Today, the CFPB issued its Proposed Rule Defining Larger Participants in Certain Consumer Financial Product and Service Markets.  The CFPB explained the background of the Proposed Rule and CFPB’s authority for issuing it:

The Consumer Financial Protection Act of 2010 (Act)1 established the Bureau of Consumer Financial Protection (Bureau) on July 21, 2010. One of the Bureau’s key responsibilities under the Act is the supervision of very large banks, thrifts, and credit unions, and their affiliates, and certain nonbank covered persons. This proposal (Proposed Rule or proposal) would establish, in part, the scope of coverage of the Bureau’s supervision authority for nonbank covered persons pursuant to section 1024 of the Act. That authority varies by consumer financial product or service market. Specifically, section 1024 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.5 In addition, the Bureau has the authority to supervise any “larger participant of a market for other consumer financial products or services,” as defined by rule by the Bureau. The Act requires the initial larger participant rule to be issued by July 21, 2012. This Proposed Rule would establish the initial larger participant rule for two markets: consumer debt collection and consumer reporting. The Bureau anticipates subsequent rulemakings to define larger participants in additional markets. The Bureau is authorized to supervise nonbank entities subject to section 1024 of the 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  the consumer financial markets. The Proposed Rule only pertains to defining larger participants in certain markets for purposes of the Bureau’s nonbank supervision authority and would not impose new substantive consumer protection requirements on any nonbank entity. Moreover, nonbank entities 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.

The CFPB summarized the Proposed Rule as follows:

This proposal is the first in what the Bureau intends to be a series of rules to define “larger participants” in specific markets for purposes of establishing, in part, the scope of coverage of the Bureau’s nonbank supervision program. In developing the proposal, the Bureau considered the comments it received in response to the Notice and in the roundtables conducted last year. The Proposed Rule covers two markets for consumer financial products and services: consumer debt collection and consumer reporting. The Proposed Rule sets forth definitions for the consumer financial products or services comprising the markets that it covers, in addition to defining other terms. The proposal establishes a test for each market to determine whether a nonbank entity is a larger participant of that market. For the debt collection and consumer reporting markets, the Bureau is proposing a test that measures the criterion of “annual receipts.” This measurement will use a definition of “annual receipts” adapted from the definition of the term used by the Small Business Administration (SBA) for purposes of defining small business concerns. The proposed threshold for the consumer debt collection market is more than $10 million in annual receipts and, for the consumer reporting market, is more than $7 million in annual receipts. Under the tests set forth in the Proposed Rule, these receipts must result from activities related to the market in question. Covered persons meeting the proposed tests would qualify as larger participants and be subject to the Bureau’s supervision authority under section 1024 of the Act. Although annual receipts are proposed as the criterion of measurement for both markets covered by the Proposed Rule, the Bureau has not determined that this criterion would be appropriate for any other market that may be the subject of a future rulemaking. Rather, the Bureau will tailor each test to the market to which it will be applied.  The Proposed Rule provides 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 proposal also includes a procedure for a person to dispute that it qualifies as a larger participant. To facilitate the Bureau’s supervision of nonbank covered persons, to enable the Bureau to carry out the purposes and objectives of the Act relating to supervision, and to prevent evasion, the Proposed Rule provides that the Bureau may require submission of certain records, documents, and other information for purposes of determining whether a person is a larger participant of a covered market.