The Consumer Financial Protection Bureau (CFPB) has issued a final rule to implement its authority under section 1024 of Dodd-Frank to subject “larger participants” in the consumer reporting market to CFPB supervision. The rule will have significant consequences for companies in the consumer reporting industry. The final rule follows a proposed rule issued in February 2012 indicating that the CFPB intended to supervise the consumer reporting market as part of the CFPB’s authority to supervise nonbank providers of consumer financial products and services. The final rule is effective September 30, 2012.
The final rule defines a “larger participant” in the consumer reporting market as a nonbank covered person that offers or provides consumer reporting and has annual receipts from consumer reporting in excess of $7 million.
- A “nonbank covered person” generally is any person that is not a bank and that is engaged in offering or providing a consumer financial product or service. The term also includes certain affiliates of such a person.
- “Consumer reporting” means “collecting, analyzing, maintaining, or providing consumer reporting 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.” Notably, this definition is different from the comparable definition in the Fair Credit Reporting Act.
- “Annual receipts” generally are total income plus the cost of goods sold, as reported on Internal Revenue Service tax return forms. Annual receipts are computed over a three-year period by totaling receipts from the covered person’s three most recently completed fiscal years and dividing by three. The final rule requires a covered person to include in its annual receipts the annual receipts of affiliates from consumer reporting.
A larger participant in the consumer reporting market will be notified if the CFPB intends to initiate a supervisory activity (e.g., examination) with respect to the participant. The participant may contest the supervisory activity on the grounds that the participant does not meet the definition of “larger participant” by submitting a response to the CFPB.
The CFPB’s final rule makes clear that supervision of larger participants will be “probabilistic” in nature. The CFPB will examine certain larger participants on a periodic basis while other larger participants may be examined less frequently. The CFPB’s supervisory decisions, including decisions regarding the frequency and extent of examinations, will be informed by statutory factors including the size and transaction volume of individual participants, the risks posed to consumers, and the extent of state consumer protection oversight.