CFPB Large Company Rule Clarifies Definition of Revenues for Debt Collectors

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Any third party debt collection agency, debt buyer, or collection law firm with revenues over $10 million per year will be subject to the direct supervision of the Consumer Financial Protection Bureau (CFPB) beginning January 2, 2013. The CFPB anticipates that around 175 companies will fall under its direct supervision.

The CFPB announced Wednesday the completion of its Final Consumer Debt Collection Rule, which sets parameters for companies that will fall under its purview. The federal agency’s rule explicitly defines and covers three types of ARM company: third party debt collection agencies, debt buyers, and collection attorneys and law firms.

“Millions of consumers are affected by debt collection, and we want to make sure they are treated fairly,” said CFPB Director Richard Cordray. “Today we are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level.  We want all companies to realize that the better business choice is to follow the law — not break it.”

The Final Rule is largely unchanged from the proposed guidelines offered by the CFPB in February. The final guidelines for publication did, however, address many of the concerns voiced by the debt collection industry during the open comment period.

But despite the efforts of many in the ARM industry, the $10 million annual receipt threshold stayed pat. Debt collection industry trade group ACA International had vocally argued that defining companies with revenues of $10 million as “larger participants” goes against existing federal definitions for company size, most notably the Small Business Administration’s definition of a “small business,” which is currently pegged at $7 million.

“While we anticipated a final rule, it was our hope that the CFPB would provide greater consideration about how our industry is structured and broaden the large market threshold so that small businesses are not defined as larger market participants,” ACA Chief Executive Officer Pat Morris said. “We are reviewing the final rule and the new debt collection examination procedures to determine the full scope of impact on our members.”

The CFPB did clarify its definition of “receipts.” Officially, companies that average $10 million in annual receipts from debt collection activity over three years will be subject to supervision. Receipts are defined as “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 (such as Form 1120 for corporations; Form 1120S and Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 1065 and Schedule K for partnerships; and Form 1040, Schedule C for sole proprietorships).

Importantly, the CFPB said that “receipts” do not include “amounts collected for another.” The final rule states that fees earned in connection with these collections are considered receipts. This seems to indicate that only commissions will be counted as receipts rather than gross collections.

The CFPB reiterated that it expects around 175 ARM companies to fall under its definition of “larger participant” and be subject to supervision and examination. There was wide speculation in the industry that the companies had been specifically identified. But an analysis of tax data by indicates that this might be a purely estimated number.

North American Industry Classification System (NAICS) code 561440 – a federal classification for debt collection companies – covers exactly 175 companies with annual revenues over $10 million. This classification code is the same used in’s Collection Agency Financial Benchmark Report.

The CFPB will be holding a field hearing in Seattle today to discuss the final supervision rule. The event will start at 10am Pacific time.

For a look at what the CFPB says it will specifically do with companies under supervision, please see “Details on What CFPB Supervision will Mean for Larger ARM Firms.” This article also details the estimated costs to companies under supervision.

The CFPB has also published materials for anyone interested in further information:

A factsheet on today’s announcement can be found at:

A copy of the rule published today can be found at:

The Examination Procedures for Debt Collection can be found at:


Continuing the Discussion

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  • avatar gpaul says:

    More useless government oversight. Everything is “after the fact” and so reactionary. The present government can’t even oversee the stock market, the economy, the environment, the health care system, etc. etc. etc. with over 50 years of history and now they want to oversee the debt industry. Another waste of another billion dollars and torture for the companies just trying to do “business”

    I think it is ridiculous and unwarranted! There are already (how many?) laws passed to protect consumers. It’s not like we send Guido to break fingers or legs to collect.

    Maybe we should all be like the casinos that send out Joe Pesci to “take care of business” and get the money back. Then there would be no collections – Just receipts and money pouring in. – Nobody messes with Joe!

  • avatar Patrick Lunsford says:

    @ gpaul: To be fair, this new supervision scheme from the CFPB is directly addressing the previous reactionary regulation of the ARM industry. This new way will allow regulators to identify problems at the largest ARM firms BEFORE things escalate to enforcement actions. Companies will be able to correct issues in real time rather than after they’ve been sued.

  • avatar Jeffrey Weinstein says:

    I think this really misses the mark.The collectors causing the problems and generating the terrible publicity most likely do NOT have revenues of over $10 million per year.

    Any business owner who fits this profile already has a HUGE INCENTIVE to do things the right way. They don’t want to get shut down or get a bad reputation and lose clients.

    It is the fringe agencies that cause most of the problems.

  • @Jeffrey, there is actually some data behind your assertion. I posted a blog on Forbes today addressing just that:

  • avatar Chad Pedersen says:

    Jeffrey, I think you’ve just about said it and Stephanie about backed it up. How soon after they have the oversight in place and the amount of complaints continue to be steady or on the rise will they then lower the limit to $5 Million, or $1 Million? Afterall, regulation and oversight solves everything.

  • avatar Commercial Guy says:

    Even more to the point is the probability that the small fringe agencies which are causing the bulk of the problem are not registered anywhere, do not file tax returns, and close their doors only to open again under a new name down the street when the heat gets to be too much for them. How will the CFPB find these agencies, much less supervise them?

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