The Consumer Financial Protection Bureau (CFPB) Wednesday announced its final rule for supervision of the consumer debt collection market. Under its authority, the Bureau will directly examine and supervise the 175 or so largest ARM firms in the U.S.
But there are exemptions for certain markets that could move individual companies outside of supervisory auspices, and a couple of sectors of the debt collection industry that escape it altogether.
The most obvious ARM sector exemption is commercial debt collection. The agency is, after all, named the Consumer Financial Protection Bureau. The Bureau does note this pervasively in its final rule, which is formally titled “Defining Larger Participants of the Consumer Debt Collection Market.”
OK, so that one was easy. The Fair Debt Collection Practices Act (FDCPA), largely, doesn’t apply to commercial collectors, so why should this? How many times do we need to read the word “consumer” to get the picture?
Another specific exemption in the Final Rule is medical debt. In fact, the problem of how to treat medical debt may have contributed to the delay in the Final Rule, as the CFPB seems to have deliberated over this debt type. The central issue cited by the Bureau for the exclusion of healthcare debt is the difficulty in determining whether each individual debt meets the definition of “credit” under Dodd-Frank. The law defines credit as “the right granted by a person to a consumer to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for such purchase.” (more on this exclusion can be found today on our sister site, insidePatientFinance.com)
But what, exactly, is being exempted here? In short, revenues derived from the collection of medical and commercial debt. If a collection agency handles a wide range of debt types, then any revenues from those two markets are not included in the “larger participant” calculation. So if a company has $12 million in annual revenue, but $4 million of that comes from either medical or commercial collection, their “number” under the Final Rule is $8 million, and that company would not initially be subject to supervision.
Here’s how the CFPB spells it out in the rule:
Accordingly, the Bureau adopts in the Final Consumer Debt Collection Rule the provision that the only receipts counting toward the calculation of “annual receipts” are those “resulting from” activities related to the covered market.
That passage is at the bottom of page 54 of the Final Rule. What precedes it is also very important.
The CFPB is not requiring ARM firms to apportion their revenues based on debt type; it will remain the choice of each company to do so. Apportionment was apparently a hot topic in the comments the Bureau received after the rule was proposed. Many wanted the CFPB to provide a form so that collection agencies could easily and uniformly report apportioned revenues to the Bureau. This way, there would be a standardized way to show revenues from different debt types, including those that are exempt.
But the Bureau declined to require debt collection market participants to apportion their revenues for reporting, and as such, will not be providing a form for companies that wish to do so. Why would a firm want to do this in the first place? I’ll let the Final Rule explain:
the Bureau has decided to permit apportionment, in part to enable a nonbank covered person to apportion its annual receipts if it wishes to challenge an assertion by the Bureau that it qualifies as a larger participant. In such a case, the person may provide records, documents, or other evidence to the Bureau reasonably identifying that portion of its annual receipts that do not result from market-related activities. However, if the person does not wish to apportion receipts in challenging such an assertion, it may forego doing so, with the sole result being that it will have higher annual receipts counted toward the $10 million threshold for larger-participant status.
So the CFPB is not requiring apportionment based on source of revenue, but it is permitting it. If a company feels that it does not meet the $10 million threshold due to certain revenues coming from exempt markets, it may report apportioned revenue for the purpose of escaping supervision.
Another market that was hotly contested in the comments was student loans. The CFPB did directly address student loan debt and specifically noted that it will be included in the definition of its consumer debt collection market.