market. As defined in the Proposed Rule, the determination of annual receipts is generally derived from a three-year average of receipts. Under the Proposed Rule, once a nonbank covered person met a larger-participant test for a particular market, the person would retain larger-participant status for a period of at least two years. The Proposed Rule also set forth a procedure for a person to challenge an assertion by the Bureau that the person qualified as a larger participant of a covered market and a mechanism by which the Bureau could request information to assess whether a person is a larger participant.

12
As noted above, the Proposed Rule also addressed a market for consumer debt collection; that market will be the subject of a later publication.

The Bureau received 82 comments on the Proposed Rule from, among others, consumer groups, industry trade associations, companies, State financial services agencies, and individuals. These comments are discussed in more detail below in the section-by-section analysis of the final rule.

III. Summary of the Final Rule

The final rule is the first in what the Bureau intends to be a series of rules to define “larger participants” of specific markets for purposes of establishing, in part, the scope of coverage of the Bureau's nonbank supervision program. The rule contains two main components. Subpart A establishes general definitions, concepts, protocols, and procedures relating to the Bureau's supervision of larger participants and assessment of whether entities are larger participants. Subpart B identifies a market for consumer reporting, defines the term “annual receipts” for purposes of measuring participation in that market, and sets forth the test for assessing which entities are larger participants of that market. As the Bureau identifies additional markets in which to supervise larger participants, the Bureau expects to include the relevant market descriptions and larger-participant tests in Subpart B.

In its general provisions under Subpart A, the final rule defines terms relevant to the rule, such as “affiliated company,” “consumer financial product or service,” and “nonbank covered person,” adopting (with minor modifications) the proposed definitions for these terms. The final rule adopts the provision of the Proposed Rule that once a nonbank covered person qualifies as a larger participant, the person will be deemed a larger participant for a period not less than two years from the first day of the tax year in which the person last met the applicable test. The final rule also adopts the proposed procedure for a person to challenge that it qualifies as a larger participant, during a specified time period after being notified by the Bureau that the Bureau intends to conduct some type of supervision activity in connection with the person. However, in response to comments, the Bureau has extended the specified time period from 30 days to 45 days. To facilitate the Bureau's supervision of nonbank covered persons, to enable the Bureau to carry out the purposes and objectives of the Dodd-Frank Act relating to supervision, and to prevent evasion, the final rule also adopts the proposed provision that the Bureau may require submission of records, documents, and other information for purposes of assessing whether a person is a larger participant of a covered market.

Under Subpart B, the final rule defines the term “consumer reporting” by describing market-related activities; defines the term “annual receipts,” the criterion by which entities' level of participation in the consumer reporting market is measured; and sets forth the test for which participants are larger participants. The consumer reporting market, as defined in the final rule, includes consumer reporting agencies selling consumer reports, consumer report resellers, analyzers of consumer reports and other account information (analyzers), and specialty consumer reporting agencies (collectively referred to as consumer reporting entities). As a general matter, some consumer reporting agencies collect, among other information, information about credit accounts, items sent for collection, and public records such as judgments and bankruptcies. Resellers purchase consumer information from one or more of the agencies that collect information, typically provide further input to the consumer report (including by merging files from multiple agencies or adding information from other data sources), and then resell the report to lenders and other users. Analyzers apply statistical and other methods to consumer reports and other account information to facilitate the interpretation of such information and its use in decisions regarding other products and services. Certain analyzers develop and sell credit scoring services and products. Specialty consumer reporting agencies primarily collect and provide specific types of information that may be used to make decisions regarding particular consumer financial products or services, such as payday loans or checking accounts, or for other determinations, such as eligibility for employment or rental housing. However, some of these specialty consumer reporting agencies, depending on their activities, may not be engaged in offering or providing consumer financial products or services within the meaning of the Dodd-Frank Act, and therefore would not, on the basis of their activities, become “covered persons” subject to the Bureau's supervisory authority.
13

These exclusions are implemented in the definition of “consumer reporting” in the final rule.

13

See
12 U.S.C. 5481(15)(A)(ix). Under the final rule, “consumer reporting” does not include the activities of a person to the extent that a person provides consumer report or other account information that is used or expected to be used solely regarding a decision for employment, government licensing, or a residential lease or tenancy involving a consumer, or to be used solely in any decision regarding the offering or provision of a product or service that is not a consumer financial product or service.

As detailed in the Proposal, consumer reporting is a consumer financial product or service that is of fundamental importance to markets for many other consumer financial products and services. Consumer reports (sometimes referred to as “credit reports”), which may contain information about consumers' credit histories and other transactions, and the

credit scores derived from credit files, affect many aspects of consumers' lives. Consumer reports are important tools that lenders use to assess borrower risk when evaluating applications for credit cards, home mortgage loans, automobile loans, and other types of credit. Consumer reports may also be used to determine eligibility and pricing for other types of products and services, such as checking accounts. The consumer reporting market affects hundreds of millions of consumers. The Consumer Data Industry Association (CDIA), a trade association that represents, among others, the consumer reporting industry, estimates that each year there are more than 36 billion updates made to consumer files at consumer reporting agencies,
14

and three billion reports issued.
15

It also estimates that each of the three largest consumer reporting agencies maintains credit files on more than 200 million consumers.
16

Because of the significant connections between consumer reporting and other consumer financial products and services, supervision of consumer reporting will further the Bureau's mission to ensure that all consumers have access to fair, transparent, and competitive markets for such products and services.
17

14
Stuart Pratt, President, CDIA, Statement Before House Committee on Financial Institutions and Consumer Credit, “Keeping Score on Credit Scores: An Overview of Credit Scores, Credit Reports, and their Impact on Consumers,” at 7 (March 24, 2010),
available at
(
http://www.house.gov/apps/list/hearing/financialsvcs_dem/pratt_testimony.pdf
).
See also
Federal Trade Commission, Report to Congress Under Sections 318 and 319 of the Fair and Accurate Credit Transactions Act of 2003 at 8-9 (2004).

15

See
Stuart Pratt, President, CDIA, Statement Before House Committee on Financial Services, “Credit Reports: Consumers' Ability to Dispute and Change Inaccurate Information,” at 23 (June 19, 2007),
available at

http://archives.financialservices.house.gov/hearing110/ospratt061907.pdf
.

16
Stuart Pratt, Comments of CDIA to National Telecommunications and Information Administration, “Information Privacy and Innovation in the Internet Economy,” at 2 (June 13, 2010),
available at http://ntia.doc.gov/files/ntia/comments/100402174-0175-01/attachments/Consumer%20Data%20Industry%20Association%20Comments.pdf.

17
12 U.S.C. 5511(a).

The final rule establishes a test, based on “annual receipts,” to assess whether a nonbank covered person is a larger participant of the consumer reporting market. The definition of “annual receipts” is adapted from the definition of the term used by the Small Business Administration (SBA) for purposes of defining small business concerns. The final rule adopts the proposed test for qualifying as a larger participant of the consumer reporting market: More than $7 million in annual receipts resulting from relevant consumer reporting activities. Covered persons meeting the test qualify as larger participants and are subject to the Bureau's supervision authority under 12 U.S.C. 5514. The test to assess larger-participant status set forth in the final rule is tailored to the consumer reporting market identified by the rule. The Bureau has not determined that annual receipts, or a threshold of $7 million in annual receipts, would be appropriate for any other market that may be the subject of a future larger participant rulemaking. Rather, the Bureau will tailor each test for defining larger participants to the market to which it will be applied.

IV. Legal Authority and Effective Date

A. Rulemaking Authority

The Bureau is issuing this final rule pursuant to its authority under: (1) 12 U.S.C. 5514(a)(1)(B) and (a)(2), which authorize the Bureau to supervise larger participants of markets for consumer financial products or services, as defined by rule, and require the Bureau to issue an initial such rule by July 21, 2012;
18

(2) 12 U.S.C. 5514(b)(7), which, among other things, authorizes the Bureau to prescribe rules to facilitate the supervision of covered persons under 12 U.S.C. 5514; and (3) 12 U.S.C. 5512(b)(1), which grants the Bureau the authority to prescribe rules as may be necessary and appropriate to enable the Bureau to administer and carry out the purposes and objectives of Federal consumer financial law, and to prevent evasions of such law.

18
July 21, 2012, is one year after the Bureau's “designated transfer date.” This was the date on which certain authorities transferred from other Federal agencies to the Bureau. 12 U.S.C. 5581;
see
12 U.S.C. 5582 (mechanism for setting “designated transfer date”); 75 FR 57252 (Sept. 20, 2010) (establishing “designated transfer date” as July 21, 2011).

B. Effective Date of Final Rule

The Bureau proposed an effective date of 30 days after the publication of the final rule, noting that the Administrative Procedure Act generally requires that rules be published not less than 30 days before their effective dates.
19

The Bureau received a few comments requesting a postponement of the effective date.

19
5 U.S.C. 553(d).

Two industry commenters urged the Bureau to adopt an effective date at least 180 days after issuance of the final rule. One of these commenters, representing the consumer reporting industry, asked the Bureau to consider the fact that some of the companies affected by the final rule have never been examined at the Federal or State level and will need time to develop processes and engage in training to prepare for examinations. Another commenter, representing online payday lenders, stated that the Bureau should adopt an effective date no earlier than six months after issuance of the final rule and one year after publication by the Bureau of final examination manuals and procedures for the markets covered in the Proposed Rule. This commenter noted that, unlike the various examination procedures for banks and lenders that the Bureau has released, any such procedures with respect to the covered markets published by the Bureau will be completely new, and industry will need time to prepare for examinations.

The Bureau appreciates the fact that supervision by a Federal agency will be new to many larger participants of the consumer reporting market. The Bureau does not believe, however, that this is a sufficient reason for a substantial delay of the effective date of the final rule. The final rule itself does not impose substantive conduct requirements with respect to which larger participants might require time to come into compliance. Although larger participants might choose to increase their compliance with Federal consumer financial law in response to the possibility of supervision, market participants are already obligated to comply, and should already be in compliance with, applicable Federal consumer financial law, regardless of whether they are subject to supervision. Thus, entities that qualify as larger participants under the final rule should not require additional time to come into compliance with Federal consumer financial law. In addition, the Bureau is concerned that postponing the effective date by too much would unnecessarily delay the Bureau's supervision of larger participants of the consumer reporting market. This could adversely affect consumers because, among other reasons, the Bureau would be delayed, with respect to the consumer reporting activities covered by the rule, in assessing compliance with Federal consumer financial law, detecting and assessing risk to consumers, and obtaining information about activities and compliance systems or procedures, and thus delayed in taking any appropriate corrective action.

The Bureau believes that, for the reasons described above, a long postponement of the effective date as suggested by the commenters is not warranted. However, in balancing the requests for a longer pre-effective date period with the Bureau's view that too lengthy a period would be detrimental to consumers, the Bureau believes it is

reasonable to extend the effective date to September 30, 2012, to give entities some time to prepare for Federal supervision, and adopts this effective date for the final rule. As compared with the Proposal, this new effective date will provide more than double the time between the publication date and the date when entities may be subject to Bureau supervision under the rule.

V. Section-By-Section Analysis of the Final Rule
20

20
The Bureau notes that the final rule is structured differently than the Proposed Rule. Unlike the Proposed Rule, the final rule is divided into Subparts A and B, as described in the Summary of Final Rule (Section III) above, resulting in different section numbers. This section-by-section analysis refers to the section numbers in the final rule except as otherwise noted.

Subpart A—General

Section 1090.100—Scope and Purpose

Proposed § 1090.100 set forth the scope and purpose of Part 1090. It stated that the Part defines those nonbank covered persons that qualify as larger participants of certain markets for consumer financial products or services, pursuant to 12 U.S.C. 5514(a)(1)(B) and (a)(2). Proposed § 1090.100 further explained that a larger participant of a market covered by the Part will be subject to the supervisory authority of the Bureau under 12 U.S.C. 5514. Finally, § 1090.100 provided that the Part establishes rules to facilitate the Bureau's supervisory authority over larger participants pursuant to 12 U.S.C. 5514(b)(7).

The Bureau received one comment recommending that the Bureau clarify that the scope and purpose of the final rule does not include the supervision of nonprofit organizations engaged in offering credit counseling services. This comment relates specifically to the market for consumer debt collection and will be addressed in the final rule for that market. The Bureau notes, however, that the Bureau does not believe that the scope and purpose section is the appropriate place to exclude any type of activity from a market covered by the final rule. Subpart B addresses the nature and scope of activities included in the market covered by the rule.

Section 1090.100 is adopted as proposed, with minor technical amendments for consistency.

Section 1090.101—Definitions

Section 1090.101 defines terms used in the final rule that are applicable both to the consumer reporting market and to other markets that may be addressed in future rulemakings. If a term is defined in the Dodd-Frank Act, the final rule generally incorporates that definition, with clarifications and modifications as appropriate. The Bureau received comments on a number of definitions set forth in the Proposed Rule and discusses the comments below in the context of the definition to which they relate.

Affiliated company.
To compute activity levels for purposes of 12 U.S.C. 5514(a)(1) and its implementing rules, 12 U.S.C. 5514(a)(3)(B) provides that the activities of affiliated companies (other than insured depository institutions or insured credit unions) shall be aggregated. The term “affiliated company” is not defined in the Dodd-Frank Act. The Proposed Rule defined the term “affiliated company” in a manner guided by the definition of “affiliate” set forth in the Dodd-Frank Act,
21

with modifications to track the requirements of 12 U.S.C. 5514(a)(3)(B). Thus, the Proposed Rule stated that the term “affiliated company” of a person means any company (other than an insured depository institution or insured credit union) that controls, is controlled by, or is under common control with the person.

21
12 U.S.C. 5481(1).

For purposes of the definition of “affiliated company,” the Proposed Rule provided that the term “company” means any corporation, limited liability company, business trust, general or limited partnership, proprietorship, cooperative, association, or similar organization. The Bureau received one comment suggesting that this definition be revised to include professional corporations and professional limited liability companies. The Bureau believes that the proposed definition, which encompasses “similar organization[s]” to those expressly enumerated, is sufficiently broad to cover professional corporations and professional limited liability companies, as well as other forms of organization comparable to those on the enumerated list that exist or may arise. Thus, the Bureau deems the suggested amendment unnecessary.

Also for purposes of the definition of “affiliated company,” the Proposed Rule set forth when a person would be considered to have control over another person, guided by the definitions of the term “control” provided in section 2 of the Bank Holding Company Act (BHCA) (12 U.S.C. 1841) and rules issued by other Federal financial regulators.
22

The proposed definition provided that a person has control over another person if: (i) The person directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 percent or more of any class of voting securities or similar ownership interest of the other person; (ii) the person controls in any manner the election of a majority of the directors, trustees, members, or general partners of the other person; or (iii) the person directly or indirectly exercises a controlling influence over the management or policies of the other person, as determined by the Bureau.

22
See,
e.g.,
12 CFR 41.3(i) (Office of the Comptroller of the Currency (OCC) rule defining “common ownership or common corporate control” in connection with the FCRA); 12 CFR 336.3(b) (Federal Deposit Insurance Corporation (FDIC) rule defining “control” in connection with post-employment restrictions on former FDIC examiners); 12 CFR 1805.104(q) (Department of the Treasury rule defining “control” in connection with the Community Development Financial Institutions Program).

The Bureau received a number of comments from consumer groups requesting that the Bureau include in the final rule provisions to prevent market participants from structuring business forms and activities to evade coverage as larger participants. For example, one commenter suggested that the Bureau should prevent evasion by aggregating not only the revenues of “affiliated companies,” but also those of “joint enterprises,” defined as two or more companies that act with a common purpose, in coordination, or through a contractual relationship to provide consumer financial products or services. Similarly, many consumer groups suggested aggregating the receipts of a firm's agents and contractors.

The Bureau understands commenters' concern regarding possible evasion of the final rule that could potentially occur by a market participant's structuring business activities through separate entities. For example, a covered person might attempt evasion by dividing its consumer reporting tasks among several unaffiliated companies, each having less than $7 million in annual receipts, to avoid Bureau supervision. However, control or common control is a prerequisite for being an “affiliate” under the Dodd-Frank Act; and the Bureau likewise proposed to make control or common control a prerequisite for being an “affiliated company.”
23

The Bureau further believes that the test for control in the Proposal, which considered, among other things, whether one person directly or indirectly exercises a controlling influence over the management or policies of another, provides an adequate tool to address the type of structuring to evade supervision coverage that the commenters describe. The Bureau therefore declines to amend

the Proposal to require aggregation of the annual receipts of “joint enterprises” or of companies that have only a cooperative or contractual relationship but otherwise do not satisfy a test for control in the final rule.

23

See
12 U.S.C. 5481(1) (definition of “affiliate”).

A few industry commenters objected more generally to one concept of control recognized in the proposed definition, in which one person directly or indirectly exercises a controlling influence over the management or policies of another. These commenters stated that a potential larger participant would not know in advance which companies it is deemed to exercise a controlling influence over, and therefore how to calculate its aggregated annual receipts. Normally, the Bureau believes, a market participant could use reasonable judgment to determine whether it has an affiliated company whose annual receipts would be aggregated with its own. In addition, under the final rule, prior to undertaking supervisory activity in connection with a market participant, the Bureau would notify the participant of its intent; the market participant would then have the opportunity, pursuant to § 1090.103 of the final rule, to challenge its status as a larger participant, including on the ground that its annual receipts should not be aggregated with those of certain other companies. Accordingly, the Bureau believes that, in the context of the procedures set forth in the final rule, the proposed definition of “control” provides market participants sufficient advance guidance regarding their status as larger participants and does not believe it is necessary to amend the proposed test for control to address these commenters' concerns. Moreover, as indicated above, the Bureau believes it is necessary and appropriate to have a definition of “control” that is sufficiently flexible to prevent evasion of the rule.

One commenter also expressed concern that if a large company handles a small firm's day-to-day operations, as a service, the larger firm would be considered to exercise a controlling influence. Therefore, according to this commenter, the “controlling influence” test for control could distort the market for such services. It could also, this commenter said, unfairly sweep a small firm into the category of larger participants, based solely on the small firm's use of a larger participant for such operational services. As defined in the Proposed Rule, mere execution of certain of another company's activities would not constitute “control” over that company. Rather, under the proposed definition of the term, to constitute control, one person must directly or indirectly exercise a controlling influence over the management or policies of another person. The Bureau notes that under the Proposal, the Bureau would evaluate for each company it reviews whether one person has a controlling interest over another, based on the particular facts and circumstances of the relationship.
24

If one company does in fact have a controlling influence over another's management or policies, the Bureau believes that it is appropriate to aggregate the annual receipts of the companies for purposes of assessing larger-participant status, and that this would not be unfair to a smaller company that is controlled by a larger one. Therefore the Bureau declines to amend the Proposal to delete the “controlling influence” test.

24
If two companies might be considered affiliates due to a “controlling influence,” the Bureau might assert that their aggregated receipts placed them over the threshold for a relevant market. After issuing correspondence initiating supervisory activity, pursuant to § 1090.103 of the final rule, the Bureau would entertain arguments that the companies were not linked by a “controlling influence,” along with other arguments relating to larger-participant status. The Proposed Rule's use of the phrase “as determined by the Bureau” was not meant to suggest that the Bureau would make a prior determination with respect to “controlling influence.” The Bureau therefore omits that phrase from the definition of “control” in the final rule.

Commenters also argued that before determining that one person exercises a controlling influence over another, the Bureau should provide notice and an opportunity for a hearing. The Bureau recognizes that some other Federal statutes, such as the BHCA, provide for hearings in assessing whether one company has a controlling influence over another.
25

At the same time, a number of other Federal statutes and regulations that contain “controlling influence” provisions do not contain hearing provisions.
26

The Bureau believes that the need for a hearing, as under the BHCA, is not present here. Under the BHCA, the Board of Governors of the Federal Reserve System must approve the establishment of a bank holding company.
27

A person that controls a bank holding company is itself a bank holding company under the BHCA.
28

The activities of a bank holding company are highly regulated by the Board of Governors.
29

Thus, a finding of control under the BHCA has a much more significant consequence than a finding of control would have under the final rule. In the case of the final rule, the consequence of companies' being affiliated by means of a “controlling influence” is that their annual receipts would be aggregated for purposes of assessing whether they are larger participants of a covered market, and thus subject to supervision by the Bureau's supervisory authority.
30

The companies would not be subject to any new substantive conduct requirements as a result. As discussed below, being subject to supervision is not a consequence that necessitates a hearing, as a matter of due process, on the general question whether a company is a larger participant. A hearing is similarly not necessary on the predicate issue of whether two companies are affiliated. Therefore, the Bureau believes that a hearing provision is not warranted for the final rule and declines to add such a provision.

25
12 U.S.C. 1841.

26
12 CFR 41.3(i) (the OCC's definition of “control” under the FCRA); 12 CFR 717.3(i) (the National Credit Union Administration's (NCUA) definition of “control” under the FCRA); 12 CFR 1805.104(q) (Treasury Department's definition of “control” for purposes of the Community Development Financial Institutions Program); 12 CFR 336.3 (the FDIC's definition of “control” for purposes of post-employment restrictions on former FDIC examiners).

27
12 U.S.C. 1842.

28
12 U.S.C. 1841(a)(1).

29
See,
e.g.,
12 U.S.C. 1843 (restricting activities in which a bank holding company may engage).

30
12 U.S.C. 5514(b)(1).

Several industry commenters argued that owning voting securities or similar interests should not constitute control until a person owns 50 percent, rather than 25 percent, of any class of voting securities or similar interest. One pointed out that if the threshold is only 25 percent, a given entity could be an “affiliated company” of several persons, if each such person owned just over 25 percent of a class of voting securities. The Bureau notes the 25 percent threshold test is used in a number of statutes and regulations to determine whether one person controls another in the context of financial institutions.
31

The Bureau believes that this widely used threshold is appropriate for the final rule. The Bureau is concerned that increasing the ownership threshold from 25 percent to 50 percent would mean that if one person owns 49 percent of a company, and three others separately owned the remaining 51 percent of that company, no person would be deemed to control that company, absent the presence of a “controlling influence.” The Bureau believes that raising the ownership threshold as requested would too easily

permit evasion of, or attempts to evade, the aggregation requirement. The Bureau therefore declines to increase the ownership threshold to 50 percent.

31
12 U.S.C. 1841 (BHCA); 12 CFR 41.3(i) (the OCC's definition of “control” under the FCRA); 12 CFR 717.3(i) (the NCUA's definition of “control” under the FCRA); 12 CFR 1805.104(q) (Treasury Department's definition of “control” with respect to Community Development Financial Institutions Program); 12 CFR 336.3 (the FDIC's definition of “control” for purposes of post-employment restrictions on former FDIC examiners).

Finally, one commenter argued that when a company acquires another firm, the acquiring company cannot immediately exercise control over the target's operations. This commenter requested a grace period of 12 months after the acquisition, during which the target firm would not be considered an “affiliated company” for purposes of this rule. The Bureau believes that when one company acquires another, the acquiring company in fact controls the acquired company at the time of the transaction. This is true even if the acquiring company chooses to exercise that control by maintaining the status quo. The Bureau also notes that “control” is a concept used only to implement the aggregation requirement under 12 U.S.C. 5514(a)(3)(B) in connection with assessing whether a person is a larger participant of a market for consumer financial products or services. Even assuming the acquirer lacks effective control over the acquired company immediately after the acquisition, the annual receipts of the combined company are nonetheless an appropriate measure of the resulting company's market participation. Accordingly, the Bureau declines to amend the Proposed Rule to provide a 12-month grace period as requested.

For all of the foregoing reasons, the Bureau adopts the definition of “affiliated company” with minor technical amendments for consistency.

Assistant Director.
The Proposed Rule stated that the term “Assistant Director” means the Bureau's Assistant Director for Nonbank Supervision or her or his designee. The Proposed Rule further stated that the Director of the Bureau may perform the functions of the Assistant Director as set forth in the Proposed Rule, and that, in the event there is no Assistant Director, the Director of the Bureau may designate an alternative Bureau employee to fulfill the duties of the Assistant Director. The Bureau received no substantive comments on this definition and adopts the definition as proposed, with minor technical amendments for consistency.

Bureau.
The Proposed Rule stated that the term “Bureau” means the Bureau of Consumer Financial Protection. The Bureau received no substantive comments on this definition and adopts the definition as proposed, with minor technical amendments for consistency.

Completed fiscal year.
The Proposed Rule stated that the term “completed fiscal year” meant any tax year including any short tax year. The Bureau did not receive any objections to the proposed definition. However, the Bureau believes that a calendar year, a 12-month period ending on December 31, could be an appropriate tax year for purposes of this Part. For this reason, and for clarification purposes, the final rule amends the Proposed Rule to define “completed fiscal year” as a tax year including any fiscal year, calendar year, or short tax year,
32

with other minor technical amendments for consistency.

32
The final rule provides that a “fiscal year” is 12 consecutive months ending on the last day of any month except December 31. A “calendar year” is 12 consecutive months beginning on January 1 and ending on December 31. A “tax year” is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a “short tax year.” A “short tax year” is a “tax year” of less than 12 months. IRS Publication 538,
available at http://www.irs.gov/publications/p538/ar02.html.

Consumer.
The Proposed Rule's definition of “consumer” is the same as that set forth in 12 U.S.C. 5481(4). The Proposed Rule provided that the term “consumer” means an individual or an agent, trustee, or representative acting on behalf of an individual. The Bureau did not receive any substantive comments addressing the proposed definition and adopts the definition as proposed, with minor technical amendments for consistency.

Consumer financial product or service.
The Proposed Rule incorporated the definition of the term “consumer financial product or service” set forth in 12 U.S.C. 5481(5). Thus, the Proposed Rule stated that the term “consumer financial product or service” means any financial product or service as defined in 12 U.S.C. 5481(15) that is described in one or more categories under: (a) 12 U.S.C. 5481(15)(A) and is offered or provided for use by consumers primarily for personal, family, or household purposes; or (b) clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A)
33

and is delivered, offered, or provided in connection with a consumer financial product or service referred to in the immediately preceding subparagraph. The Bureau did not receive substantive comments on the definition of the term “consumer financial product or service” and adopts the definition as proposed, with minor technical amendments for consistency.

33
Under these clauses, the term “financial product or service” is generally defined to include, subject to certain exclusions: (1) Extending credit and servicing loans, 12 U.S.C. 5481(15)(A)(i); (2) providing real estate settlement services or performing appraisals of real estate or personal property, 12 U.S.C. 5481(15)(A)(iii); (3) collecting, analyzing, maintaining, or providing consumer report information or other account information used or expected to be used in connection with any decision regarding the offering or provision of a consumer financial product or service, 12 U.S.C. 5481(15)(A)(ix); and (4) collecting debt related to any consumer financial product or service, 12 U.S.C. 5481(15)(A)(x).

Dodd-Frank Act.
The Proposed Rule stated that the term “Act” means the Consumer Financial Protection Act of 2010. The Bureau did not receive any substantive comments on the proposed definition. For purposes of consistency with other Bureau rulemakings, the final rule replaces the defined term “Act” with “Dodd-Frank Act,” and otherwise adopts the definition as proposed with minor technical amendments for consistency.

Larger participant.
The Proposed Rule defined the term “larger participant” to mean a nonbank covered person that meets a test under Subpart B, and which remains a larger participant for the period provided in § 1090.102. The Bureau did not receive substantive comments on this definition and adopts the definition as proposed, with minor technical amendments for consistency.

Nonbank covered person.
The scope of coverage of the Bureau's supervisory authority under 12 U.S.C. 5514 relates to “covered persons,” as defined in 12 U.S.C. 5481(6), that are neither insured depository institutions or credit unions, nor affiliates of those insured depository institutions or credit unions with assets of more than $10 billion, as set forth in 12 U.S.C. 5515(a) and 5516(a). Thus, the proposed definition excluded persons described in 12 U.S.C. 5515(a) and 5516(a) and provided that the term “nonbank covered person” means, except for persons described in those sections: (1) Any person that engages in offering or providing a consumer financial product or service; and (2) any affiliate of a person described in subparagraph (1) of this paragraph if such affiliate acts as a service provider to such person. The Bureau did not receive any substantive comments on the definition of “nonbank covered person” and adopts the definition as proposed, with minor technical amendments for consistency.

Person.
The Proposed Rule incorporated the definition of “person” set forth in 12 U.S.C. 5481(19). The Proposed Rule thus stated that the term “person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. The Bureau did not receive any substantive comments on the definition of “person” and adopts the definition as proposed, with minor technical amendments for consistency.

Supervision and supervisory activity.
The Proposed Rule defined the terms “supervision” and “supervisory activity” to mean the Bureau's exercise,

or intended exercise, of supervisory authority, including by initiating or undertaking an examination, or requiring a report, of a nonbank covered person pursuant to 12 U.S.C. 5514. The Bureau did not receive any substantive comments suggesting changes to the definition of “supervision” and “supervisory activity” and adopts the definition as proposed, with minor technical amendments for consistency.

The Bureau did, however, receive several comments related to the scope and exercise of the Bureau's supervisory authority. One group representing industry participants requested further detail about what an examination or supervision report would entail. Supervision may involve requests for information or records, on-site or off-site examinations, or some combination of these activities. While the specifics of an examination may vary by market and by firm, the following applies generally to the supervision process. Typically, Bureau officials begin an on-site examination by contacting the firm for an initial conference with management, and often by also requesting records and information. Based on these discussions and an initial review of the information received, examiners will determine the scope of an on-site examination, and then coordinate with the firm to initiate the on-site portion of the examination. While on-site, examiners will spend a period of time holding discussions with management about the company's processes and procedures; reviewing documents, records, and accounts for compliance; and evaluating the firm's compliance management systems. As with the Bureau's bank examinations, examinations of nonbanks will involve issuing confidential examination reports and compliance ratings.

The Bureau additionally notes that it has published a general examination manual describing the Bureau's supervisory approach and processes, as well as substantive legal areas subject to examination. This manual is available on the Bureau's Web site.
34

As explained in the examination manual, reports of examination will be structured to address various factors related to a supervised entity's compliance with Federal consumer financial law and other relevant considerations. The Bureau intends to release examination procedures specific to consumer reporting prior to beginning examinations.

34
Available at
http://www.consumerfinance.gov/guidance/supervision/manual/.

One consumer group commented that where the Bureau has supervisory authority over a larger participant by virtue of its participation in a particular market, the Bureau should examine all of the entity's activities related to consumer financial products or services, even those that pertain to markets in which the entity is not a larger participant. A commenter from the consumer reporting industry, on the other hand, asked the Bureau to make clear that it will exclude from its examination of a larger participant of a market areas of the company's operations outside that particular market.

The Dodd-Frank Act authorizes the Bureau to supervise “covered person[s]” described in 12 U.S.C. 5514(a)(1)(A) through (E). By granting the Bureau supervisory authority over such “covered persons,” as opposed to over particular activities in which they engage, the Dodd-Frank Act establishes that the Bureau's supervisory authority is not limited to the products or services that qualified a person for supervision, but also includes other activities of such a person that involve other consumer financial products or services or are subject to Federal consumer financial law.
35

This broad supervisory scope is consistent with the purposes that the Dodd-Frank Act sets out for the Bureau's supervisory activities. Specifically, the Dodd-Frank Act directs the Bureau to require reports and conduct examinations on a periodic basis of the “persons” described in 12 U.S.C. 5514(a)(1) for purposes of (a) assessing compliance with the requirements of Federal consumer financial law, (b) obtaining information about the activities and compliance systems or procedures of such persons, and (c) detecting and assessing risks to consumers and to markets for consumer financial products and services.
36

In many cases, these broad purposes could not be accomplished if the scope of the Bureau's examinations and report requests were limited to the particular products or services that qualified a person for the Bureau's supervision. For example, an entity's violation of a provision of the FCRA in connection with activities that fall outside the final rule's definition of consumer reporting would still be relevant to whether the entity has violated a Federal consumer financial law and to whether the entity may pose risks to consumers. Moreover, such a violation of the FCRA may indicate weaknesses in compliance systems and the potential for other violations and related consumer harms.

35
For specific references in the Dodd-Frank Act to supervision authority over “persons” rather than particular activities see,
e.g.,
12 U.S.C. 5514(b)(1) (“The Bureau shall require reports and conduct examinations on a periodic basis of `persons' described in subsection (a)(1) * * *.”) (emphasis added); 12 U.S.C. 5514(a)(1) (“[T]his section shall apply to any covered `person' who * * *.”) (emphasis added).

36
12 U.S.C. 5514(b)(1).

Accordingly, the Bureau concludes that if an entity is subject to the Bureau's supervisory authority, the Bureau may examine the entire entity for compliance with all Federal consumer financial law, assess enterprise-wide compliance systems and procedures, and assess and detect risks to consumers or to markets for consumer financial products and services posed by any activity of the entity, not just the activities that initially rendered the entity subject to Bureau supervision.

A commenter representing the consumer reporting industry urged the Bureau to publish examination manuals and procedures sufficiently far in advance of any examination or other supervision activity so that affected companies could incorporate such manuals and procedures into their procedures and training. As noted above, the Bureau has published its general examination manual as well as examination procedures for mortgage origination and servicing, and for short-term, small-dollar loans. The examination manual outlines legal requirements under the various laws applicable to the relevant products and services and guides examiners on information they should evaluate regarding compliance with those laws. Many of the laws addressed in the examination manual, including but not limited to the FCRA, are directly applicable to consumer reporting entities, and the Bureau intends to supplement the manual to include procedures specifically addressed to consumer reporting before beginning examinations. As noted in the discussion on the effective date above (Section IV(B)), however, market participants are required to be in compliance with applicable Federal consumer financial law, regardless of whether they are subject to supervision by the Bureau.

The Bureau received several comments regarding the supervision of service providers to larger participants. Neither the Proposed Rule nor the final rule addresses the scope or manner of the Bureau's supervisory authority over service providers to nonbanks pursuant to 12 U.S.C. 5514. The Proposal simply observed that the Dodd-Frank Act vests the Bureau with supervisory authority over service providers.
37

Consequently,

comments regarding which service providers the Bureau may supervise, and how, are not germane to the final rule.
38

37
A service provider is a person that provides a material service to a covered person in connection

with a consumer financial product or service. 12 U.S.C. 5481(26)(A). The Dodd-Frank Act provides a non-exhaustive set of examples of such material services. 12 U.S.C. 5481(26)(A).

38
One commenter suggested that the Bureau publish a policy that it will not examine any service provider until after it has examined the entity receiving the services. The Bureau will consider this comment in the course of its supervision.

Section 1090.102—Status as Larger Participant Subject to Supervision

The Proposed Rule stated that a person qualifying as a larger participant shall not cease to be a larger participant under this Part until two years from the first day of the tax year in which the person last met the applicable threshold to be defined as a larger participant.
39

One industry commenter objected to supervision's continuing for a minimum of two years, even if the business immediately falls below the applicable threshold. The Bureau believes that it is important to have sufficient time to undertake and complete supervisory activities, including any necessary follow-up examinations relating to a larger participant, and that less than two years would not be adequate to achieve this goal. Moreover, the threshold is not a precise demarcation of what market participants are “larger.” For example, a firm with annual receipts falling below the threshold for the consumer reporting market may still be a relatively large participant of the market, especially if its annual receipts, calculated using the procedures specified in the final rule, were above the threshold within the previous two years. To conclude that such a firm should still be a larger participant within the Bureau's supervisory authority is consistent with setting the threshold at more than $7 million. Indeed, the two-year period is part of the Bureau's definition of “larger participant,” a fact the Bureau took into account in setting the threshold for the consumer reporting market at more than $7 million in annual receipts. Accordingly, the Bureau adopts § 1090.102, as proposed in § 1090.103 of the Proposed Rule, with minor technical amendments for consistency.

39
For example, assume a nonbank consumer reporting entity's fiscal year ran from July 1 to June 30. Assume the entity had $8 million in receipts in each of the fiscal years of 2011, 2012, and 2013 (July 1, 2010 to June 30, 2011; July 1, 2011 to June 30, 2012; and July 1, 2012 to June 30, 2013, respectively). During the 2014 tax year, beginning on July 1, 2013, the three most recently completed fiscal years would be 2011, 2012, and 2013, with an average of $8 million in receipts. The entity would therefore be a larger participant during its 2014 tax year. Because that status lasts for two years, the entity would also be a larger participant during its 2015 tax year (from July 1, 2014 through June 30, 2015), even if its 2014 “annual receipts” were below $7 million. For example, suppose the entity had only $2 million in receipts for the completed 2014 fiscal year. The decreased receipts would first factor into the “annual receipts” calculation for 2015, when they would reduce the company's “annual receipts” to $6 million. But the company would still be a larger participant during that year, as a result of the above-threshold annual receipts calculated for the 2014 tax year.

Section 1090.103—Assessing Status as a Larger Participant

The Bureau explained in the Proposal that it expects to use various data sources, including publicly available data, to identify which nonbank covered persons appear to qualify as larger participants. One commenter asked the Bureau to describe the nature of these “various data sources.” The Bureau intends to use any data sources that it determines are appropriate, which may include SEC filings, public shareholder information, industry surveys, or data obtained through proprietary sources. In some instances, if sufficient information is not available to the Bureau to assess a person's larger-participant status, the Bureau may, as discussed below, request information to facilitate such an assessment.

As explained in the Proposal, the Bureau recognizes that there may be instances when the Bureau seeks to supervise a person but that person disputes whether it is a larger participant. The Proposed Rule therefore sets forth a procedure for such a person to challenge its status as a larger participant by providing to the Assistant Director for Nonbank Supervision of the Bureau an affidavit setting forth an explanation of the basis for the person's assertion that it does not meet the definition of larger participant. The Proposed Rule further permitted a person to include with the response copies of any records, documents, or other information on which the person relied to make the assertion. The Proposed Rule also provided that a person waives the right to rely, in disputing whether it qualifies as a larger participant, on any argument, records, documents, or other information that it failed to submit to the Assistant Director under this section. Moreover, the Proposed Rule stated that a person that fails to respond to the Bureau's written communication within 30 days would be deemed to have acknowledged that it is a larger participant. Under the Proposed Rule, after reviewing the affidavit and any other information submitted by the person challenging its status as a larger participant or deemed relevant by the Assistant Director, the Assistant Director would send the person an electronic transmission explaining whether the person meets the definition of a larger participant. Additionally, the Proposed Rule stated that the Assistant Director may require that a person provide to the Bureau such records, documents, and information as the Assistant Director may deem appropriate for assisting assessments of entities' status as larger participants.
40

40
The Bureau believes that while it would have this authority under 12 U.S.C. 5514 even absent a regulation, a regulation is useful to provide clarity on the issue.

These provisions were proposed pursuant to the Bureau's authority under 12 U.S.C. 5514(b)(7). Subparagraph (7)(A) authorizes the Bureau to “prescribe rules to facilitate [its] supervision” of, among other things, larger participants of the markets to be covered by regulations like the Proposed Rule. The ability to acquire information to support an assessment of whether a person meets the test for being a larger participant will serve that purpose.
41

In addition, subparagraph (7)(B) authorizes the Bureau to require persons described in 12 U.S.C. 5514(a)(1) to provide records to facilitate the Bureau's supervision. Section 1090.103 of the final rule was also proposed pursuant to 12 U.S.C. 5512(b)(1), which grants the Director of the Bureau the authority to prescribe such rules as may be necessary and appropriate to enable the Bureau to administer and carry out the purposes and objectives of Federal consumer financial law, such as the Bureau's supervision of larger participants, and to prevent evasions of such law. Providing a process whereby entities must come forward with information if they wish to challenge their status as larger participants, and providing the Bureau the ability to obtain information related to the status of persons as larger participants under the rule, is necessary and appropriate for the Bureau to implement and efficiently exercise its supervision authority and to prevent evasion of 12 U.S.C. 5514.

41
12 U.S.C. 5514(b)(7)(D) provides that in developing requirements or systems under that provision, the Bureau shall consult with State agencies regarding requirements or systems (including coordinated or combined systems for registration) where appropriate. Given the focus of these provisions of the Proposal on obtaining particularized information relevant to larger-participant status, the Bureau does not believe that such consultation is necessary or appropriate in connection with this final rule. The Bureau, however, requested comments from relevant State agencies on the Proposal, and did receive comments from a couple of State regulatory agencies expressing their belief that a certain company providing information services relating to payday lending should be excluded from the rule's coverage.

The Bureau received a number of comments on the proposed process for

allowing a person to submit to the Bureau documents and information supporting the person's assertion that it is not a larger participant. A representative of the consumer reporting industry suggested that the Bureau create a mechanism and procedures for appeal. Another commenter stated that the proposed method of challenging larger-participant status violates due process.

The Bureau believes that the proposed procedure is an appropriate method by which a person may provide documents, records or other information to the Bureau if it wishes to dispute whether it meets the larger-participant threshold for a market. Due process concerns, as put forward by commenters, do not mandate any particular procedures for the initiation of supervision,
42

because a decision to initiate supervision does not implicate an interest protected by the Fifth Amendment. Supervision alone does not impose any penalty on an entity, does not deprive it of any property, and does not restrict its ability to engage in a viable business. Moreover, even if a protected interest were at stake, the rule provides procedures that are comparable to those offered in numerous other situations that implicate protected interests.
43

The Bureau will provide notice of its intent to supervise an entity; receive written submissions, accompanied by evidence; and entertain entities' arguments that they do not qualify as larger participants. Due process does not necessitate a hearing in every instance, and the evidence involved in assessing a larger participant's annual receipts from consumer reporting is not of the kind that requires oral presentation.
44

The Bureau proposed to respond to entities' challenges to larger-participant status because the Bureau believed it would be useful to have an informal method for resolving whether a person is a larger participant. For all the above reasons, the Bureau does not believe additional procedures are necessary to comport with due process.

42
In addition, the Dodd-Frank Act does not mandate any mechanism like what the rule provides.

43

See, e.g., Karpova
v.
Snow,
497 F.3d 262 (2d Cir. 2007);
FDIC
v.
Coushatta,
930 F.2d 1122 (5th Cir. 1991).

44

See Mathews
v.
Eldridge,
424 U.S. 319, 344-45 (1976).

Other commenters suggested that the 30-day time period allowed to challenge larger-participant status and provide the documents relied on for the challenge was not sufficient. One commenter representing the consumer financial services industry stated that nonbanks identified as larger participants should be able to provide additional arguments, records, documents, or other information to the Assistant Director as needed, particularly since the initial 30-day period is a narrow window and there is no deadline for a decision by the Assistant Director. Another industry representative said that it believes that 30 days is a wholly inadequate time period for a business to identify all of the relevant information and to prepare its argument, especially because of the difficulty of apportioning receipts. Similarly, a commenter representing the consumer reporting industry suggested eliminating or significantly revising the provision whereby a person that fails to respond to the Bureau within 30 days will be deemed to acknowledge that it is a larger participant. This commenter also stated that an entity should be able to challenge its status as a larger participant at any time if it has a good-faith basis for doing so, and failure to respond in any manner to a notice from the Bureau should not constitute waiver of the opportunity to submit evidence.
45

Various industry commenters suggested that the final rule allow greater response times to challenge larger-participant assessments that ranged from 60 to 90 days, to an unlimited period.

45
Waiver, under this provision of the Proposed Rule, would apply with respect to the particular year for which an entity's status as a larger participant was at issue. If an entity's annual receipts declined in later years, and the Bureau nevertheless initiated supervisory activity, provided it is outside of the two-year supervision period, the entity would have a chance to dispute whether it was a larger participant in those later years.

The Bureau, however, believes that it is necessary to have a firm time limit for this dispute process. Eliminating the deadlines and permitting additional records, documents, or other information to be presented to the Bureau at any time would create unnecessary uncertainty and be administratively difficult to implement. A firm deadline for submission of records, documents, or other information, on the other hand, would permit the timely and orderly resolution of an assessment of larger-participant status. Holding firms to have waived the opportunity to offer information and arguments that they do not present during the specified timeframe is an appropriate mechanism for enforcing the deadline.

At the same time, the Bureau recognizes that entities may need time to collect and assemble relevant documentation regarding larger-participant status. The Proposed Rule included a provision under which the Assistant Director might modify the response time on her or his own initiative or at the request, based on a showing of good cause, of the person responding. The Bureau adopts in the final rule this provision for requesting an extension. In addition, the Bureau concludes that increasing the general time limit for response from the proposed 30 days to 45 days strikes an appropriate balance between providing a reasonable opportunity to challenge larger-participant status and not allowing so much time as to be disruptive to the supervisory program.

A representative of the consumer reporting industry suggested that the final rule should require that the Bureau have a reasonable basis to believe that a person is a larger participant before sending a written communication initiating supervisory activity. As the Bureau has explained above, the Bureau expects to use various data sources, including publicly available data, to identify which nonbank covered persons appear to qualify as larger participants. The Bureau intends to use the best available data to make assessments regarding a person's status as a larger participant. If needed, the Bureau will request relevant information to help assess whether a person is a larger participant. Thus, the Bureau will make an informed assessment of larger-participant status. The Bureau believes neither that the Dodd-Frank Act requires, nor that it would be appropriate or necessary, for the Bureau to set forth in the regulation a specific standard regarding larger-participant status that must be met before the Bureau can undertake supervisory activity. The Bureau therefore declines to amend the Proposal in the manner suggested by this commenter.

An industry commenter suggested that the dispute process could be an inefficient and costly exercise if there is no intent to supervise a person. The Bureau notes, however, that the response process only comes into play if the Bureau informs a person that it intends to undertake a supervisory activity in connection with that person, and if that person decides to dispute whether it is a larger participant.

The Bureau also received a comment suggesting that the final rule provide a way for a person to request and obtain from the Bureau an advance larger-participant determination. The Bureau believes that providing an assessment as to whether a person qualifies as a larger participant, absent any intent of the Bureau to initiate supervisory activities in connection with the person, would be unnecessary and burdensome to the Bureau. A market participant should be

capable of evaluating whether its activities qualify it as a larger participant. Additionally, such a process would be burdensome to the Bureau because, in addition to making such assessments with respect to market participants it considered examining, the Bureau could also be placed in the position of responding to myriad requests from market participants it does not have near-term plans to supervise. For these reasons the Bureau declines to amend the Proposed Rule to provide for advance determinations as described.

Finally, the Bureau received comments from attorney and industry representatives expressing concern that nonbank covered persons will be obligated to provide attorney-client privileged information when challenging larger-participant status, or when the Bureau requires a person to provide information to support the Bureau's evaluation of entities' larger-participant status. But the Proposal did not require that any covered person provide privileged documents to the Bureau to support a challenge of larger-participant status. Of course, a person may choose to submit privileged documents in the course of such a challenge, although it is difficult to conceive of a need to submit privileged information to document an entity's representations as to its annual receipts. Pursuant to a rule recently adopted by the Bureau, such a submission would not result in a waiver of any applicable privilege as to third parties.
46

Similarly, while under § 1090.103(d) the Bureau may require the submission of documents, the Bureau does not presently anticipate that, absent unusual circumstances, it would request attorney-client privileged material under this provision. In any event, the Bureau's recently adopted rule regarding submissions of privileged information would apply to material provided in response to such a request.

46
77 FR 39617 (July 5, 2012), codified at 12 CFR Part 1070.

For the reasons discussed above, the Bureau adopts § 1090.103, as proposed in § 1090.104 of the Proposed Rule, amended to increase the response period for disputing larger-participant status from 30 days to 45 days with additional minor technical amendments for consistency.

Subpart B—Markets

Section 1090.104—Consumer Reporting Market

As discussed in the Summary of the Final Rule, above, the consumer reporting market is of fundamental importance to markets for many other consumer financial products and services, affecting hundreds of millions of consumers. The market includes consumer reporting agencies selling comprehensive consumer reports, consumer report resellers, analyzers, and specialty consumer reporting agencies (collectively these market participants are referred to as consumer reporting entities).

Several commenters criticized the Bureau's decision to supervise larger participants of the proposed consumer reporting market. They contended that the Dodd-Frank Act requires the Bureau to consider four specific factors in issuing a rule under 12 U.S.C. 5514(a)(2): “The asset size of the covered person,” “the volume of transactions involving consumer financial products or services in which the covered person engages,” “the risks to consumers created by the provision of such consumer financial products or services,” and “the extent to which such institutions are subject to oversight by State authorities for consumer protection.”
47

These commenters argued that a failure to consider these four factors would be arbitrary and capricious.

47
12 U.S.C. 5514(b)(2).

The Bureau believes that these commenters have misinterpreted the scope and purpose of 12 U.S.C. 5514(b)(2). That subsection describes how the Bureau must “exercise its authority under paragraph [(b)](1),”
48

which in turn authorizes the Bureau to supervise “persons described in subsection (a)(1).” The final rule does not exercise authority provided by subsection (b)(1). Rather, it “describe[s],” in part, a set of persons falling within subsection (a)(1), by defining a category of “larger participant[s].” In choosing which persons subject to that authority to supervise, the Bureau will consider the factors set forth in paragraph (b)(2). The Dodd-Frank Act does not mandate consideration of those factors before issuing the rule that establishes the category itself under paragraph (a)(1).
49

48
12 U.S.C. 5514(b)(2).

49
The rule defining larger participants must be promulgated “in accordance with paragraph (2),” which means paragraph (a)(2), not paragraph (b)(2). Paragraph (a)(2) does not refer to the multiple considerations listed in paragraph (b)(2).

The text of paragraph (b)(2) supports this interpretation. The factors to consider include “the asset size of the covered person” and the transaction volume of “the covered person.” These factors are relevant with respect to a particular person being considered for supervision. The reference to a single covered person suggests this provision does not apply to a rule, like the instant one, defining a category of many covered persons.

These commenters also asked the Bureau to explain why it is choosing consumer reporting as the subject of this rule, instead of some other market for a different consumer financial product or service. The Bureau has wide discretion in choosing markets in which to define larger participants. The Bureau need not conclude before issuing a rule defining larger participants of a given market that the market identified in the rule has a higher rate of non-compliance, poses a greater risk to consumers, or is in some other sense more important to supervise than other markets. Indeed, 12 U.S.C. 5514(b)(1), by recognizing that supervision's purposes include assessing compliance and risks posed to consumers, suggests that the Bureau need not determine the level of compliance and risk in a market before issuing a rule that renders larger participants of the market subject to supervision. Choosing consumer reporting as the subject of this rule is reasonable because consumer reporting, as defined in the rule, is an important activity that affects hundreds of millions of consumers and because supervision of larger participants of this market will be beneficial to consumers and markets and will further the Bureau's mission to ensure consumers' access to fair, transparent, and competitive markets for consumer financial products and services.

Section 1090.104 (a)—Market-Related Definitions

Annual receipts.
The proposed definition of “annual receipts” was informed by the method of calculating “annual receipts” used by the SBA in determining whether a firm is a “small business” concern.
50

Under the proposed definition, for purposes of calculating “annual receipts,” the term “receipts” means “total income” (or in the case of a sole proprietorship, “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms. Under the Proposal, the term would not include net capital gains or losses. As proposed, annual receipts are measured as the average of a person's three most recently completed fiscal years, as appropriate, or over the entire period the person has been in business if that is less than three

completed fiscal years.
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The proposed calculation of annual receipts would also implement the aggregation requirement in 12 U.S.C. 5514(a)(3)(B) by providing that the annual receipts of a person shall be added to the annual receipts of each of its affiliated companies. As proposed, such aggregation includes the receipts of both the acquired and acquiring companies in the case of an acquisition occurring during any relevant measurement period.

50
13 CFR 121.104.

51
“Completed fiscal year” is a defined term under § 1090.101 of the final rule. A “completed fiscal year” means a “tax year” including any “fiscal year,” “calendar year,” or “short tax year.” A “fiscal year” is 12 consecutive months ending on the last day of any month except December 31. A “calendar year” is 12 consecutive months beginning on January 1 and ending on December 31. A “tax year” is an annual accounting period for keeping records and reporting income and expenses. An annual accounting period does not include a “short tax year.” A “short tax year” is a “tax year” of less than 12 months. IRS Publication 538,
available at

http://www.irs.gov/publications/p538/ar02.html.

The Bureau received a number of comments relating to “annual receipts.”
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Many commenters expressed concerns or raised objections to the use of annual receipts to measure participation in the consumer reporting market. One commenter asked whether the Bureau intends to bind itself to IRS guidance and related tax law and recommended that the Bureau provide examples of how different industry participants should calculate annual receipts under the final rule. The Bureau notes that to the extent IRS tax forms are utilized by a nonbank covered person to calculate receipts, which consist of “total income” (or in the case of a sole proprietorship, “gross income”) plus “cost of goods sold,” the person should rely on IRS guidance. Additionally, the Bureau believes that there may be a variety of circumstances facing covered persons and the Bureau is not in a position to ascertain the most appropriate or useful examples to include in the final rule. Therefore, the Bureau declines to provide examples of how market participants should calculate annual receipts.

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Comments relating solely to the debt collection market will be addressed in the final rule for that market.

Several industry commenters argued that the definition of “annual receipts” counts part of a company's revenue twice, by including both total sales and cost of goods sold. These commenters suggested raising the threshold for qualifying as a larger participant of the consumer reporting market from more than $7 million to $14 million in annual receipts. Properly understood, the measurement of “annual receipts” does not involve double counting. In calculating total income, cost of goods sold is subtracted from various sources of income.
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Thus, in calculating annual receipts, cost of goods sold is added back in to offset the original subtraction of the identical figure. The Bureau therefore declines to amend the definition of “annual receipts” based on this comment.

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See
IRS tax forms 1120 and 1120S.

The Bureau received several comments on the appropriate measurement period for assessing larger-participant status (and thus when the supervision period begins). One consumer group suggested that to capture participants whose annual receipts are increasing, a person should be deemed a larger participant if the person had annual receipts meeting the applicable threshold either as an average of annual receipts over the last three fiscal years, or in the most recent fiscal year. Conversely, some commenters, believing the Proposal already specified that larger-participant status would be triggered by a single year's results, argued that businesses would forego growing in order to avoid accidentally coming within the Bureau's supervisory authority. One commenter suggested that an entity should qualify as a larger participant only if its receipts were above the threshold for three years in a row.

To clarify, under the rule “annual receipts” generally are not based solely on the receipts of a single year.
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The Bureau agrees with those commenters who suggested that temporary fluctuations generally should not render an entity a larger participant. The proposed definition, by averaging a company's receipts over a three-year period, reduces the impact of sudden and potentially temporary fluctuations in receipts a company may experience—both decreases and increases. Thus the Bureau declines to include generally as larger participants persons who have receipts above the threshold in only the most recent fiscal year. For the reasons discussed above, the Bureau adopts the definition of annual receipts as proposed, with minor technical amendments, including a relocation of the definition into the section for consumer reporting market-specific definitions (Subpart B, § 1090.104(a)).

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As noted in the Proposal, if an entity has not completed three fiscal years, its “annual receipts” will reflect the shorter period of its existence.

Consumer reporting.
The final rule defines a market for “consumer reporting,” which is among the consumer financial products or services described in 12 U.S.C. 5481(15)(A)(ix) and (5)(B). Activities covered under these provisions of the Dodd-Frank Act include, subject to certain exceptions, “collecting, analyzing, maintaining, or providing consumer report information or other account information, including information relating to the credit history of consumers, used or expected to be used in connection with any decision regarding the offering or provision of a consumer financial product or service.”
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Under 12 U.S.C. 5481(5)(B), such activity is a “consumer financial product or service” when “delivered, offered, or provided in connection with a consumer financial product or service.”

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12 U.S.C. 5481(15)(A)(ix).

The final rule describes a market for products and services that fall within the category of consumer financial products and services described by these provisions of the Dodd-Frank Act. The final rule's definition of “consumer reporting” is not meant to track related provisions in the Dodd-Frank Act. The final rule has a different purpose: rather than describing the scope of a certain consumer financial product or service, it identifies a specific market for such a product or service. That market is not necessarily co-extensive with the statutory category into which the market activities fit. Indeed, the final rule excludes from “consumer reporting” the activities of persons that furnish information about their own, or their affiliates', experiences or transactions with consumers to consumer reporting entities and persons that use consumer report or other account information for their own purposes. Such activities may be within the ambit of the consumer financial products or services described in 12 U.S.C. 5481(15)(A)(ix) and (5)(B), but the Bureau does not regard them as part of the market covered by the final rule, for the reasons discussed in the paragraphs below.

The Proposal stated that the term “consumer reporting” means collecting, analyzing, maintaining, or providing consumer report information or other account information, used or expected to be used in any decision by another person regarding the offering or provision of any consumer financial product or service. The Bureau stated that the proposed definition would cover different types of consumer reporting entities such as credit bureaus, consumer report resellers, analyzers, and specialty consumer reporting agencies like those specializing in consumer check verification and reporting of payday lending transactions.
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The proposed definition

also excluded several activities from the consumer reporting market. First, a person's providing information on its own transactions or experiences with consumers to its affiliates would not constitute consumer reporting. Second, a person's providing information on its own (or its affiliates') transactions or experiences to a consumer reporting entity would also be excluded. Third, the proposed definition incorporated the exclusion detailed in 12 U.S.C. 5481(15)(A)(ix) for information used solely in a decision regarding employment, government licensing, or residential leasing.

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This definition might also include entities such as credit scoring companies. Whether such an entity

is covered under this definition would depend upon its particular activities. To the extent that a credit scoring company is engaged in collecting, analyzing, maintaining, or providing consumer report or other account information for the purposes described above, it would be covered by the proposed definition. Several consumer groups suggested that the Bureau should explicitly state in the text of the regulation that credit scoring providers or developers are service providers. Assessing whether a particular entity is a service provider to a larger participant under the Dodd-Frank Act requires an evaluation of the person's activities. The Bureau declines to identify specific activities that might make a person a service provider to a larger participant, or to provide an exhaustive list of such activities.

The final rule adopts the proposed definition of “consumer reporting” with several modifications. The final rule prescribes a broader exclusion for providing a company's information on its own transactions and experiences with consumers; the Bureau will not treat a company's provision of such information to any other person to be “consumer reporting.” The final rule also adds an exclusion for information that amounts to an authorization or approval of a specific extension of credit, directly or indirectly, by the issuer of a credit card or similar device.

The Bureau received many comments on the definition of the term “consumer reporting.” One category of comments focused on the relationship between the consumer reporting activities covered by the Proposed Rule and those subject to the FCRA. First, a number of commenters criticized the definition for departing from the definitions of “consumer report” and “consumer reporting agency” in the FCRA.
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Several of these commenters suggested that the difference between the Proposed Rule and the FCRA would cause uncertainty and confusion. They argued that some persons that do not consider themselves to be in the consumer reporting market would, unknowingly, nevertheless be subject to Bureau supervision. Other persons, the commenters contended, would erroneously believe they were subject to supervision and would waste effort preparing for examinations.
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The FCRA defines “consumer report” as “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for—(A) credit or insurance to be used primarily for personal, family, or household purposes; (B) employment purposes; or (C) any other purpose authorized under [the FCRA].” 15 U.S.C. 1681a(d)(1). There are several statutory exclusions, including one for reports of information relating solely to transactions or experiences between the consumer and the person making the report. 15 U.S.C. 1681a(d)(2). The definition of “consumer reporting agency” covers any person that, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in the practice of assembling or evaluating information on consumers for the purpose of furnishing consumer reports to third parties. 15 U.S.C. 1681a(f).

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The Bureau received several comments asserting that specific activities that the commenters described, or in a few cases specific companies, were not within the market described by the rule. For example, one commenter suggested that providing a credit report on the owner of a small business to support a lender's decision whether to extend credit to the business should not be within the scope of the consumer reporting market. The Bureau does not believe it is appropriate to address whether each activity or firm mentioned by a commenter would be covered by the final rule. Whether specific activities fall within the definition of “consumer reporting” will be assessed by the Bureau when considering whether to initiate supervisory activities relating to a given company.

The Bureau did not intend the Proposal's definition of “consumer reporting” to mirror the scope of the FCRA's definitions of “consumer report” and “consumer reporting agency.”
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In some respects the proposed definition of “consumer reporting” was narrower than these FCRA definitions because it excluded information to be used solely in a decision for employment, government licensing, or residential leasing or tenancy. In other respects the proposed definition may have been somewhat broader than the coverage of the FCRA. For example, “consumer report information, or other account information,” for purposes of the Proposed Rule, could include information beyond what would be considered a “consumer report” under the FCRA. Similarly, certain entities that are not “consumer reporting agencies” within the meaning of the FCRA—such as certain analyzers of consumer report information—may be larger participants of the consumer reporting market delineated by the final rule. The Bureau's rule and the FCRA serve two different purposes. The FCRA is a substantive consumer protection statute that governs the activities of consumer reporting agencies (and other persons that furnish information to or receive information from such agencies). The rule, by contrast, defines larger participants of a market for consumer reporting for purposes of initially delineating the scope of coverage of the Bureau's supervision authority.

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The Bureau also does not believe that it is necessary to define the term “consumer reporting agency” in the regulation, as one commenter requested. A person may look to the definition of “consumer reporting” to determine whether it engages in activities that may qualify it as a larger participant of that market. The Bureau refers to the various participants of the market, including credit bureaus, resellers, analyzers, and specialty consumer reporting agencies, collectively as consumer reporting entities.

The Bureau's supervisory activities will extend beyond assessing consumer reporting agencies' compliance with the FCRA. The Bureau will also assess compliance with other Federal consumer financial law, and compliance with such law by persons other than those that the FCRA defines as consumer reporting agencies. Moreover, the Bureau's supervisory activities will seek to obtain information regarding activities and compliance systems and procedures of supervised persons and to detect and assess risks to consumers and markets for consumer financial products or services.
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The Bureau emphasizes that the proposed definition of “consumer reporting” is relevant only to the final rule and has no applicability to the scope, coverage, definitions, or any other provisions of the FCRA or any other law or regulation. Therefore, the Bureau declines to conform the proposed definition of “consumer reporting” to the FCRA's definitions of “consumer report” and “consumer reporting agencies.”

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12 U.S.C. 5514(b)(1).

Second, several commenters pointed to what they said was a particularly important departure from the FCRA. According to these commenters, the proposed definition of “consumer reporting” covered circumstances in which a person does not provide information to a third party, for the third party's use in connection with a decision regarding the offering or provision of a consumer financial product or service. As an initial matter, it should be noted in this context that the final rule excludes a person's provision for any purpose of information about its own transactions or experiences with consumers. Moreover, under the proposed definition, the consumer reporting market covered collecting, analyzing, maintaining, or providing consumer report or other account information for its use or expected use “by another person” in a decision regarding the offering or provision of a consumer

financial product or service. Thus, the person using or expected to use the information must be different from the market participant collecting, analyzing, maintaining, or providing the information. It bears emphasizing, however, that the person using or expected to use the information in a decision regarding a consumer financial product or service need not be a market participant's immediate customer. For example, resellers generally assemble and merge information contained in the databases of other consumer reporting agencies, and then provide reports including that information to third parties such as creditors that use the information to make a credit decision. Providing consumer report information to a reseller is included in the market, even though the reseller itself may not make decisions regarding the offering or provision of consumer financial products or services.

Third, commenters also suggested dividing the consumer reporting market identified by the Proposal into submarkets. One commenter suggested, for example, defining a separate market to cover consumer reporting entities over which the Bureau wishes to exercise supervisory authority but that are not consumer reporting agencies under the FCRA. Another proposed having two markets, demarcated by a distinction that, the commenter said, the FCRA makes between national credit repositories and consumer report resellers.

The Bureau believes that resellers, national credit repositories, specialty consumer reporting agencies, analyzers, and others engaged in consumer reporting activities as defined in the final rule are properly included in a single market. These different types of firms all participate in the process of preparing consumer financial information for use in decisions regarding consumer financial products or services. Moreover, many of the same legal requirements cover repositories, resellers, and specialty consumer reporting agencies. To the extent that the activities of larger participants of the consumer reporting market differ, the Bureau can adjust the scope and focus of its supervision activities accordingly. Therefore, the Bureau declines to revise the definition of consumer reporting to establish separate markets for consumer report resellers, the national repositories, and others engaged in consumer reporting activities.

Another category of comments asked the Bureau to alter the scope of the proposed exclusions from the consumer reporting market. First, the Bureau received comments both in favor of expanding the exclusion for furnishing information and in favor of deleting that exclusion.

Commenters opposing the exclusion expressed the view that the Bureau must ensure that it supervises major furnishers of information to consumer reporting entities, in addition to such entities as depositories and payday lenders that are otherwise subject to the Bureau's supervisory authority. The Bureau believes that companies' supplying information to consumer reporting entities on their own, or their affiliate's, transactions or experiences with consumers was properly excluded from the Proposed Rule. Furnishing information of that type is typically incidental to the furnisher's primary business, and an enormously wide variety of businesses furnish such information to consumer reporting entities. Therefore, including such activity in the definition of “consumer reporting” could have the unintended consequence of delineating such a broad consumer reporting market that it would encompass, for example, many types of consumer creditors. Because furnishing a company's own transaction and experience data is fundamentally different from the activities defined by the rule as consumer reporting, the Bureau does not believe such furnishing should be included in the same market for purposes of implementing the nonbank supervision program for consumer reporting entities.
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The Bureau also noted in the Proposal that many large furnishers of information to consumer reporting entities are already subject to the Bureau's supervisory authority under the Dodd-Frank Act, and future larger participant rules may bring additional furnishers of information under the Bureau's supervisory authority. As noted above, 12 U.S.C. 5514 grants the Bureau authority to supervise, regardless of size, nonbank covered persons that offer or provide to consumers: (1) Origination, brokerage, or servicing of residential mortgage loans secured by real estate, and related mortgage loan modification or foreclosure relief services; (2) private education loans; and (3) payday loans. Additionally, the Bureau has the authority to supervise nonbank covered persons it has a reasonable cause to believe pose risks to consumers, after providing notice and a reasonable opportunity to respond. 12 U.S.C. 5514(a)(1)(C). Thus to the extent a significant nonbank covered person engaged in furnishing not otherwise covered is posing risks to consumers, the Bureau could exercise supervisory authority over the person on some other basis. Furthermore, under 12 U.S.C. 5515, the Bureau has the authority to supervise other furnishers such as very large banks, thrifts, and credit unions, and their affiliates.

Other commenters suggested broadening in various ways the exclusion for furnishing information. One commenter asked the Bureau to clarify that agents and contractors that transmit information about a company's transactions or experiences with consumers on that company's behalf do not thereby become participants of the consumer reporting market. It is the Bureau's view that such agents or contractors would not be participating in the consumer reporting market merely by providing technical or operational support services to facilitate a person's furnishing of its own transaction and experience information to a consumer reporting entity.
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Because the Bureau is adding a broad exclusion permitting a person to provide its own transaction and experience information with other persons to the final rule, the exclusion for furnishing information to a consumer reporting entity has been amended to address only the activity of a person providing transaction and experience information of an affiliate to a consumer reporting entity.

Another commenter provided the example of a depository institution that provides information about a consumer's account balances to a mortgage lender deciding whether to extend a loan to the consumer. Because the Proposed Rule excluded only an entity's provision of its transaction or experience information to its affiliates or to consumer reporting entities, this commenter believed the provision of information in its hypothetical example would fall within the scope of consumer reporting activities. The Bureau agrees that an entity's providing its own transaction or experience information in this context should not be treated as a consumer reporting activity. Accordingly, the Bureau is adopting, in the final rule, a simpler, broader exclusion. The final rule excludes a person's collecting, maintaining, analyzing, or providing its own transaction or experience information for use or expected use by another person in a decision regarding a consumer financial product or service. Such activity is excluded from the consumer reporting market defined by the rule, regardless of what person receives the information.

A commenter also suggested excluding from the final rule providing information to process a transaction requested by a consumer, a possible activity of payment systems that process account transactions. The Bureau agrees that such payment system activities should be excluded from the final rule and amends the final rule by excluding any authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device.
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A similar exclusion is also included in the FCRA. 15 U.S.C. 1681a(d)(2)(B) (exclusion from the definition of “consumer report”).

Another commenter stated that companies that provide information outside the scope of the FCRA, but for use by third parties in decisions regarding the offering or provision of

consumer financial products or services, do not operate in a market that could reasonably be considered a “consumer reporting market.” This commenter specifically referenced what it described as Gramm-Leach-Bliley Act (GLBA)-covered products, including consumer identification authentication, or fraud detection and identity theft protection, over which the commenter asserted the Bureau has no jurisdiction, as a result of 12 U.S.C. 5481(15)(B)(i). However, the cited provision says expressly that it applies “[f]or purposes of (A)(xi)(II),” and it does not purport to affect whether an activity constitutes a consumer financial product or service under any provision other than (A)(xi). For this and other reasons, the provision in question is not pertinent to this rulemaking. The Bureau therefore declines to alter the definition of “consumer reporting” in the way this commenter suggested.
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Should appropriate circumstances arise, the Bureau will consider whether the activities the commenter describes fit within the rule's definition of consumer reporting.

Another commenter asserted that the proposed definition of “consumer reporting” included too broad a scope of “analytical services.” The commenter suggested either excluding all analytical services or, at a minimum, providing other more limited exclusions for certain types of such services. The commenter also argued that analytical services should be excluded because the activity has a low risk of harm to consumers.

Analyzing consumer report information is an important activity in the consumer reporting market, and, as with collecting, maintaining, and providing information, can be an important factor in decisions regarding the offering or provision of consumer financial products or services. Additionally, the Bureau is aware of some entities that engage in reporting of consumer information and also analyze that information, deriving receipts from that analysis. Just as businesses extending credit rely on the collecting, maintaining, or providing of consumer report information, some also purchase analyses of the underlying consumer report information. Analyzing activity generally is done for compensation and may result in annual receipts for the entity providing analytical services, and a company that meets the threshold on the basis of its analyzing activities will likely affect many consumers. For these reasons, the Bureau declines to exclude analyzing consumer information in general from the consumer reporting market.
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Moreover, as to the assertion that analyzers pose low risk to consumers, the Bureau notes that, as discussed in the Summary of Final Rule (Section III), above, the market for consumer reporting identified by the rule, which includes analyzers of consumer report information, is a significant market that affects hundreds of millions of consumers. The extent to which specific activities within that market may pose greater or lower risks to consumers does not determine whether to include the activities within the market; risk posed by a particular larger participant within the market for consumer reporting will be considered pursuant to 12 U.S.C. 5514(b)(2), in the course of the Bureau's exercise of its supervisory authority.

The commenter also suggested that if analytical services are not generally excluded, the Bureau should exclude analytical services rendered for a particular consumer financial services provider using that provider's own information. The commenter argued that such services could be supervised in the context of examinations of the financial service provider itself, and that the Bureau's supervision program should not be duplicative by covering providers of such analytical services as “larger participants.” The commenter additionally suggested excluding analytical services other than certain modeling services,
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arguing that the Bureau should focus its resources elsewhere.

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Modeling in the consumer reporting market often consists of licensing a statistical algorithm to other participants of the consumer reporting market. These statistical systems or tools that establish numerical values or categorizations can be used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors. These algorithms produce figures commonly known as “credit scores,” “risk predictors,” or “risk scores.”
See
15 U.S.C. 1681g(f)(2)(A).

The Bureau clarifies that the consumer reporting market delineated in the final rule does not include the activity of providing analytical services regarding another person's own information to that other person, where such analysis is used solely by that other person and is not provided to a third party (other than the other person's affiliated companies). Such activity is not treated differently, in the final rule, from a person's conducting its own analysis for its own use. A person's analyzing its own consumer report or other account information, without the expectation that the information will be used in connection with a decision “by another person,” is not included in the defined consumer reporting market. It is the Bureau's view that agents or contractors who analyze a person's data on that person's behalf, solely for that person's use, are similarly not analyzing consumer report or other account information for use “by another person.”

The Bureau also received comments from consumer groups and consumers arguing that the market for consumer reporting should include background screening for employment purposes. The Bureau notes that the proposed definition of “consumer reporting” excluded collecting, analyzing, maintaining, or providing consumer report or other information to the extent that the information is used solely in a decision regarding employment, government licensing, or residential leasing, because these are explicit exclusions under 12 U.S.C. 5481(15)(A)(ix). Accordingly, the Bureau declines to amend the Proposal to include the activity of employment background screening in the final rule's definition of “consumer reporting.”
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As indicated above, the Bureau may supervise a larger participant's provision of consumer report information for employment screening, even though such activity does not count in the calculation of annual receipts that determines larger-participant status.

For the reasons stated above, the Bureau adopts the Proposal's definition of “consumer reporting,” amended as described above and with minor technical amendments for consistency.

Section 1090.104(b)—Test To Define Larger Participants

Criteria.
As noted in the Proposal, the Bureau has broad discretion in choosing criteria for measuring whether a nonbank entity is a larger participant of any given market. In issuing the Proposal, the Bureau considered several criteria for measuring participants of the consumer reporting market. These included, among others, annual receipts; number of unique consumer reports sold or otherwise provided to a third party annually; number of individual consumers a nonbank covered person collects, analyzes, and maintains data about, or provides consumer reports on, annually; and number of employees.

The Bureau proposed to use annual receipts as the measure of participation in the consumer reporting market. As explained in the Proposal, the Bureau believes that annual receipts resulting from consumer reporting activities is a reasonable indication of a person's level of market participation and impact on consumers. Consumer reporting entities earn income from selling consumer reports and from other market-related activities that directly affect consumers. As a result, the greater the annual receipts of a consumer reporting entity, the greater its market participation and the greater its impact on consumers.

In addition, as set forth in the Proposal, the proposed definition of

“annual receipts” is adapted from the existing measure used by the SBA. Because the SBA uses a similar measure in its small business loan programs,
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the proposed test is expected to be sufficiently straightforward so as not to put undue burden on nonbank covered persons in determining whether they are subject to the Bureau's nonbank supervision program. However, it bears noting that the Bureau's definition of “annual receipts” differs from the SBA's in important respects. For example, as discussed below, the Bureau's rule counts only receipts resulting from activities in the identified consumer reporting market; the SBA, by contrast, counts all receipts of entities engaged in certain consumer reporting activities. This difference excludes some receipts from the amount being counted toward the threshold that marks a larger participant.
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Information concerning the SBA's loan programs is available at:
http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs.

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As another example, the Bureau's definition of control, which establishes an affiliation between companies such that their receipts are aggregated during the calculation of “annual receipts,” is broader than the SBA's definition of control.

As further explained in the Proposal, the Bureau analyzed data from the 2007 Economic Census on annual receipts for businesses in North American Industry Classification System (NAICS) code 561450 (credit bureaus). One commenter noted that analyzers may not all be included in this NAICS code. The Bureau acknowledges that the Economic Census data have certain limitations and do not perfectly reflect the set of participants of the market defined by this rule. First, the Proposed Rule's definition of “consumer reporting” does not correspond precisely to the NAICS code, which encompasses both “consumer credit reporting agencies” and “mercantile reporting agencies,”
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but may not include other participants covered by the final rule's definition of consumer reporting. Second, entities in NAICS code 561450 may report to the Census revenues that are not included in annual receipts resulting from consumer reporting as defined in the rule. Third, entities that fall within the NAICS code may not correctly identify themselves or may otherwise fail to respond to the Census. The Economic Census data are likely therefore both over- and under-inclusive. An additional limitation of the Economic Census data for these codes is that the Census keeps aggregated annual receipts data confidential in certain tiers.
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Notwithstanding these limitations, the data reveal the general distribution of the size of participants of the consumer reporting market described in the final rule. In the Proposal, the Bureau invited commenters to provide additional data sources. None relevant to the consumer reporting market were identified.
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For the purposes of the Economic Census, mercantile reporting agencies are “primarily engaged in compiling information on business firms, such as credit histories, and providing the information to financial institutions and others who have a need to evaluate the credit worthiness of those businesses.” Consumer reporting agencies are “primarily engaged in compiling information on individuals, such as credit and employment histories, and providing the information to financial institutions, retailers, and others who have a need to evaluate the credit worthiness of those persons.”
http://www.census.gov/epcd/ec97/def/5614502.HTM
and
http://www.census.gov/epcd/ec97/def/5614501.HTM.

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Available at

http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2007_US_56SSSZ4&prodType=table,
scroll to NAICS code 561450. Many Census tiers have flags in the receipts category, which read “withheld” to avoid disclosing data for individual companies; data are included in higher-level totals. Other aggregated revenue data are available in a table showing the concentration of revenues among the largest firms, which extend through the top 50.

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In the Proposal, the Bureau made estimates based on data available from the 2007 Economic Census for NAICS code 561450. Since issuing the Proposal, the Bureau has learned of additional detailed Economic Census data for NAICS code 5614501, which encompasses “consumer credit reporting agencies” but not “mercantile reporting agencies,” in contrast to code 561450. These additional data have permitted the Bureau to refine its original estimates. First, the Bureau originally concluded that the consumer reporting market includes about 401 entities. This estimate was based on summary data for NAICS code 561450. The more detailed data permit the Bureau to refine its estimate to 410 consumer reporting entities. Second, the summary data for NAICS code 561450 informed the Bureau that about 75 percent of establishments in the code, over all sizes of firms, were consumer reporting entities. The more detailed data for NAICS code 5614501 reveal that the 75 percent figure is fairly consistent throughout the distribution of firm sizes. Third, the more detailed data for NAICS code 5614501 permit a closer estimate of the number of firms with receipts between the threshold and $10 million. This estimate does not change the Bureau's basic conclusions about how many firms are larger participants given the $7 million threshold; what fraction of the market they constitute; and what proportion of total receipts in the market they represent. The discussion of the threshold, below, will be based on the more refined data from NAICS code 5614501. The Bureau also received one comment suggesting that the Bureau use the Nationwide Mortgage Licensing System as a data source. However this source does not yet include data on the consumer reporting market. Another commenter suggested using a database maintained by the Federal National Mortgage Association. But that database only includes the names of a small set of reporting entities, and does not provide any other data.

Commenters suggested a variety of alternative criteria such as the total number of unique consumer reports sold, the number of individual consumers on which an entity provides consumer reports, the number of complaints about an entity, an entity's relative market share, or the annual receipts of an entity in a given geographic or demographic segment. The Bureau has broad discretion in choosing criteria to define larger participants of a given market, and does not believe these criteria are superior alternatives. The available data do not permit the Bureau meaningfully to measure the general contours of the market based on these criteria and thus to devise a test for defining larger participants of the consumer reporting market on the basis of them or to apply the test efficiently. Further, as set forth in the Proposal, the Bureau believes that the number of employees is not a suitable alternative criterion because it could be difficult for a multi-line company to apportion employee time between market-related and other activities, and many responsibilities may be fulfilled by contractors rather than employees.

Several commenters in or representing the consumer report reseller industry asserted that using annual receipts would result in double counting of cost of goods sold and thus result in the rule's covering much smaller businesses than intended. As discussed in connection with the definition of “annual receipts” above, the cost of goods sold is not double counted.

For the reasons set forth above, the Bureau declines to amend the Proposed Rule to change the criterion used in the larger-participant test for the consumer reporting market and adopts the use of annual receipts as proposed.

Threshold.
As noted in the Proposal, the Bureau has broad discretion in setting the threshold above which a nonbank covered person will qualify as a larger participant of the consumer reporting market. The Bureau proposed more than $7 million in annual receipts as the threshold to define larger participants of the consumer reporting market and adopts this threshold in the final rule for the following reasons.

Available data indicate that a threshold of $7 million in annual receipts from consumer reporting activities will enable the Bureau to cover in its nonbank supervision program the largest consumer reporting repositories as well as a range of other larger consumer reporting entities that play an important role in the consume

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2012-17603. Public record. Not legal advice.