Ever since the Consumer Financial Protection Bureau (CFPB) published its final rule for debt collection supervision, the ARM industry has been trying to figure out who, exactly, will fall under the definition of a “larger participant” in the debt collection market.

But it might not matter if a company meets the definition when it comes to examination and supervision.

By now, everyone in the debt collection industry should know that third party debt collection agencies, debt buyers, or collection law firms with revenues over $10 million per year will be subject to direct supervision by the CFPB beginning January 2, 2013. The $10 million threshold does explicit exclude revenues from the collection of medical debt, and the Bureau estimates that around 175 ARM companies will fall under its final rule.

But as attorney John Rossman noted last week, there are several provisions that will allow the CFPB to examine and supervise smaller collection agencies. The most complicated way is that smaller companies that engage in collection work on the behalf of larger participants will have their relationship with the larger participant examined. If certain criteria are met, the smaller company could be subject to direct supervision.

Rossman notes an interesting clause of the final rule, however: the CFPB has authority to examine any entity – regardless of size – in the debt industry if there is reason to believe that the entity poses a risk of harm to consumers.

To elaborate on this point, check out the specific language — paraphrased by Rossman above — the CFPB uses in its final rule:

the Bureau has the authority to supervise any nonbank covered person who it determines, on the basis of reasonable cause, is engaging or has engaged in conduct that poses risk to consumers.

By way of explanation, the CFPB referenced a specific passage in the U.S. Code that established the Bureau and was a part of the Dodd-Frank Wall Street Reform legislation. Under the section titled “Supervision of nondepository covered persons” [12 U.S.C. 5514(a)(1)(C)]:

this section shall apply to any covered person who…the Bureau has reasonable cause to determine, by order, after notice to the covered person and a reasonable opportunity for such covered person to respond, based on complaints collected through the system under section 5493(b)(3) of this title or information from other sources, 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;

In short, the law says that the Bureau can supervise any company it deems to be a risk for consumers and that consumer complaint volume will be a factor in determining which companies are “risky.”

Also, and this is a point that has been glossed over a bit too much over the past few weeks, the CFPB reiterated in its final rule that “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.” This means that the CFPB is the new federal regulator for all ARM companies, even those not supervised.

We’ve been tap-dancing around this for a few weeks now, but the bottom line for the ARM industry and the CFPB is that the text of the law allows the agency to supervise and examine basically any company if certain criteria are met.


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