Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 65775 

1 77 FR 9592 (Feb. 17, 2012). 

2 77 FR 42874 (July 20, 2012). 

3Public Law 111–203 (codified at 12 U.S.C. 5301 

et seq.). 

4The provisions of 12 U.S.C. 5514 apply to 

certain categories of covered persons, described in 

subsection (a)(1), and expressly exclude from 

coverage persons described in 12 U.S.C. 5515(a) or 

5516(a). A ‘‘covered person’’ means ‘‘(A) any person 

that engages in offering or providing a consumer 

financial product or service; and (B) any affiliate of 

a person described [in (A)] if such affiliate acts as 

a service provider to such person.’’ 12 U.S.C. 

5481(6); see also 12 U.S.C. 5481(5) (defining 

‘‘consumer financial product or service’’). Under 12 

U.S.C. 5514(d), subject to certain exceptions, ‘‘to the 

extent that Federal law authorizes the Bureau and 

another Federal agency to * * * conduct 

examinations, or require reports from a person 

described in subsection (a)(1) under such law for 

purposes of assuring compliance with Federal 

consumer financial law and any regulations 

thereunder, the Bureau shall have the exclusive 

authority to * * * conduct examinations [and] 

require reports * * * with regard to a person 

described in (a)(1), subject to those provisions of 

law.’’ 

5See 12 U.S.C. 5515(a). The Bureau also has 

certain authorities relating to the supervision of 

other banks, thrifts, and credit unions. See 12 

U.S.C. 5516(c)(1), (e). The Bureau notes that one of 

the objectives of the Dodd-Frank Act is to ensure 

that ‘‘Federal consumer financial law is enforced 

consistently without regard to the status of a person 

as a depository institution, in order to promote fair 

competition.’’ 12 U.S.C. 5511(b)(4). 

6 12 U.S.C. 5514(a)(1)(A), (D), (E). 

7 12 U.S.C. 5514(a)(1)(B), (a)(2). The Bureau also 

has the authority to supervise any nonbank covered 

person that it ‘‘has reasonable cause to determine, 

by order, after notice to the covered person and a 

reasonable opportunity * * * to respond * * * 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.’’ 12 U.S.C. 5514(a)(1)(C). The Bureau has 

published a notice of proposed rulemaking to 

establish procedures relating to this provision of the 

Dodd-Frank Act. 77 FR 31226 (May 25, 2012). 

8 77 FR 42874. 

deposits, and Eurocurrency liabilities of the institution during the computation 

period. 

Reservable liability Reserve requirement 

NET TRANSACTION ACCOUNTS: 

$0 to reserve requirement exemption amount ($12.4 million) .......... 0 percent of amount. 

Over reserve requirement exemption amount $12.4 million) and up 

to low reserve tranche ($79.5 million).

3 percent of amount. 

Over low reserve tranche ($79.5 million) .......................................... $2,013,000 plus 10 percent of amount over $79.5 million. 

Nonpersonal time deposits ....................................................................... 0 percent. 

Eurocurrency liabilities .............................................................................. 0 percent. 

By order of the Board of Governors of the 

Federal Reserve System, acting through the 

Director of the Division of Monetary Affairs 

under delegated authority. 

Dated: October 24, 2012. 

Robert deV. Frierson, 

Secretary of the Board. 

[FR Doc. 2012–26662 Filed 10–30–12; 8:45 am] 

BILLING CODE 6210–01–P 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1090 

[Docket No. CFPB–2012–0040] 

RIN 3170–AA30 

Defining Larger Participants of the 

Consumer Debt Collection Market 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) amends 

the regulation defining larger 

participants of certain consumer 

financial product and service markets 

by adding a new section to define larger 

participants of a market for consumer 

debt collection. The final rule thereby 

facilitates the supervision of nonbank 

covered persons active in that market. 

The Bureau is issuing the final rule 

pursuant to the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. 

That law grants the Bureau authority to 

supervise certain nonbank covered 

persons for compliance with Federal 

consumer financial law and for other 

purposes. The Bureau has the authority 

to supervise nonbank covered persons 

of all sizes in the residential mortgage, 

private education lending, and payday 

lending markets. In addition, the Bureau 

has the authority to supervise nonbank 

‘‘larger participant[s]’’ of markets for 

other consumer financial products or 

services, as the Bureau defines by rule. 

An initial rule defining larger 

participants of a market for consumer 

reporting was published in the Federal 

Register on July 20, 2012 (Consumer 

Reporting Rule). 

DATES: Effective January 2, 2013. 

FOR FURTHER INFORMATION CONTACT: Kali 

Bracey, Senior Counsel, (202) 435–7141, 

or Susan Torzilli, Attorney-Advisor, 

(202) 435–7464, Office of Nonbank 

Supervision, Bureau of Consumer 

Financial Protection, 1700 G Street NW., 

Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: On 

February 17, 2012, the Bureau 

published a notice of proposed 

rulemaking proposing to define larger 

participants of two markets identified 

by the Bureau: consumer reporting and 

consumer debt collection.1 On July 20, 

2012, the Bureau published the 

Consumer Reporting Rule.2 The Bureau 

is issuing this final rule to define larger 

participants of a market for consumer 

debt collection (Final Consumer Debt 

Collection Rule). This Final Consumer 

Debt Collection Rule is the second in a 

series of rulemakings to define larger 

participants of markets for consumer 

financial products and services for 

purposes of 12 U.S.C. 5514(a)(1). 

I. Overview 

Title X of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) 3 established the 

Bureau on July 21, 2010. One of the 

Bureau’s responsibilities under the 

Dodd-Frank Act is the supervision of 

certain nonbank covered persons,4 and 

very large banks, thrifts, and credit 

unions and their affiliates.5

Under 12 U.S.C. 5514, the Bureau has 

supervisory authority over all nonbank 

covered persons offering or providing 

three enumerated types of consumer 

financial products or services: (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.6 The Bureau also 

has supervisory authority over ‘‘larger 

participant[s] of a market for other 

consumer financial products or 

services,’’ as the Bureau defines by 

rule.7 On July 20, 2012, the Bureau 

published in the Federal Register the 

Consumer Reporting Rule, which 

defined larger participants of a market 

for consumer reporting.8 The Consumer 

Reporting Rule also established various 

procedures and standards that will 

apply with respect to all larger 

participants defined by rule, including 

those in the market for consumer debt 

collection that is defined in this Final 

Consumer Debt Collection Rule. 

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65776 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

9 12 U.S.C. 5514(b)(1). 

10Available at http://www.consumerfinance.gov/

guidance/supervision/manual/. 

11See Consumer Financial Protection Bureau, 

Consumer Reporting Examination Procedures (Sept. 

5, 2012) available at http://files.consumerfinance.

gov/f/201209_cfpb_Consumer_Reporting_

Examination_Procedures.pdf. These procedures are 

an extension of the CFPB’s general Supervisory and 

Examination Manual and provide guidance on how 

the Bureau will be conducting its monitoring in the 

consumer reporting market. 

12The Bureau’s supervision authority also 

extends to service providers of those covered 

persons that are subject to supervision under 12 

U.S.C. 5514. 12 U.S.C. 5514(e); see also 12 U.S.C. 

5481(26) (defining ‘‘service provider’’). 

13The Final Consumer Debt Collection Rule 

describes one market for consumer financial 

products or services, which the rule labels 

‘‘consumer debt collection.’’ The definition in the 

rule does not encompass all activities that could be 

considered consumer debt collection. Any reference 

herein to ‘‘the consumer debt collection market’’ 

means only the particular market for consumer debt 

collection identified by the Final Consumer Debt 

Collection Rule. 

14The FDCPA is codified at 15 U.S.C. 1692 et seq. 

15As the Bureau explained in the Consumer 

Reporting Rule, the Bureau may examine a covered 

person’s consumer financial products and services, 

as well as any of its activities that are subject to 

Federal consumer financial law, beyond the 

particular activities that rendered the person subject 

to supervision. Thus, the Bureau may examine 

activities of a larger participant of the consumer 

debt collection market that might not fall within the 

rule’s definition of consumer debt collection. 

16 76 FR 38059 (June 29, 2011). 

17 In July 2011, the Bureau held four roundtable 

discussions on the Notice. More than 70 

stakeholders participated, representing a diverse 

mix of nonbank and bank trade associations and 

consumer advocacy and civil rights groups. The 

roundtables focused on key issues regarding how to 

define larger participants, including what criteria to 

measure, where to set thresholds, available data 

sources, and which markets to cover. Also in July 

2011, the Bureau held a multistate regulator and 

regulatory association conference call that had more 

than 40 participants. 

18 77 FR 9592. 

19Comments solely relating to Subpart A of 12 

CFR part 1090, such as those relating to general 

definitions, concepts, protocols, and procedures 

relating to the Bureau’s supervision of larger 

participants and assessments of whether entities are 

larger participants were addressed in the Consumer 

Reporting Rule and are not discussed again here. 

20 77 FR 42874. 

The Bureau is authorized to supervise 

nonbank entities subject to 12 U.S.C. 

5514 of the Dodd-Frank 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 consumer financial markets.9 While 

the specifics of an examination may 

vary by market and entity, the 

supervision process generally proceeds 

as follows. Typically, Bureau examiners 

initiate an on-site examination by 

contacting the entity for an initial 

conference with management, and often 

by also requesting records and 

information. Bureau examiners also will 

review the components of the 

supervised entity’s compliance 

management system. Based on these 

discussions and a preliminary review of 

the information received, examiners 

determine the scope of an on-site 

examination, and then coordinate with 

the entity to initiate the on-site portion 

of the examination. While on-site, 

examiners spend a period of time 

holding discussions with management 

about the company’s processes and 

procedures; reviewing documents, 

records, and accounts for compliance; 

and evaluating the entity’s compliance 

management systems. As with the 

Bureau’s bank examinations, 

examinations of nonbanks involve 

issuing confidential examination 

reports, supervisory letters, and 

compliance ratings. 

The Bureau has published a general 

examination manual describing the 

Bureau’s supervisory approach and 

processes. This manual is available on 

the Bureau’s Web site.10 As explained in 

the examination manual, reports of 

examination will be structured to 

address various factors related to a 

supervised entity’s compliance with 

Federal consumer financial law and 

other relevant considerations. On 

September 5, 2012, prior to beginning 

examinations of consumer reporting 

entities, the Bureau released 

examination procedures specific to 

consumer reporting.11 In connection 

with this Final Debt Collection Rule, the 

Bureau is releasing examination 

procedures related to debt collection. 

This Final Consumer Debt Collection 

Rule establishes a category of covered 

persons that are subject to the Bureau’s 

supervisory authority 12 under 12 U.S.C. 

5514, by defining ‘‘larger participants’’ 

of a market for consumer debt 

collection.13 The Final Consumer Debt 

Collection Rule pertains only to that 

purpose and does not impose new 

substantive consumer protection 

requirements. Nor does the Final 

Consumer Debt Collection Rule 

delineate the scope of the Fair Debt 

Collection Practices Act (FDCPA),14

provisions of the Dodd-Frank Act 

related to consumer debt collection 

activities, or any other Federal 

consumer financial law. Activities that 

the Bureau has chosen to exclude from 

the defined consumer debt collection 

market may nonetheless qualify as 

‘‘collecting debt’’ within the meaning of 

the Dodd-Frank Act and may constitute 

consumer financial products or services. 

Activities that the Bureau has excluded 

from this market may also be subject to 

the FDCPA. 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.15

II. Background 

On June 29, 2011, through a notice 

and request for comment (Notice), the 

Bureau solicited public comment on 

developing an initial proposed larger 

participant rule.16 The Bureau also held 

a series of roundtable discussions with 

industry, consumer and civil rights 

groups, and State regulatory agencies 

and associations.17 The Bureau 

considered the comments it received in 

connection with the Notice in 

developing a proposed rule to define 

larger participants of two markets for 

consumer financial products or services: 

consumer debt collection and consumer 

reporting. The Bureau published a 

notice of proposed rulemaking on 

February 17, 2012 (Proposed Rule or 

Proposal), that proposed definitions for 

larger participants of consumer 

reporting and consumer debt collection 

markets, as well as procedures and 

definitions that would be applicable for 

all current and future markets in which 

the Bureau will define larger 

participants.18 The Bureau requested 

and received public comment on the 

Proposed Rule. The Bureau received 83 

comments on the Proposed Rule from, 

among others, consumer groups, 

industry trade associations, companies, 

State financial services agencies, and 

individuals.19 The comments pertaining 

to consumer debt collection are 

discussed in more detail below in the 

section-by-section analysis of the final 

rule. 

On July 20, 2012, the Bureau 

published the Consumer Reporting Rule 

defining larger participants of a 

consumer reporting market.20 The 

Consumer Reporting Rule established 

subpart A of 12 CFR part 1090 (12 CFR 

1090.100–103), including general 

definitions, concepts, protocols, and 

procedures applicable to all larger 

participants of markets for consumer 

financial products or services. Section 

1090.100 sets forth the scope and 

purpose of part 1090 as defining larger 

participants of certain markets for 

consumer financial products or services 

that are subject to supervision by the 

Bureau. Section 1090.101 defines terms 

that are generally applicable to Part 

1090. Unless otherwise specified, the 

definitions in § 1090.101 should be used 

when interpreting terms in this Final 

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21ACA International, 2012 Agency Benchmarking 

Survey, at 21 (2012). According to ACA 

International’s 2012 Benchmarking Survey, 

collection agency commission rates averaged 28.4% 

in 2011, with a median of 25.5%. 22Charge off usually occurs 120 or 180 days after 

delinquency, depending on the type of debt. For 

example, the Federal Financial Institutions 

Examination Council, in its Uniform Retail Credit 

Classification and Account Management Policy, 

establishes a charge-off policy for open-end credit 

at 180 days delinquency and for closed-end credit 

at 120 days delinquency. See 65 FR 36903 (June 12, 

2000). 

23Federal Trade Commission, Collecting 

Consumer Debts: The Challenges of Change, at 4 

(Feb. 2009), available at http://www.ftc.gov/bcp/ 

workshops/debtcollection/dcwr.pdf (citing Kaulkin 

Ginsberg, The Kaulkin Report: The Future of 

Receivables Management at 50 (7th ed. 2007)). 

24Federal Trade Commission, Collecting 

Consumer Debts: The Challenges of Change, at 14 

(Feb. 2009), available at http://www.ftc.gov/bcp/ 

workshops/debtcollection/dcwr.pdf (citing Kaulkin 

Ginsberg, The Kaulkin Report: The Future of 

Receivables Management at 73 (7th ed. 2007)). 

25Federal Reserve Bank of New York, Quarterly 

Report on Household Debt and Credit (May 2012), 

available at http://www.newyorkfed.org/research/ 

national_economy/householdcredit/ 

DistrictReport_Q12012.pdf. 

26See 15 U.S.C. 1692(e). 

Consumer Debt Collection Rule. Section 

1090.102 establishes that once a 

nonbank covered person meets the 

larger-participant test for a particular 

market, the person retains largerparticipant status for a period of at least 

two years. Section 1090.103 sets forth a 

procedure for a person to challenge an 

assertion by the Bureau that the person 

qualifies as a larger participant of a 

covered market and a mechanism by 

which the Bureau may request 

information to assess whether a person 

is a larger participant. The Consumer 

Reporting Rule also established subpart 

B of part 1090 (12 CFR 1090.104), 

identifying a market for consumer 

reporting, defining terms applicable to 

that market, and establishing a test for 

assessing which entities are larger 

participants of that market. As the 

Bureau identifies additional markets of 

which to supervise larger participants, 

the Bureau will include relevant market 

descriptions and larger-participant tests 

in subpart B. 

In addition to the provisions that were 

adopted in the Consumer Reporting 

Rule, the Proposed Rule included a test 

to assess whether a nonbank covered 

person is a larger participant of the 

consumer debt collection market. Under 

this test, a nonbank covered person with 

more than $10 million in annual 

receipts resulting from consumer debt 

collection, as described in the Proposed 

Rule, would be a larger participant of 

the consumer debt collection market. As 

defined in the Proposed Rule, ‘‘annual 

receipts’’ would generally be derived 

from a three-year average of receipts. 

III. Summary of the Final Rule 

The Final Consumer Debt Collection 

Rule amends part 1090 by adding 

§ 1090.105 to subpart B, to define larger 

participants of the consumer debt 

collection market. Section 1090.105 

identifies a market for consumer debt 

collection, defines the term ‘‘annual 

receipts’’ for purposes of measuring 

participation in that market, and sets 

forth the test for assessing which 

entities are larger participants of the 

market. In the Proposal, the Bureau 

explained that the consumer debt 

collection market encompasses the 

collection, or attempted collection, of 

debt related to the consumer financial 

products or services described in 12 

U.S.C. 5481(5) and (15). As discussed 

below, the Final Consumer Debt 

Collection Rule adopts a definition of 

‘‘consumer debt collection’’ that is 

similar in scope but has been 

restructured in response to comments. 

Participants of the consumer debt 

collection market identified in the Final 

Consumer Debt Collection Rule 

generally include different types of 

consumer debt collection entities such 

as third-party debt collectors, debt 

buyers, and collection attorneys 

(collectively referred to as consumer 

debt collectors). Third-party debt 

collectors primarily collect debt on 

behalf of originating creditors or their 

assignees and typically are compensated 

through contingency fees calculated as a 

percentage of the debt they recover.21

Creditors’ practices vary in how they 

use third-party debt collectors. In some 

cases, creditors use third-party debt 

collectors in the early stages of 

delinquency prior to charge off.22 In 

other cases, creditors use third-party 

debt collectors after the creditors have 

written off the debts. 

Debt buying is another important 

component of the consumer debt 

collection market. As the name 

indicates, debt buyers purchase debt, 

either from the original creditors or from 

other debt buyers, usually for a fraction 

of the balance owed.23 They profit when 

their recoveries exceed the direct and 

indirect costs of collection, including 

the costs of acquiring the debt and of 

collecting from consumers. Debt buyers 

sometimes use third-party debt 

collectors or collection attorneys to 

collect their debts, but many also 

undertake their own collection efforts. 

Finally, debt buyers also may decide to 

sell purchased debt to other debt buyers. 

Additionally, collection attorneys 

play a role in the consumer debt 

collection market. Collection attorneys 

undertake traditional collection efforts, 

such as contacting consumers by 

telephone or written communication. 

Attorneys also file lawsuits against 

consumers to collect debts or may buy 

debt and collect in their own names.24

Debt collection is a multi-billiondollar industry that directly affects a 

large number of consumers. In 2012, 

approximately 30 million individuals, 

or 14 percent of American adults who 

have credit reports, had debt that was 

subject to the collections process 

(averaging approximately $1,500 per 

consumer).25 Consumer debt collection 

is important to the functioning of the 

consumer credit market and has a 

significant impact on consumers. By 

collecting consumer debt, collectors 

reduce creditors’ losses from nonrepayment and thereby help to keep 

credit accessible and more affordable to 

consumers. 

Debt collection performed in illegal 

ways has the potential to cause 

consumers substantial harm. If 

collectors falsely represent amounts 

owed, consumers may pay debts they do 

not owe simply to stop collection efforts 

or because they are unsure how much 

they owe. In addition, consumers may 

unintentionally yield their rights, such 

as by waiving the statute of limitations 

on debt claims for which the relevant 

limit periods have expired. Whether or 

not consumers owe and are liable for the 

debts collectors are attempting to 

recover, unlawful collection practices 

can cause significant reputational 

damage, invade personal privacy, and 

inflict emotional distress. Among the 

possible consequences, a collector’s 

inappropriate interference with a 

consumer’s employment relationships 

can also impair the consumer’s ability to 

repay debts. 

Federal consumer financial law 

related to debt collection, and its 

implementation by the Bureau, protects 

consumers from such harms. The 

FDCPA gives consumers certain rights 

that protect them from unfair, deceptive, 

misleading, or abusive collection 

practices as well as from the collection 

of debts they do not owe. In addition, 

Federal consumer financial law 

promotes fair competition in the debt 

collection marketplace. To the extent 

that unfair, deceptive, or abusive 

practices increase collectors’ rate of 

recovery on debts subject to collection, 

debt collectors that avoid such practices 

could be at a competitive disadvantage. 

By placing important parameters on 

debt collection activities, the FDCPA 

was meant in part to ensure that those 

that refrain from improper practices in 

debt collection are not thereby 

competitively disadvantaged.26 Title X’s 

prohibition of unfair, deceptive, or 

abusive acts or practices serves, in part, 

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65778 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

27The definition of ‘‘debt collector’’ in the Final 

Consumer Debt Collection Rule incorporates parts 

of the FDCPA’s definition of that term. 15 U.S.C. 

1692a(6). 

28The Proposed Rule suggested that medical debt 

is not a consumer financial product or service and 

that collection of such debt therefore did not fall 

within the proposed definition of ‘‘consumer debt 

collection.’’ The Final Consumer Debt Collection 

Rule acknowledges that medical debt may, if it 

arose from an extension of credit within the 

meaning of the Dodd-Frank Act, involve a 

consumer financial product or service. However, 

the rule excludes receipts resulting from collecting 

medical debt from the definition of ‘‘annual 

receipts,’’ and thus from the quantity that 

determines larger-participant status. See infra nn. 

39–47 and accompanying text. 

29 5 U.S.C. 553(d). 

30See 77 FR 42876. The Bureau decided to extend 

the effective date in the Consumer Reporting Rule 

to over 60 days after publication because companies 

affected by the Consumer Reporting Rule might not 

previously have been supervised at the Federal or 

State level and might need time to develop 

processes and engage in training to prepare for 

examinations. The Bureau declined to extend the 

effective date any further, as requested by 

commenters, because the Consumer Reporting Rule 

did not impose substantive conduct requirements 

requiring time to come into compliance. 

Furthermore, an extended delay in the Bureau’s 

supervision program would have harmed 

consumers. Similar reasoning applies here. 

31The Bureau notes that the Final Consumer Debt 

Collection Rule is structured differently than the 

Proposed Rule. Unlike the Proposed Rule, 12 CFR 

1090 is divided into Subparts A and B. Subpart A 

establishes generally applicable definitions and 

processes for assessing larger-participant status. 

Subpart B establishes market-specific definitions 

and tests for assessing larger-participant status. The 

Final Consumer Debt Collection Rule amends 12 

CFR 1090 by adding § 1090.105 to define larger 

participants of the consumer debt collection market 

to follow § 104, which defines larger participants in 

a market for consumer reporting. 

32Federal Reserve Bank of New York, Quarterly 

Report on Household Debt and Credit (May 2012), 

available at http://www.newyorkfed.org/research/

national_economy/householdcredit/DistrictReport_

Q12012.pdf. 

a similar end. The Bureau’s program of 

supervision in the consumer debt 

collection market will help to secure 

these benefits and advance the Bureau’s 

mission of promoting fair, transparent, 

and competitive consumer financial 

markets. 

The Final Consumer Debt Collection 

Rule describes a market for consumer 

debt collection. In response to 

comments received, the Bureau has 

adopted a definition of ‘‘consumer debt 

collection’’ that differs in some respects 

from that of the proposed definition. As 

defined in the Final Consumer Debt 

Collection Rule, the market includes 

collection by ‘‘debt collector[s],’’ as 

defined in the Final Consumer Debt 

Collection Rule, of debts incurred by 

consumers primarily for personal, 

family, or household purposes related to 

consumer financial products or 

services.27 This definition encompasses 

a scope of activity similar to what the 

definition in the Proposed Rule 

covered; 28 in light of comments 

received, the Bureau believes the 

definition adopted will be clearer. 

The Final Consumer Debt Collection 

Rule also establishes a test, based on 

‘‘annual receipts,’’ to assess whether a 

nonbank covered person engaging in 

consumer debt collection is a larger 

participant in this market. The 

definition of ‘‘annual receipts’’ is 

adapted from the definition of the term 

used by the Small Business 

Administration (SBA) for purposes of 

defining small business concerns. The 

Final Consumer Debt Collection Rule 

adopts the proposed test for qualifying 

as a larger participant of the consumer 

debt collection market: more than $10 

million in annual receipts resulting 

from relevant consumer debt collection 

activities. However, the Final Consumer 

Debt Collection Rule excludes from the 

definition of annual receipts those 

receipts that result from collecting debts 

that were originally owed to a medical 

provider. Covered persons meeting the 

test qualify as larger participants and are 

subject to the Bureau’s supervision 

authority under 12 U.S.C. 5514. 

The test to assess larger-participant 

status set forth in the Final Consumer 

Debt Collection Rule is tailored to the 

consumer debt collection market 

identified by the Final Consumer Debt 

Collection Rule. The Bureau has not 

determined that annual receipts, or a 

threshold of $10 million in annual 

receipts, would be appropriate for any 

other market that may be the subject of 

a future larger-participant rulemaking. 

Rather, the Bureau will tailor each test 

for defining larger participants to the 

market to which it will be applied. 

IV. Legal Authority and Effective Date 

A. Rulemaking Authority 

The Bureau is issuing this Final 

Consumer Debt Collection Rule 

pursuant to its authority under (1) 12 

U.S.C. 5514(a)(1)(B) and (a)(2), which 

authorize the Bureau to supervise larger 

participants of markets for consumer 

financial products or services, as 

defined by rule; (2) 12 U.S.C. 5514(b)(7), 

which, among other things, authorizes 

the Bureau to prescribe rules to facilitate 

the supervision of covered persons 

under 12 U.S.C. 5514; and (3) 12 U.S.C. 

5512(b)(1), which grants the Bureau the 

authority to prescribe rules as may be 

necessary and appropriate to enable the 

Bureau to administer and carry out the 

purposes and objectives of Federal 

consumer financial law, and to prevent 

evasions of such law. 

B. Effective Date of Final Rule 

The Bureau proposed an effective date 

of 30 days after the publication of the 

Final Consumer Debt Collection Rule, 

noting that the Administrative 

Procedure Act generally requires that 

rules be published not less than 30 days 

before their effective dates.29 The 

Bureau received two comments 

requesting a postponement of the 

effective date to at least 180 days after 

publication of any rule finalizing largerparticipant definitions for the consumer 

reporting or consumer debt collection 

markets. Responding to these 

comments, the Bureau set an effective 

date for the Consumer Reporting Rule 

that was more than 60 days after 

publication of that rule. The Bureau 

believes, for the same reasons expressed 

in the Consumer Reporting Rule, that it 

is reasonable to set an effective date 

more than 60 days after publication of 

this Final Consumer Debt Collection 

Rule.30 In balancing the requests for a 

longer pre-effective date period with the 

Bureau’s view that too lengthy a period 

would be detrimental to consumers and 

the debt collection market, the Bureau 

believes it is reasonable to extend the 

effective date to January 2, 2013, to give 

larger participants, as defined by this 

rulemaking, more time to prepare for the 

possibility of Federal supervision. The 

Bureau therefore adopts this effective 

date for the Final Consumer Debt 

Collection Rule. As compared with the 

Proposal, this new effective date will 

provide more than double the time 

between the publication date and the 

date when consumer debt collectors 

may be subject to Bureau supervision 

under the Final Consumer Debt 

Collection Rule. 

V. Section-by-Section Analysis of the 

Final Rule 31

Subpart B—Markets 

Section 1090.105—Consumer Debt 

Collection Market 

As discussed in the Summary of the 

Final Rule above, consumer debt 

collection is important to the 

functioning of the consumer credit 

market and has a significant impact on 

consumers, with approximately 30 

million individuals in the United States 

having debt in collection.32 The market 

identified by the Final Consumer Debt 

Collection Rule generally includes 

third-party debt collectors, debt buyers, 

and collection attorneys. 

Commenters criticized the Bureau’s 

plan to supervise larger participants of 

the markets identified in the Proposed 

Rule. They stated that the Dodd-Frank 

Act requires the Bureau to consider the 

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33These factors are ‘‘the asset size of the covered 

person; the volume of transactions involving 

consumer financial products or services in which 

the covered person engages; the risks to consumers 

created by the provision of such consumer financial 

products or services; [and] the extent to which such 

institutions are subject to oversight by State 

authorities for consumer protection.’’ 12 U.S.C. 

5514(b)(2). 

34 77 FR 42883 (noting that the risk-based factors 

described in 12 U.S.C. 5514(b)(2) do not apply to 

‘‘larger participant’’ rulemakings). 

35 12 U.S.C. 5514(b)(2). 

36 12 U.S.C. 5514(b)(1). 

37 13 CFR 121.104. 

38 12 CFR 1090.101 defines terms such as 

‘‘completed fiscal year,’’ ‘‘fiscal year,’’ and ‘‘tax 

year.’’ 

39 77 FR 9597. 

40 12 U.S.C. 5481(15)(A)(x). 

41 12 U.S.C. 5481(15)(A)(i); 12 U.S.C. 5481(5)(A). 

42 12 U.S.C. 5481(7). 

four specific factors listed in 12 U.S.C. 

5514(b)(2) 33 when issuing a rule under 

12 U.S.C. 5514(a)(2). As explained in 

the Consumer Reporting Rule, the 

Bureau believes that these commenters 

misinterpreted the scope and purpose of 

12 U.S.C. 5514(b)(2).34 That subsection 

describes how the Bureau must 

‘‘exercise its authority under paragraph 

[(b)](1),’’ 35 which in turn authorizes the 

Bureau to supervise ‘‘persons described 

in subsection (a)(1).’’ 36 The Final 

Consumer Debt Collection Rule does not 

exercise authority provided by 

subsection (b)(1). Instead, it 

‘‘describe[s],’’ in part, a set of entities 

falling within subsection (a)(1), a 

category of larger participants to which 

the Bureau may apply the authority that 

subsection (b)(1) provides. Thus, the 

Bureau is not required to conduct a riskbased analysis when deciding in which 

markets it will define ‘‘larger 

participants.’’ Instead, the Bureau will 

conduct the risk-based analysis required 

under 12 U.S.C. 5514(b)(2) in choosing 

which persons to supervise among the 

larger participants in a given market. 

One commenter also asked the Bureau 

to explain why it is identifying 

consumer debt collection as the subject 

of this rule, instead of some other 

market for a different consumer 

financial product or service. The Bureau 

has wide discretion in choosing markets 

in which to define larger participants. 

The Bureau need not conclude, before 

issuing a rule defining larger 

participants, that the market identified 

in the rule has a higher rate of noncompliance, poses a greater risk to 

consumers, or is in some other sense 

more important to supervise than other 

markets. Indeed, 12 U.S.C. 5514(b)(1), 

by recognizing that the purposes of 

supervision include assessing 

compliance and risks posed to 

consumers, suggests that the Bureau is 

not required to determine the level of 

compliance and risk in a market before 

issuing a larger-participant rule. 

The consumer debt collection market 

is a reasonable choice for the Bureau. 

Because consumer debt collection is an 

important activity that affects millions 

of consumers, supervision of larger 

participants of this market will be 

beneficial to both consumers and the 

market as a whole. Supervision of larger 

participants in the consumer debt 

collection market will help the Bureau 

ensure that these market participants are 

complying with applicable Federal 

consumer financial law and thereby will 

further the Bureau’s mission to ensure 

consumers’ access to fair, transparent, 

and competitive markets for consumer 

financial products and services. 

Section 1090.105(a)—Market-Related 

Definitions 

Annual receipts. The Bureau received 

a number of comments relating to 

‘‘annual receipts.’’ 

Overview of proposed definition. The 

proposed definition of ‘‘annual 

receipts’’ was informed by the method 

of calculating ‘‘annual receipts’’ used by 

the SBA in determining whether an 

entity is a ‘‘small business’’ concern.37

Under the proposed definition, for 

purposes of calculating ‘‘annual 

receipts,’’ the term ‘‘receipts’’ would 

mean ‘‘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. 

Under the Proposal, the term would not 

include net capital gains or losses. In 

addition, annual receipts would be 

measured as the average over a person’s 

three most recently completed fiscal 

years, or over the entire period the 

person has been in business if that 

period is less than three completed 

fiscal years.38 The proposed calculation 

of annual receipts also would 

implement the aggregation requirement 

in 12 U.S.C. 5514(a)(3)(B) by providing 

that the annual receipts of a person shall 

be added to the annual receipts of each 

of its affiliated companies. As proposed, 

such aggregation includes the receipts of 

both the acquired and acquiring 

companies in the case of an acquisition 

occurring during any relevant 

measurement period. 

Exclusion of receipts from collecting 

medical debt. In the Supplemental 

Information section of the Proposal, the 

Bureau stated that ‘‘debt related to 

* * * consumer financial products or 

services’’ generally does not include 

medical debt.39 In light of that 

statement, consumer debt collectors 

might expect that annual receipts 

resulting from the collection of medical 

debt would not be used to determine 

whether they were larger participants in 

the identified market for consumer debt 

collection. The Bureau received several 

comments both in favor of and opposed 

to counting annual receipts resulting 

from the collection of medical debt 

towards larger-participant status. 

Several consumer groups stated that 

annual receipts resulting from the 

collection of medical debt should count 

towards larger-participant status 

because the collection of medical debt is 

conducted similarly to that of other 

debts and has similar impact on 

consumers. Another commenter pointed 

out that when a medical provider gives 

care first and then bills the consumer 

later, the medical debt arose from an 

extension of credit, so the collection of 

that debt is therefore related to a 

consumer financial product or service. 

Two industry commenters agreed with 

the Proposal that collection of medical 

debt should not be included in the 

market for consumer debt collection. 

The Bureau agrees with commenters 

who took issue with the categorical 

statement that the collection of medical 

debt generally is not a consumer 

financial product or service. In some 

situations, the collection of medical 

debt may be a consumer financial 

product or service. The Dodd-Frank Act 

defines as a ‘‘financial product or 

service’’ the activity of collecting debt 

‘‘related to any consumer financial 

product or service.’’ 40 If the underlying 

transaction involved a consumer 

financial product or service under the 

Dodd-Frank Act, such as ‘‘extending 

credit’’ to a consumer for personal, 

family, or household purposes,41 then 

the resulting debt arose from, and is 

thus ‘‘related to,’’ a consumer financial 

product or service. The collection of 

that debt is also a consumer financial 

product or service within the meaning 

of the Dodd-Frank Act. Under the DoddFrank Act, ‘‘credit’’ is ‘‘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.’’ 42 In some situations, a 

medical provider may grant the right to 

defer payment after the medical service 

is rendered. In those circumstances, the 

transaction might involve an extension 

of credit. 

However, the Bureau has decided to 

explicitly exclude from the definition of 

annual receipts those receipts that result 

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65780 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

43As discussed above, this exclusion was implicit 

in the Proposed Rule. Annual receipts under the 

proposed definition included only receipts 

resulting from the collection of debt related to 

consumer financial products or services, and the 

Proposed Rule stated that this category does not 

include medical debt. 

44 Very often, debt collectors may obtain accounts 

from the original creditors. In addition, under the 

FDCPA, if a consumer makes a timely request for 

verification of a claimed debt, the debt collector 

must, if it persists in its attempts to collect the debt, 

respond with information that generally includes 

the name and address of the original creditor. 15 

U.S.C. 1692g(b). For these reasons, the Bureau 

expects that debt collectors ordinarily make 

themselves aware of the original creditors for debts 

they collect. 

45Many debts that arise as a consequence of 

medical care are not originally owed to the medical 

care provider. For example, a consumer might use 

a credit card to pay some or all of a medical bill. 

The Bureau would regard the resulting debt as 

originally owed, for purposes of the Final Consumer 

Debt Collection Rule, to the credit card issuer. 

46According to one survey, in 2010, medical debt 

constituted 35% of new business for debt collectors. 

ACA International, ACA Top Collection Markets 

Survey, 2011. The same survey also reported that 

at least 53% of all debt collectors participate in the 

medical debt collection market. The 2007 

Commonwealth Fund Biennial Health Survey found 

that 16% of working age adults, approximately 28 

million people, had been contacted by debt 

collectors regarding medical debts, up from 13% in 

2005. S. Collins et al., Losing Ground: How the Loss 

of Adequate Health Insurance is Burdening 

Working Families, Commonwealth Fund, Aug. 2008 

at 12 available at http://www.commonwealthfund.

org/usr_doc/Collins_losinggroundbiennialsurvey

2007_1163.pdf?section=4039. In 2011, 54% of 

third-party debt collectors listed health care 

(hospital) as one of their top three markets, and 

64% listed health care (non-hospital). ACA 

International, 2012 Agency Benchmarking Survey, 

2012. 

47As the Bureau explained in the Consumer 

Reporting Rule, it has the authority to examine an 

entity’s compliance with Federal consumer 

financial law, beyond the activities that rendered 

the entity subject to supervision. 77 FR 42880. 

48For example, consumer credit originated by a 

credit card issuer is a consumer financial product 

and the collection of that debt is therefore a 

consumer financial service. As another example, 

utility companies regularly extend credit to 

consumers who receive utility services. See, e.g., 

Mays v. Buckeye Rural Elec. Coop., 277 F.3d 873, 

879 (6th Cir. 2002); Mick v. Level Propane Gases, 

Inc., 183 F. Supp. 2d 1014, 1019 (S.D. Ohio 2000); 

Williams v. AT&T Wireless Services, Inc., 5 F. Supp. 

2d 1142, 1145 (W.D. Wash. 1998); Haynesworth v. 

South Carolina Elec. & Gas Co., 488 F. Supp. 565, 

567 (D.S.C. 1979). A consumer debt collector could 

reasonably expect that a debt originally owed by a 

consumer to a utility company arose from an 

extension of credit. 

from the collection of medical debt.43

The Bureau is concerned that consumer 

debt collectors will find it impracticable 

to determine whether the medical debts 

they collect involved extensions of 

‘‘credit,’’ and therefore whether those 

medical debt collection receipts should 

be counted toward the threshold 

defining larger-participant status. The 

Bureau expects that a consumer debt 

collector will know certain information 

about a debt it collects, such as whether 

the debt was originally owed to a 

medical provider.44 However, a 

consumer debt collector may not have 

enough information to determine 

whether the debt involved an extension 

of credit, because that question turns on 

additional details about whether the 

medical provider granted the consumer 

the right to defer payment. The Bureau 

believes that consumer debt collectors 

often do not have enough details to 

answer that question for each debt 

under collection, and they therefore 

may not have enough information to 

determine whether particular medical 

debts arose from consumer financial 

products or services. 

Accordingly, the Final Consumer Debt 

Collection Rule excludes from the 

definition of annual receipts those 

amounts that result from collecting 

medical debt. For these purposes, 

medical debt means debt that was 

originally owed to a medical provider.45

As noted above, the Bureau expects that 

debt collectors already know the 

identities of the persons to whom the 

debts were originally owed. Therefore, 

an exclusion defined by reference to 

such persons will be straightforward for 

consumer debt collectors to apply. 

Neither the Bureau, in making its 

assessments regarding a consumer debt 

collector’s larger-participant status, nor 

a consumer debt collector, in 

challenging an assertion by the Bureau 

that it qualified as a larger participant, 

would need to determine the specific 

details of each underlying transaction 

that gave rise to medical debt. 

Notwithstanding this exclusion, the 

Bureau believes that the collection of 

medical debt has an important impact 

on consumers.46 The Bureau reiterates 

that the Final Consumer Debt Collection 

Rule excludes medical debt collection 

activities from receipts because of the 

difficulty, at the current time, of 

identifying whether particular medical 

debts resulted from extensions of credit. 

The Bureau will continue to seek more 

information relevant to that task, 

through supervision, through potential 

registration of nonbank covered persons 

under 12 U.S.C. 5512(c)(7) and 12 

U.S.C. 5514(b)(7), and from other 

sources. In addition, in supervising a 

larger participant of the consumer debt 

collection market, the Bureau will 

examine the entity’s collection of 

medical debt along with other activities 

subject to the FDCPA and other Federal 

consumer financial law.47

Other categories of debt. Commenters 

also asked the Bureau to clarify whether 

a number of other categories of debt are 

included in or excluded from the 

defined consumer debt collection 

market and as a result whether annual 

receipts resulting from such collection 

are counted towards larger-participant 

status. But these comments did not 

identify any comparable uncertainty in 

determining, given the identities of the 

originating creditors, whether debts in 

these various categories involve 

consumer financial products or services. 

As noted above, the Bureau expects that 

consumer debt collectors know the 

identities of the originating creditors for 

debts they collect. For many types of 

debt, that information should permit the 

consumer debt collector to determine, 

with a reasonable degree of accuracy, 

whether the underlying transaction 

involved a consumer financial product 

or service.48 Thus, the difficulty a 

consumer debt collector would face in 

assessing the status of a medical debt 

should not arise as a general matter in 

the collection of other debts. In essence, 

commenters asking the Bureau to clarify 

the status of various other kinds of debt 

were asking the Bureau to state whether 

such types of debt are related to 

consumer financial products or services, 

as a categorical matter. The Bureau 

declines at this point to identify specific 

types of debt that involve consumer 

financial products or services, or to 

provide an exhaustive list of such debts. 

Use of IRS guidance. A commenter 

asked whether the Bureau intends to 

bind itself to IRS guidance and related 

Federal tax law with respect to the 

calculation of annual receipts and 

recommended that the Bureau provide 

examples of how different industry 

participants should do that calculation. 

The Bureau noted in the Consumer 

Reporting Rule that to the extent a 

nonbank covered person uses IRS tax 

forms to calculate receipts, the person 

should rely on IRS guidance. 

Additionally, the Bureau declined to 

provide examples of how market 

participants should calculate annual 

receipts because there may be a variety 

of circumstances facing covered 

persons, and the Bureau is not in the 

best position to ascertain the most 

appropriate or useful calculation 

methods for each entity. The Bureau 

declines, for reasons similar to those 

articulated in the Consumer Reporting 

Rule, to provide examples of how 

participants in the consumer debt 

collection market should calculate 

annual receipts. 

Reimbursed amounts. The Bureau 

received a comment from an attorney 

representative expressing concern that 

the proposed definition of annual 

receipts included certain amounts for 

which attorneys or other consumer debt 

collectors receive reimbursement and 

recommending that such amounts be 

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49As noted in the Proposal, if an entity has not 

completed three fiscal years, its ‘‘annual receipts’’ 

will reflect an average based on the shorter period 

of its existence. 

50See 12 U.S.C. 5514(a)(3)(B). 

51See 12 U.S.C. 5481(1) (definition of ‘‘affiliate’’); 

12 CFR 1090.101 (definition of ‘‘affiliated 

company’’). 

52The Proposal defined the term ‘‘consumer debt 

collection’’ as collecting or attempting to collect, 

directly or indirectly, any debt owed or due or 

asserted to be owed or due to another and related 

to any consumer financial product or service. A 

person offers or provides consumer debt collection 

where the relevant debt is either collected on behalf 

of another person; or collected on the person’s own 

behalf, if the person purchased or otherwise 

obtained the debt while the debt was in default 

under the terms of the contract or other instrument 

governing the debt. 77 FR 9607. 

53 12 U.S.C. 5481(A)(x). 

54The Bureau notes that the usage, or omission, 

of specific language from the FDCPA in the Final 

Consumer Debt Collection Rule is not an 

endorsement by the Bureau of any specific 

interpretation of the FDCPA. 

excluded. This commenter contended 

that certain reimbursements for 

expenses, such as recording or filing 

fees, are not considered income under 

Federal tax law. This commenter 

requested that the Final Consumer Debt 

Collection Rule make clear that such 

pass-through funds are not included in 

the calculation of annual receipts. The 

Bureau notes that the calculation of 

annual receipts in the Final Consumer 

Debt Collection Rule is built on the 

concepts of ‘‘total income’’ and ‘‘cost of 

goods sold,’’ as used in Federal income 

tax reporting. Quantities that consumer 

debt collectors do not include in those 

categories would not count as annual 

receipts. If, on the other hand, some 

amount of reimbursed expense is 

included in one of these categories, that 

amount would count as annual receipts. 

Such an amount could fairly be 

considered a cost of doing business and 

providing the relevant consumer 

financial service. That some consumer 

debt collectors may characterize such an 

expense as a ‘‘reimbursed expense’’ and 

bill clients separately for the expense 

does not alter that fact. For these 

reasons, the Bureau declines to amend 

the definition of annual receipts to add 

a specific exclusion for reimbursed 

amounts. 

Annual receipts and measurement 

period. The Bureau received several 

comments suggesting different 

measurement periods for assessing 

larger-participant status. One 

recommended that an entity be deemed 

a larger participant if either the entity’s 

average annual receipts over the last 

three fiscal years or its receipts in the 

most recent fiscal year met the 

applicable threshold. Another 

commenter suggested that an entity 

should qualify as a larger participant 

only if its receipts were above the 

threshold for each of three years in a 

row. Some commenters, incorrectly 

believing the Proposal already specified 

that larger-participant status would be 

triggered by a single year’s results, asked 

the Bureau to measure larger-participant 

status over a longer period of time. 

Otherwise, they stated, businesses 

would forego growing in order to avoid 

becoming subject to the Bureau’s 

supervisory authority. 

In the Consumer Reporting Rule, the 

Bureau clarified that ‘‘annual receipts’’ 

are not based solely on the receipts of 

a single year, but are generally based on 

the average of an entity’s receipts over 

a three-year period.49 Using a longer 

measurement period reduces the impact 

on the calculation of short-term and 

potentially temporary fluctuations in 

receipts a company may experience— 

both decreases and increases. Similar 

reasoning motivates the Bureau to adopt 

a three-year measurement period, as 

proposed, for the Final Consumer Debt 

Collection Rule. 

Two consumer groups suggested that 

to prevent evasion of the rule, annual 

receipts should also include receipts of 

any person who is an agent or contractor 

of a consumer debt collector. One of 

these commenters expressed concern 

that a debt buyer, in particular, could 

evade coverage as a larger participant by 

engaging several third-party debt 

collectors to collect debts on its behalf. 

The Bureau understands commenters’ 

concern regarding possible evasion of 

the Final Consumer Debt Collection 

Rule that could potentially occur by 

market participants engaging third-party 

debt collectors. However, the DoddFrank Act requires that an entity’s 

activity levels be computed by 

aggregating the activities of affiliated 

companies.50 The definition of annual 

receipts implements this aggregation 

requirement by counting the receipts of 

affiliated companies.51 Control or 

common control is a prerequisite for 

being an ‘‘affiliate’’ under the DoddFrank Act, and the Consumer Reporting 

Rule appropriately made control or 

common control a prerequisite for being 

an ‘‘affiliated company’’ under Part 

1090. Commenters offered no reason to 

think a special, different understanding 

of the term should apply for the 

consumer debt collection market. The 

Bureau therefore declines to amend the 

Proposal to require aggregation of the 

annual receipts of companies that have 

only an agency or contractual 

relationship. 

The Bureau adopts the proposed 

definition of ‘‘annual receipts’’ with the 

amendment described above, excluding 

receipts that result from collecting debt 

that was originally owed to a medical 

provider, and with other minor 

technical amendments. 

Consumer debt collection. The Final 

Consumer Debt Collection Rule defines 

a market for ‘‘consumer debt 

collection,’’ which is among the 

consumer financial products or services 

described in 12 U.S.C. 5481(5)(B) and 

15(A).52 Activities covered under these 

provisions of the Dodd-Frank Act 

include ‘‘collecting debt related to any 

consumer financial product or 

service.’’ 53 Under 12 U.S.C. 5481(5)(B), 

such activity is a ‘‘consumer financial 

product or service’’ when ‘‘delivered, 

offered, or provided in connection with 

a consumer financial product or 

service.’’ The definition of ‘‘consumer 

debt collection’’ in the Final Consumer 

Debt Collection Rule is not meant to 

track these related provisions in the 

Dodd-Frank Act. The Final Consumer 

Debt Collection Rule’s definition has a 

different function. Rather than 

describing the scope of a certain 

consumer financial product or service, it 

identifies a specific market for such a 

product or service. 

The Bureau received a number of 

comments asking it to exclude various 

types of activity from the definition of 

consumer debt collection. As discussed 

more fully below, the Bureau is 

adopting a number of the suggested 

exclusions, either in part or in full, and 

rejecting some of the suggestions. Many 

of the suggested exclusions were based 

on exclusions from the FDCPA’s 

definition of debt collector.54 For those 

suggestions the Bureau is accepting, it is 

incorporating into the rule’s definitions 

language from the FDCPA that creates 

the corresponding exclusions in that 

statute. 

To make the rule clearer in light of 

these changes, the Bureau is also 

restructuring the definition of consumer 

debt collection to track the FDCPA more 

closely. The Final Consumer Debt 

Collection Rule includes definitions of 

‘‘creditor’’ and ‘‘debt collector’’ that are 

based on the FDCPA’s definitions of 

those terms. Consumer debt collection, 

in turn, means the activity of a ‘‘debt 

collector,’’ as defined in the rule, to 

collect debt incurred by a consumer for 

personal, family, or household 

purposes, and related to a consumer 

financial product or service. For most 

purposes, the scope of the Final 

Consumer Debt Collection Rule’s 

definition will be the same as that of the 

proposed definition. The difference in 

structure facilitates the Bureau’s 

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65782 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

55 15 U.S.C. 1692a(6)(F)(iii). 

56The Bureau recognizes that some loan servicing 

activity may involve techniques like those used in 

debt collection. And some consumer debt collectors 

may engage in collecting on accounts that are not 

in default. To the extent that developments in the 

markets for obtaining consumers’ repayment of 

debts blur or alter the line between servicing and 

debt collection, the Bureau may in the future revisit 

the distinction that the Final Consumer Debt 

Collection Rule draws between the two activities. 

Meanwhile, as noted above, the Bureau may 

examine any consumer financial service provided 

by a person that is subject to Bureau supervision, 

such as a larger participant in the consumer debt 

collection market. 

57Because the Bureau already has supervisory 

authority over mortgage servicing pursuant to 12 

U.S.C. 5514(a)(1)(A), the Bureau did not consider 

including mortgage servicing within the market for 

consumer debt collection. 

58The Economic Census classifies industries 

using the North American Industry Classification 

System (NAICS) codes. The Bureau based its 

estimate of market coverage for the Proposed Rule 

on the NAICS code for debt collection (561440). 

Loan servicing activities fall under a different 

NAICS code (522390). 

59 15 U.S.C. 1692a(6)(F)(iii). 

60Another commenter stated that courts have 

found that state guaranty agencies are not debt 

collectors pursuant to an FDCPA exception for 

collection activities that are ‘‘incidental to a bona 

fide fiduciary obligation.’’ 15 U.S.C. 1692a(6)(F)(i). 

However, some courts have held that when 

guaranty agencies collect debts for which they are 

not the guarantors, that activity is not ‘‘incidental’’ 

to any ‘‘fiduciary obligation.’’ See Murungi v. Texas 

Guaranteed, 402 Fed. Appx. 849, 851 (5th Cir. 

2010); Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 

1028, 1035 (9th Cir. 2009). 

61 55 FR 40120, 40121 (Oct. 1, 1990). 

response to the comments requesting 

various exclusions from the market. 

Specific exclusions. The Bureau 

received a number of comments urging 

the adoption of particular exclusions 

from the definition of consumer debt 

collection. 

First, the Bureau received several 

comments that the proposed definition 

of consumer debt collection appeared to 

include loan servicing or the collection 

of debt that is not in default. Many 

commenters suggested that the Bureau 

should explicitly exclude loan servicing 

from the defined consumer debt 

collection market by incorporating an 

exclusion contained in the FDCPA’s 

definition of debt collector. Under the 

FDCPA, a person who collects ‘‘debt 

which was not in default at the time it 

was obtained by such person’’ 55 is not, 

on the basis of that activity, a debt 

collector. Commenters stated that 

companies active in loan servicing rely 

on the FDCPA exclusion, with which 

they are familiar, to distinguish their 

servicing activities from debt collection. 

The Bureau does not regard loan 

servicing as part of the same market, for 

purposes of this Final Consumer Debt 

Collection Rule, as consumer debt 

collection. Loan servicers send out 

billing statements, accept payments and 

assign them to accounts, and answer 

consumer questions. In many cases, 

loan servicing activities involve 

consumers who are current on payments 

of their loans and with whom creditors 

have ongoing relationships. Loan 

servicing in the traditional sense 

ordinarily does not involve attempts to 

locate a debtor by contacting relatives or 

employees; garnishment of wages or 

lawsuits. Attorneys are not often 

involved in loan servicing; they 

ordinarily do not become involved until 

debts are in default.56 In light of these 

characteristics, the Bureau believes that 

the purposes of the Final Consumer 

Debt Collection Rule are best served by 

excluding loan servicing, as described 

here, from the activity of ‘‘consumer 

debt collection’’ defined for purposes of 

the Final Consumer Debt Collection 

Rule. 

Indeed, the Proposal did not 

contemplate including loan servicing in 

that market, as several commenters 

recognized.57 As such commenters 

pointed out, the Proposal’s economic 

assessment of the consumer debt 

collection market was based on 

Economic Census data that generally 

covered debt collection and did not 

cover loan servicing.58 The scope of the 

economic data that the Bureau 

described in the Proposal was 

reasonably consistent with the scope of 

the market that the Proposal 

contemplated. 

However, the Bureau acknowledges 

that the proposed definition could have 

been misunderstood on this point. To 

clarify that loan servicing is not within 

the defined consumer debt collection 

market, the Bureau accepts the 

commenters’ suggestion and excludes 

from the definition of debt collection 

activity involving ‘‘debt which was not 

in default at the time it was obtained by 

such person[s].’’ The Bureau intends to 

include in the consumer debt collection 

market those entities that are engaged in 

debt collection activity and exclude 

those that only engage in loan servicing. 

The provision just described is an 

appropriate means to achieve that 

purpose, because it is similar to 

language in the FDCPA provision that, 

as commenters noted, many entities 

regard as distinguishing loan servicing 

from debt collection.59

Two trade associations representing 

student lenders commented that the 

proposed definition of consumer debt 

collection would prevent their members 

from engaging in default prevention and 

loan modification activities that they 

said are a form of loan servicing. 

According to the commenters, the goal 

of these activities is to benefit 

consumers by offering payment plans 

and other services in an effort to prevent 

default. If, as these commenters 

suggested, their loan modification and 

default prevention services involve debt 

that was not in default at the time it was 

obtained, then those activities are not 

consumer debt collection under the 

Final Consumer Debt Collection Rule. 

Second, an association whose 

membership includes collectors of 

student loans suggested that the Bureau 

should exclude from the consumer debt 

collection market the activity of 

collectors of student loans made 

pursuant to Title IV of the Higher 

Education Act (Title IV loans).60

According to the commenter, the 

collectors of Title IV loans undergo 

independent audits as part of their 

obligations to the Federal government 

and to state guaranty agencies that 

guarantee student loans on behalf of the 

Federal government. The association 

states that the audits include an on-site 

review of calls to consumers, 

complaints, and other activities related 

to the debt collection process. The 

commenter states that the United States 

Department of Education (Department of 

Education) and the state guaranty 

agencies use the audit findings to rank 

their contractors and allocate future 

accounts for collection. Because of the 

audits, the association asserts that 

practices associated with the collection 

of Title IV loans are less risky to 

consumers than are other debt 

collection activities. 

Unlike the typical audits by the 

Department of Education, the Bureau’s 

supervision program will assess 

compliance with Federal consumer 

financial law. The Department of 

Education has specifically noted that 

third-party collectors of Title IV loans 

are subject to the FDCPA, 

notwithstanding its oversight of Title IV 

loan collection.61

Moreover, commenters’ claim that 

student loan debt collectors pose 

relatively low risks to consumers does 

not, by itself, justify excluding those 

collectors from the overall consumer 

debt collection market. As noted above, 

the Dodd-Frank Act does not require the 

Bureau to consider risk in defining a 

larger participant market pursuant to 12 

U.S.C. 5514(a)(1). When choosing which 

nonbank covered persons to supervise 

among the larger participants defined by 

rule, the Bureau must consider the 

factors set forth in 12 U.S.C. 5514(b)(2) 

which include, among others, ‘‘the risks 

to consumers created by the provision of 

such consumer financial products or 

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62 15 U.S.C. 1692a(6)(E). 

63See, e.g., Reese v. Ellis, Painter, Ratterree & 

Adams, LLP, 678 F.3d 1211 (11th Cir. 2012); Birster 

v. Amer. Home Mortgage. Servicing Inc., No. 11– 

13574, 2012 WL 2913786, at *2 (11th Cir. July 18, 

2012). 

64See, e.g., Shapiro & Meinhold v. Zartman, 823 

P.2d 120, 124 (Colo. 1992) (‘‘[A] foreclosure is a 

method of collecting a debt by acquiring and selling 

secured property to satisfy a debt.’’). 

65For similar reasons, the Bureau is also 

excluding from the definition of ‘‘debt collector’’ an 

entity that collects debt only for a person to which 

the entity is related by common ownership or 

control, if the principal business of such person is 

not the collection of debts. 

66 In addition, the Bureau may supervise all 

collection services—whether or not they are subject 

to the FDCPA—that a larger participant of the 

consumer debt collection market provides to other 

persons such as originating creditors. 

67 12 U.S.C. 5515(a)(1). 

68 12 U.S.C. 5514(a). 

69The Bureau declines to define submarkets, as 

some commenters suggested. These comments 

focused, for example, on consumer debt collection 

activities that have a disproportionate impact on 

minority groups, military groups, students, or 

senior citizens, or on geographic submarkets. One 

of these commenters stated that at a minimum, the 

Bureau should collect data that would allow it to 

define submarkets at a later time. The Bureau notes 

that different types of consumer debt collectors all 

participate in the same activity—consumer debt 

collection—regardless of their respective business 

models. And the same legal requirements cover 

participants in any market segment suggested by 

commenters. To the extent that the activities of 

Continued 

services.’’ The Dodd-Frank Act does not 

mandate consideration of those factors 

before issuing a rule that establishes the 

scope of coverage of the Bureau’s 

supervision authority under 12 U.S.C. 

5514(a)(1). 

For these reasons, the Bureau declines 

to exclude collection of Title IV loans 

from the consumer debt collection 

market. 

Third, a representative of non-profit 

consumer credit counselors asked the 

Bureau to exclude from the market their 

activities in assisting individuals with 

debt repayment. According to the 

commenter, non-profit consumer credit 

counselors operate differently from 

consumer debt collectors. At the 

consumers’ request, non-profit 

consumer credit counselors work with 

consumers to help them restructure 

their debts and formulate repayment 

plans. Non-profit consumer counselors 

act as intermediaries between 

consumers and their creditors. The 

counselors help consumers devise 

budgets and plans to pay their debts. 

Consumers can decide whether they 

will participate in such counseling 

programs and, if they do, whether to 

adhere to the repayment plans 

negotiated by credit counselors. The 

Bureau agrees that this business model 

distinguishes non-profit consumer 

credit counselors from other debt 

collectors that work on behalf of 

themselves or on behalf of creditors to 

collect debts. Therefore, the Bureau is 

excluding non-profit consumer credit 

counselors from the definition of ‘‘debt 

collector.’’ The FDCPA excludes such 

entities from its definition of ‘‘debt 

collector,’’ and the Bureau is adopting 

comparable language in the Final 

Consumer Debt Collection Rule.62

Fourth, a consumer data trade 

association commented that the 

proposed definition of consumer debt 

collection requiring that the debt be 

‘‘related to’’ a consumer financial 

product or service was too broad and 

may include, for instance, business 

debts related to a company’s purchase of 

consumer reports or other consumer 

financial products. To make clear that 

such activities are not part of the 

consumer debt collection market, the 

Final Consumer Debt Collection Rule’s 

definition adds to the proposed 

definition a requirement that the debts 

under collection be those incurred by 

consumers for personal, family or 

household purposes—not for business 

purposes and not by businesses. 

Finally, an attorney group commenter 

contended that a person who enforces 

security interests, for example by 

pursuing foreclosure actions, should not 

be included in the consumer debt 

collection market. The commenter cited 

cases in which courts have held that the 

practice of enforcing security interests 

does not constitute debt collection 

under the FDCPA. Relatedly, a number 

of courts, distinguishing between 

collecting debt and enforcing security 

interests, have concluded that a person 

can be a debt collector for purposes of 

the FDCPA even when the person 

enforces security interests, but only if it 

is also engaged in collecting debts that 

are subject to the security agreement.63

Other courts, however, have concluded 

that enforcing a security interest 

qualifies on its own as debt collection 

under the FDCPA.64 Regardless of 

whether enforcing a security interest 

can, on its own, qualify as collecting 

debt under the FDCPA, the Bureau does 

not deem a person who only enforces a 

security interest, and does not seek 

payment of money or transfer of assets 

that are not designated as collateral for 

the note or instrument, to be, on that 

basis, a part of the consumer debt 

collection market defined by the Final 

Consumer Debt Collection Rule. 

However, when a person both seeks 

payment of money and enforces a 

security interest, that person can qualify 

as a debt collector for purposes of the 

Final Consumer Debt Collection Rule. 

Collections by originating creditors. A 

commenter representing the debt buying 

industry suggested that the Bureau also 

include first-party debt collection by 

both banks and nonbanks within its 

definition of consumer debt collection. 

The commenter notes that originating 

creditors collect outstanding debts from 

their own customers. However, the 

Bureau regards such collections by 

originating creditors as part of a 

different market from third-party debt 

collection and debt buying. Collecting 

overdue debts is not the primary 

business of originating creditors. Rather, 

their primary business is to provide 

credit or other products or services. 

Collecting unpaid debts is usually an 

ancillary function. By contrast, neither 

third-party debt collectors nor debt 

buyers have originated the debts they 

collect or have ongoing business 

relationships with the consumers from 

whom they collect debts. Debt collectors 

are in the business of collecting on debts 

that were originated by a variety of 

creditors. Given these differences, the 

Bureau declines to include collection by 

originating creditors within the market 

for consumer debt collection.65

Moreover, the Bureau has the 

authority to supervise the first-party 

debt collection activities of many 

covered persons, regardless of whether 

the defined consumer debt collection 

market includes such activities.66

Specifically, the Dodd-Frank Act 

authorizes the Bureau to supervise large 

banks and credit unions, and the 

affiliates of such entities, pursuant to 12 

U.S.C. 5515.67 In the course of such 

supervision, the Bureau can examine an 

entity’s collection practices relating to 

mortgages, credit cards, auto loans, 

personal loans, deposit advance 

products, and other consumer financial 

products or services provided by the 

entity. In addition, pursuant to 12 

U.S.C. 5514, the Bureau has authority to 

supervise certain nonbank originators: 

mortgages, private education loans, and 

payday loans.68 In the course of such 

supervision, the Bureau can examine 

those persons’ collection activities. 

Furthermore, to the extent the Bureau 

concludes it is important to examine 

collection activities conducted by 

nonbank institutions in other specific 

markets, the Bureau can define 

appropriate categories of larger 

participants in such markets. As earlier 

noted, this Final Consumer Debt 

Collection Rule is the second in what 

will be a series of larger-participant 

rulemakings. For these reasons as well, 

the Bureau declines to include 

collection by originating creditors in the 

defined market for consumer debt 

collection.69

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65784 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

larger participants of the consumer debt collection 

market differ, the Bureau can adjust the scope and 

focus of its supervision activities accordingly. 

Further, by identifying the broader market and 

supervising larger participants as defined in the 

Final Consumer Debt Collection Rule, the Bureau 

will be able to address emerging issues across the 

various business models. This approach will 

promote consistency in supervision across the 

consumer debt collection market. Therefore, the 

Bureau declines to revise the proposed definition of 

consumer debt collection to define submarkets as 

commenters suggested. The Bureau notes that 

nonbank covered persons generally are subject to 

the Bureau’s regulatory and enforcement authority, 

and any applicable Federal consumer financial law. 

The Bureau also has the authority to supervise any 

nonbank covered person that it ‘‘has reasonable 

cause to determine, by order, after notice to the 

covered person and a reasonable opportunity * * * 

to respond,’’ 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.’’ 12 U.S.C. 5514(a)(1)(C). 

70 12 U.S.C. 5517(e)(1), (e)(2). 

71 12 U.S.C. 5517(e)(2). 

72 12 U.S.C. 5517(e)(3). Paragraph (e)(3) also 

preserves the authorities transferred under subtitle 

F or H of Title X. 

73Cong. Rec. E1348–E1349 (Speech of Hon. John 

Conyers, Jr. on the Conference Report). 

74Cong. Rec. E1349. 

75Representative Conyers also observed that state 

courts and bar associations have a limited ability to 

regulate lawyers outside of the practice of law. He 

testified that ‘‘our Committee recognized that 

attorneys can be involved in activities outside the 

practice of law, and might even hold out their law 

license as a sort of badge of trustworthiness. 

Although State supreme courts would have some 

authority to respond to abuses in even these outside 

activities, as reflecting on the attorney’s unfitness 

to hold a law license * * * their disciplinary 

authority is not necessarily as extensive in these 

outside areas. The Committee was equally 

determined that these outside activities not escape 

effective regulation simply because the person 

engaging in them is an attorney or is working for 

an attorney.’’ Cong. Rec. E1349. 

76 ‘‘[C]lear evidence of congressional intent may 

illuminate ambiguous text. We will not take the 

opposite tack of allowing ambiguous legislative 

history to muddy clear statutory language.’’ Milner 

v. Dep’t of Navy, 131 S. Ct. 1259, 1266 (2011). 

77 In addition, consumer debt collection, as 

defined in the Final Consumer Debt Collection 

Rule, is generally subject to the FDCPA. That is true 

even if the debt collector is an attorney or law firm. 

‘‘[A]ttorneys who ‘regularly’ engage in consumerdebt-collection activity’’ are subject to the FDCPA, 

‘‘even when that activity consists of litigation.’’ 

Heintz v. Jenkins, 514 U.S. 291, 299 (1995). 

78The Bureau also notes that pursuant to 

paragraph (e)(3), the restriction in paragraph (e)(1) 

‘‘shall not be construed so as to limit the authority 

of the Bureau with respect to any attorney, to the 

extent that such attorney is otherwise subject to any 

of the enumerated consumer laws or the authorities 

transferred under subtitle F or H.’’ 12 U.S.C. 

5515(e)(3). 

79An association representing attorneys 

expressed concern that the Bureau would supervise 

attorneys representing larger participants in matters 

unrelated to the offering or provision of consumer 

financial products or services through its 

jurisdiction over service providers to larger 

participants. According to the commenter, the 

Bureau could intrude on the attorney-client 

relationship in non-consumer litigation matters or 

in cases in which an attorney defends a case on 

behalf of a client against a consumer. The Bureau 

need not address these comments in this 

rulemaking. The Final Consumer Debt Collection 

Rule establishes the Bureau’s supervisory authority 

over the identified market. It does not alter the 

Bureau’s supervisory authority over service 

providers, except insofar as it enlarges the set of 

supervisable firms whose activities might form the 

basis for supervising their service providers. A 

discussion of which types of service providers 

might be subject to the Bureau’s supervisory 

authority would be beyond the scope of the Final 

Consumer Debt Collection Rule. 

80The Business Law Section of the American Bar 

Association noted, in a comment, that ‘‘attorneys 

who are engaged in offering or providing a 

consumer financial product or service (such as 

collection of consumer debt) but do not represent 

consumers in such activities may be subject to the 

Bureau’s supervision.’’ The Bureau takes this 

commenter to agree that the subparagraph (e)(2)(B) 

exception applies to consumer debt collection. 

Letter from American Bar Association, Business 

Law Section, to Monica Jackson, Office of the 

Executive Secretary, Bureau of Consumer Financial 

Protection (Apr. 11, 2012). 

Attorneys. The Bureau received 

several comments from attorney groups 

asserting that attorneys should not be 

treated as participants of the consumer 

debt collection market that could, on 

that basis, be subject to the Bureau’s 

supervision. This category of comments 

focused on 12 U.S.C. 5517(e)(1), a 

provision that restricts the Bureau’s 

supervisory and enforcement authority, 

in some circumstances, over attorneys 

engaged in the practice of law. 

Two related provisions preserve the 

Bureau’s authority despite that 

restriction.70 First, as provided in 12 

U.S.C. 5571(e)(2), the Bureau retains its 

authority ‘‘regarding the offering or 

provision of a consumer financial 

product or service’’ (a) ‘‘that is not 

offered or provided as part of, or 

incidental to, the practice of law, 

occurring exclusively within the scope 

of the attorney-client relationship;’’ or 

(b) ‘‘that is * * * offered or provided by 

[an] attorney * * * with respect to any 

consumer who is not receiving legal 

advice or services from the attorney in 

connection with that product or 

service.’’ 71 Second, 12 U.S.C. 5517(e)(3) 

preserves the Bureau’s authority over 

attorneys who are otherwise subject to 

any ‘‘enumerated consumer law’’ within 

the meaning of the Act.72

Several commenters took the broad 

view that all attorneys and legal 

professionals engaged in collecting 

consumer debt should be excluded from 

the Final Consumer Debt Collection 

Rule. In support of this argument, 

commenters cited a floor speech by 

Representative John Conyers, one of the 

House’s conferees with the Senate on 

the Dodd-Frank Act. According to these 

commenters, Representative Conyers 

expected the phrase ‘‘practice of law’’ in 

12 U.S.C. 5571(e)(1) to be read as 

broadly as the term is construed by state 

courts and bar associations to prevent 

‘‘regulation from a new source [that] 

would unavoidably conflict with the 

existing rules and lines of 

accountability,’’ and wanted any 

determinations by the Bureau, ‘‘by rule, 

or otherwise, regarding what activities 

constitute the practice of law [to] be 

consistent with the view and practices 

of the State supreme court or State bar 

in question.’’ 73

The Bureau does not understand this 

statement to suggest that all activity 

conducted by attorneys is outside the 

Bureau’s authority. Representative 

Conyers focused his remarks on 

attorneys who provide legal services to 

consumers, such as the ‘‘consumer 

clients of bankruptcy lawyers, consumer 

lawyers, and real estate lawyers.’’ 74 He 

did not discuss legal services in which 

lawyers act on behalf of commercial 

clients with interests adverse to those of 

consumers, such as by collecting 

consumer debts.75

Moreover, the relevant statutory 

language clearly prescribes a different 

result.76 Consumer debt collection is a 

consumer financial service.77 The 

service is provided ‘‘with respect to’’ 

those consumers who owe (or are 

claimed to owe) the debts subject to 

collection. Because debt collection 

attorneys do not provide ‘‘legal advice 

or services’’ to those consumers in 

connection with the debt collection 

services—the attorneys represent clients 

with interests adverse to the 

consumers’—subparagraph (e)(2)(B) 

preserves the Bureau’s authority 

regarding those services.78

One commenter also suggested that if 

the paragraph (e)(2)(B) exception 

applied to consumer debt collection, 

that exception would swallow the 

general rule limiting the Bureau’s 

authority with respect to the practice of 

law. But subsection (e)(2)(B) only 

preserves the Bureau’s authority when 

an attorney offers or provides a 

consumer financial product or service 

with respect to a consumer who is not 

receiving legal advice or services from 

the attorney in connection with the 

product or service.79 To fall within the 

scope of the Final Consumer Debt 

Collection Rule, attorneys must also 

collect debt related to a consumer 

financial product or service.80

An attorney group commenter 

suggested that the Bureau’s supervision 

of debt collection attorneys would 

interfere with the established system of 

regulation by state bars. As the 

commenter notes, state bars issue law 

licenses and have the power to 

discipline and disbar lawyers for a 

variety of ethical and legal violations. 

The commenter concludes that the 

Bureau therefore ought not to impose 

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81 77 FR 39617 (July 5, 2012). 

82See ‘‘SBA Size Standards Methodology’’ at 4, 

available at http://www.sba.gov/sites/default/files/ 

size_standards_methodology.pdf. 

83U.S. Census Bureau 2007 Economic Census, 

available at http://www.census.gov/econ/ 

census07/. 

84As noted in the section-by-section discussion of 

the definition of ‘‘annual receipts,’’ the SBA and the 

Economic Census use the term ‘‘annual receipts’’ 

somewhat differently. As used by the Economic 

Census, the term includes receipts from all business 

activities, including net investment income, 

interest, and dividends, whether or not payment 

was received in the census year. The SBA, by 

contrast, defines the term to exclude net capital 

gains and losses and thus does not capture 

Continued 

additional requirements upon attorneys. 

The commenter also raised the concern 

that the Bureau’s supervision of debt 

collection attorneys will expose 

attorneys to the risk that the Bureau 

would adopt standards inconsistent 

with those of states. However, nothing 

in the Final Consumer Debt Collection 

Rule requires attorneys to engage or 

refrain from engaging in any particular 

conduct. Whatever standards might 

govern attorneys’ consumer debt 

collection activities arise under existing 

substantive law, not the Final Consumer 

Debt Collection Rule. Furthermore, the 

Final Consumer Debt Collection Rule 

does not impose professional conduct 

rules specific to attorneys. Of course, 

Federal consumer financial law does 

impose some conduct rules that apply to 

attorneys. These requirements are 

unlikely to be inconsistent with state 

professional conduct rules, as such rules 

presumably do not obligate attorneys to 

violate Federal law, including Federal 

consumer financial law. 

This commenter also suggested that 

the Bureau’s definition of consumer 

debt collection would bring into the 

market a myriad of attorneys who file 

legal claims against consumers. The 

commenter acknowledged that engaging 

in debt collection as defined by the 

FDCPA could bring an attorney under 

the Bureau’s supervisory jurisdiction. 

But, the commenter pointed out, ‘‘there 

are many instances in which an attorney 

may bring or assert a claim against a 

consumer for nonperformance of an 

obligation related to a consumer 

financial product or service’’ yet not be 

‘‘engaged in ‘collecting debt’ ’’ under 

any accepted meaning of the term. The 

commenter cited as an example an 

attorney asserting a claim against a high 

net-worth individual who has defaulted 

on a jumbo loan secured by her 

residence. As another example, the 

commenter hypothesized an attorney 

asserting counter-claims against a 

consumer or purported class of 

consumers in consumer-related 

litigation. 

The Bureau agrees that not every 

occasion on which an attorney seeks 

money from a consumer constitutes debt 

collection and that not all attorneys are 

fairly considered debt collectors active 

in the market defined by this Final 

Consumer Debt Collection Rule. 

Attorneys engage in a diverse set of 

activities, many of which do not fit into 

the defined market. For this reason, 

among others, the Bureau has amended 

the Proposed Rule to limit consumer 

debt collection activities to only those 

conducted by ‘‘debt collectors,’’ which 

are defined to be only those persons 

whose principal business activity is 

debt collection or that ‘‘regularly’’ 

engage in debt collection. Under this 

definition, filing an occasional counterclaim against a consumer would not 

necessarily make a law firm a debt 

collector. However, if a law firm is 

indeed a debt collector under the rule, 

filing a counter-claim against a 

consumer could qualify as consumer 

debt collection. 

Several commenters were concerned 

that, in the course of the Bureau’s 

supervision of an attorney, the attorney 

would be forced to reveal information 

protected by the attorney-client 

privilege and thereby cause the privilege 

to be waived. The Bureau has noted 

previously that it has general authority 

to require supervised entities to provide 

it with privileged information. The 

Bureau has promulgated a regulation 

clarifying that complying with such a 

requirement does not constitute a 

waiver of privilege; materials produced 

in response to the Bureau’s demand will 

remain confidential.81

Moreover, the focus of the Bureau’s 

supervision program will be the acts 

and practices of debt collectors as they 

relate to and impact consumers. Much 

of the relevant information is not 

privileged. For example, the Bureau 

might seek records of an attorney’s 

communications with consumers. Thus, 

the Bureau can conduct meaningful 

supervisory activity of a debt collection 

attorney without asking for privileged 

information, and the attorney’s 

possession of privileged information is 

not a reason to avoid examining the 

attorney. If the Bureau does seek 

privileged information from a debt 

collection attorney, it can address at that 

time any issues specific to that context. 

For all these reasons, the Bureau 

declines to revise the rule to exclude 

collection attorneys categorically from 

the consumer debt collection market. 

Section 1090.104 (b)—Test To Define 

Larger Participants 

Criterion. The Bureau has broad 

discretion in choosing a criterion for 

determining whether a nonbank covered 

person is a larger participant of a market 

within which the Bureau will conduct 

supervision. For any specific market 

there might be several criteria, used 

alone or in combination, that could be 

viewed as reasonable alternatives. For 

the consumer debt collection market, 

the Bureau considered a variety of 

criteria, including annual receipts; 

number of consumers; number of 

accounts; annual recoveries; number of 

employees and annual amount of new 

business (debt purchased by or placed 

with a collector). The Bureau proposed 

to use annual receipts as the criterion 

for defining larger participants of the 

market for consumer debt collection. 

The proposed concept of ‘‘annual 

receipts’’ was based on the SBA’s 

definition of ‘‘annual receipts,’’ as well 

as on the calculations relevant for 

Federal income tax and for Census 

reporting. 

The Bureau believes that annual 

receipts is a reasonable criterion 

because, among other things, it is a 

meaningful measure of the level of a 

consumer debt collector’s participation 

in the consumer debt collection market 

and the consumer debt collector’s 

corresponding impact on consumers. 

For example, third-party collectors, debt 

buyers, and collection law firms earn 

income from recovering consumer debt. 

Those recoveries are the result of market 

participation, either through traditional 

collection means or litigation. Thus, the 

level of a person’s market participation 

is reflected by the amount of that 

person’s annual receipts. 

In addition, ‘‘annual receipts’’ is a 

quantity that is familiar to nonbank 

covered persons and that reflects 

calculations already performed using 

records created in the ordinary course of 

business. The SBA’s definition of 

‘‘annual receipts’’ has been used by the 

SBA for purposes of measuring small 

business concerns since soon after the 

inception of its program.82 IRS tax forms 

require reporting of similar quantities. 

Thus, using ‘‘annual receipts’’ as the 

criterion should make it straightforward 

for firms to assess whether they qualify 

as larger participants. 

In addition, using annual receipts as 

the criterion facilitates the Bureau’s use 

of data from the Economic Census 83 to 

determine the general contours of the 

market for consumer debt collection. 

The Economic Census undertakes a 

direct survey of domestic business 

establishments and releases 

comprehensive statistics about key 

features and activity levels of these 

businesses, including total annual 

receipts.84 To conduct an Economic 

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65786 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

investment income. Notwithstanding this difference 

in the meaning of the term, the Economic Census 

data regarding annual receipts remain useful for 

purposes of developing a general understanding of 

the market for consumer debt collection and 

establishing a test for defining larger participants of 

that market. 

85Response to these forms is required by law. No 

firm-level data are released; rather, the data are 

aggregated by sector according to North American 

Industry Classification System (NAICS) codes. 

When categorizing the data by industry sector, both 

the SBA and the Economic Census use the NAICS 

codes. See infra n.86 and accompanying text. 

86Entities whose activities fall within this NAICS 

code are described as: ‘‘establishments primarily 

engaged in collecting payments for claims and 

remitting payments collected to their clients’’ and 

include, among others, collection agencies, debt 

collection services, and account collection services. 

NAICS code 56144 (collection agencies), available 

at http://www.census.gov/cgi-bin/sssd/naics/ 

naicsrch. The Bureau also believes that debt buyers 

often self-identify in this NAICS code, although the 

description does not explicitly mention them. See, 

e.g., SquareTwo Financial Corp., Registration of 

Securities Issued in Business Combination 

Transactions (Form S–4/A) (Mar. 4, 2011), available 

at http://pdf.secdatabase.com/178/0001047469-11- 

001751.pdf. 

87The Bureau notes that some firms function both 

as third-party debt collectors and as debt buyers. 

The discrepancy that the commenter observes is a 

difference between business models, not necessarily 

between firms. 

88The Census quantity ‘‘receipts’’ ‘‘exclude[s] 

* * * gross receipts collected on behalf of others.’’ 

Census Bureau, American Factfinder Help, http:// 

factfinder2.census.gov/help/en/ 

american_factfinder_help.htm (select ‘‘Glossary’’; 

select ‘‘Sales, shipments, receipts, revenue, or 

business done’’; select ‘‘sector specific 

definitions’’), last visited Oct. 19, 2012. This is in 

accord with the usual treatment of such amounts 

under income tax accounting. See generally 

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 

431 (1955) (defining income as ‘‘instances of 

undeniable accessions to wealth, clearly realized, 

and over which the taxpayers have complete 

dominion.’’). 

89A third-party debt collector receives a 

contingency fee based on the amounts recovered. 

For 2011, the average rate was 28%. ACA 

International, 2012 Agency Benchmarking Survey, 

at 21. According to the ACA’s 2012 Benchmarking 

Survey, collection agency commission rates 

averaged 28.4% in 2011, with a median of 25.5%. 

Thus, for annual receipts of $10 million, an average 

entity will have recovered around $36 million. By 

contrast, a debt buyer with $10 million of annual 

receipts will presumably have recovered only 

around $10 million. 

Census, the Census Bureau mails out 

data collection forms for all 

establishments of multi-unit companies, 

large single-unit employers, and a 

sample of small employers (generally 

defined as having three or fewer 

employees).85

The Bureau recognizes that there are 

limitations to the use of the Economic 

Census data on annual receipts in the 

debt collection market for purposes of 

the Final Consumer Debt Collection 

Rule. The Economic Census data may be 

both over-inclusive and underinclusive.86 The Economic Census data 

are not limited to the collection of 

consumer financial debt, but rather 

include both business and non-financial 

consumer debt. They may also be underinclusive because entities that fall 

within the NAICS code may not 

correctly identify themselves or may 

otherwise fail to respond accurately to 

the Census. Moreover, the NAICS code 

may not include all persons engaged in 

activities that meet the definition of 

consumer debt collection. However, the 

Economic Census data are nevertheless 

useful in showing the general contours 

of the consumer debt collection market, 

the relative size of participants within it 

on an aggregated basis, and how 

participants are distributed by size. 

Commenters suggested a variety of 

alternative criteria such as the number 

of accounts, the number of complaints 

about an entity, the number of 

employees, an entity’s relative market 

share, or the annual receipts of an entity 

in a given geographic or demographic 

segment. One commenter representing 

third-party debt collectors stated that 

annual receipts is not an appropriate 

criterion to measure participants in the 

consumer debt collection industry 

because it would capture amounts 

collected by an agency on behalf of the 

debt owner. This commenter suggested 

measuring gross revenue instead. 

The Bureau does not believe these 

other suggested criteria are superior 

alternatives. The available data do not 

permit the Bureau meaningfully to 

measure the general contours of the 

market based on these criteria and thus, 

on such bases, to devise a test for 

defining larger participants of the 

consumer debt collection market or to 

apply the test efficiently. Further, as set 

forth in the Proposal, the Bureau 

believes that the number of employees 

is not a suitable alternative criterion 

because it could be difficult for a multiline company to apportion employee 

time between market-related and other 

activities and because many 

responsibilities may be fulfilled by 

contractors rather than employees. With 

respect to the suggestion of gross 

revenues as a criterion, the Final 

Consumer Debt Collection Rule’s 

definition of ‘‘annual receipts’’ is 

functionally similar to what the 

commenter proposed. Amounts 

collected on behalf of another are 

excluded from the proposed calculation 

for annual receipts, just as they would 

be from the commenter’s proposed gross 

revenues criterion. 

A representative of the debt buying 

industry argued that the annual receipts 

criterion discriminated unfairly between 

debt buying and third-party debt 

collection.87 The proposed definition of 

annual receipts, in accordance with 

Federal income tax reporting and 

Census reporting, excludes amounts 

collected on behalf of and remitted to 

others.88 This commenter observed that 

for a given amount of annual receipts, 

calculated per the proposed definition, 

a debt buyer would have recovered 

substantially less debt from consumers 

than would a comparable third-party 

debt collector.89 The commenter 

contended that the amounts recovered 

from consumers (gross recoveries) was 

the proper criterion for market 

participation. The commenter suggested 

that the Bureau could use an amount 

such as annual receipts as a substitute 

if the calculation included amounts 

recovered on behalf of others. Under 

that calculation, a debt buyer and a 

third-party debt collector with the same 

amount of gross recoveries would also 

have about the same amount of annual 

receipts. 

The Bureau disagrees that the Final 

Consumer Debt Collection Rule’s 

concept of annual receipts should 

correspond directly to gross recoveries, 

because the Bureau does not consider 

gross recoveries to be the sole or proper 

measure of market participation relevant 

for purposes of the Final Consumer Debt 

Collection Rule. Given that the goals of 

supervision include assessing risks to 

consumers and to consumer financial 

markets, the Bureau has chosen to view 

a firm’s level of participation in this 

market chiefly in terms of the firm’s 

overall impact on consumers. Actually 

receiving a sum of money from 

consumers is, to be sure, an important 

type of impact. But a consumer debt 

collector also can substantially affect 

consumers from whom it does not 

succeed in recovering money. For 

example, a firm affects consumers by 

having authority to collect and by 

attempting to collect their debts, 

regardless of how much it succeeds in 

recovering. In addition, a consumer debt 

collector may report to consumer 

reporting agencies those debts that go 

unrecovered. Furthermore, a firm’s 

conduct in collecting debt—by 

contacting consumers, contacting third 

parties, filing lawsuits, garnishing 

wages, and using other debt collection 

techniques—affects even those 

consumers who actually do not owe or 

are not liable for the debts under 

collection. 

Thus, a myriad of indicia reflect 

various types of impact on consumers. 

Among those indicia are the number of 

consumer contacts, the number of 

consumers or number of consumer 

accounts under collection, the 

frequency of reports to consumer 

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90All other things being equal, a firm that 

contacts a larger number of consumers is probably 

collecting on a larger face value of debt, will 

probably recover more, and will probably have 

greater annual receipts. However, the correlation is 

imperfect for each possible criterion, because the 

relationship between consumer impact and each 

criterion varies depending on a number of 

circumstances such as the age and type of the debts 

involved and the techniques and business models 

applied to collecting them. For example, a recent 

survey found liquidation rates ranging from 12.0 to 

28.8 percent depending on the type of debt being 

collected. ACA International, 2012 Agency 

Benchmarking Survey, at 21 (2012). As another 

example, recent studies have shown prices for 

charged-off debt that range from less than 1% of 

face value to over 15% of face value. See, e.g., 

Kaulkin Ginsberg, U.S. Credit Card Sector Update: 

Market Trends, Liquidation, and Portfolio Pricing, 

Presentation to ACA International Fall Forum, Nov. 

2010. And five publicly traded debt buyers have 

reported recovering from 150 percent to 250 percent 

of the purchase price of their debts. Asset 

Acceptance Capital Corp., Annual Report (Form 10– 

K) (Mar. 6, 2012), Portfolio Recovery Associates, 

Inc., Annual Report (Form 10–K) (Feb. 28, 2012), 

SquareTwo Financial Corp., Annual Report (Form 

10–K) (Feb. 24, 2012), Encore Capital Group, Inc., 

Annual Report (Form 10–K) (Feb. 9, 2012); Asta 

Funding, Inc., Annual Report (Form 10–K) (Dec. 14, 

2011). 

91The Bureau reiterates that these are different 

business models and do not necessarily involve 

different firms. Some firms operate both as debt 

buyers and as third-party debt collectors. 

92The Bureau roughly estimates that third-party 

collectors, on average, collect on new accounts for 

approximately 220 days. That figure is the 

difference between the average account age for 

primary accounts (those with their first debt 

collectors after default) and for secondary accounts 

(those with their second debt collectors, after a first 

period as primary accounts). ACA International, 

2011 Top Collection Markets Survey (2011). In 

general, the age of a secondary account reflects the 

age at which it reached its first debt collector, plus 

the time that debt collector held the account before 

it was transferred to a second debt collector. Thus, 

the difference between primary and secondary ages 

is a rough indicator of how long debt collectors tend 

to hold primary accounts. ACA International’s 2011 

survey reported average ages for each of eight submarkets; to reach the estimate of 220 days, the 

Bureau averaged the hold time, calculated in this 

manner, across all eight sub-markets. Debt buyers, 

on the other hand, collect on accounts for much 

longer; on average, the five publicly traded debt 

buyers’ portfolios appear to yield, on average, 17% 

of their purchase price five years after purchase. 

This figure represents estimated remaining 

collections divided by purchase price, as reported 

in 2011 filings for debt purchased in 2006. Asset 

Acceptance Capital Corp., Annual Report (Form 10– 

K) (Mar. 6, 2012), Portfolio Recovery Associates, 

Inc., Annual Report (Form 10–K) (Feb. 28, 2012), 

SquareTwo Financial Corp., Annual Report (Form 

10–K) (Feb. 24, 2012), Encore Capital Group, Inc., 

Annual Report (Form 10–K) (Feb. 9, 2012); Asta 

Funding, Inc., Annual Report (Form 10–K) (Dec. 14, 

2011). 

93Another alternative the Bureau considered was 

to exclude from annual receipts the price of debt 

buyers pay to purchase debt. But this alternative 

would be administratively difficult for debt buyers 

and for the Bureau. Because debt buyers typically 

amortize their debt purchases over a number of 

years, it would be difficult to know what amount 

to exclude when counting the income from 

recovering debts many years after purchase. 

94Under the commenter’s proposed method, a 

third-party debt collector would need to revise its 

annual receipts upwards by about 350 percent, with 

the actual amount of the change depending on the 

details of its pricing as agreed with various 

creditors. 

reporting agencies, the number of 

lawsuits filed or judgments obtained, 

the total face value of debt under 

collection, the total fair value of debt 

under collection, and the amount 

recovered from consumers. Another 

measure of impact on consumers would 

be the scale of a firm’s operations—such 

as the number of employees available to 

call consumers or the volume of mail 

the firm sends. The Bureau does not 

regard any of these indicia on its own 

as the true measure of market 

participation; rather, it has attempted to 

reflect all of them, albeit imperfectly, in 

a single criterion. Several options for the 

criterion might serve that purpose to 

some degree. For example, total face 

value, gross recoveries, and annual 

receipts should all generally correlate 

with the various types of consumer 

impact. 

For none of these criteria is the 

relationship between the single 

numerical value and the various forms 

of consumer impact identical for all 

types of firms, all models of debt 

collection, or all types or ages of debt.90

In particular, each criterion produces 

some variation between debt collection 

conducted on a debt buying model and 

performed as a third-party debt 

collector.91 Total face value of debt 

under collection, as a criterion, would 

tend to magnify the apparent market 

participation of debt buyers. Debt 

buyers hold debts on their books for 

years, often purchase debts for a small 

fraction of their face values, and expect 

to recover relatively small fractions of 

the debts’ face values. Thus, measuring 

the total face value of a debt buyer’s 

portfolio at a given point in time could 

overstate its amount of consumer 

impact, as compared to a debt collector 

that turns over that volume of debt 

(measured by face value) on a much 

shorter time scale. On the other hand, 

gross recoveries, as a criterion, could 

tend to understate the impact of debt 

buyers as compared to third-party debt 

collectors. Third-party collectors tend to 

work with relatively recently defaulted 

debt and to retain accounts for fairly 

brief periods of time.92 To the extent 

that a debt buyer focuses on older and 

longer-defaulted debt, and persists over 

years in its attempts to collect debts on 

its books, a given amount of gross 

recoveries will represent substantially 

more contact with consumers than 

would that same amount if recovered by 

a third-party collector. 

That is not to say that total face value 

under collection or gross recoveries 

would be an illegitimate or improper 

measure of market participation. Each 

captures aspects of impact on 

consumers and thus of participation in 

the consumer debt collection market. 

Nor do the observations above suggest 

that the Bureau should treat third-party 

debt collectors and debt buyers 

separately. The Bureau regards the two 

types of activity as part of the same 

market. They fulfill the same purpose in 

consumer financial markets by 

generating recoveries that reduce 

creditors’ losses on defaulted debts. 

Debt buyers and third-party debt 

collectors also use many of the same 

techniques to collect debts; their 

activities are therefore similar from 

consumers’ perspectives. Moreover, the 

differences between the two business 

models, in terms of how the possible 

criteria of market participation measure 

them, are not necessarily greater than 

differences that exist among firms 

practicing each model. For example, 

total face value under collection might 

treat a debt buyer that focuses on 

recently defaulted debt similarly to a 

third-party collector and differently 

from a debt buyer that works with 

comparatively old debts. The Bureau 

concludes that the fact that a criterion 

tends to produce different results for 

different forms of debt collection 

activity is not, alone, a reason not to use 

a particular criterion. 

Annual receipts, as the commenter 

pointed out, is not the best measure of 

gross recoveries, one aspect of consumer 

impact. However, annual receipts, as 

compared to the other two criteria just 

discussed, seems the most appropriate 

measure of overall market participation. 

Compared to those other criteria, it is a 

better measure of an entity’s capacity to 

contact consumers, engage in debt 

collection techniques, and collect debts, 

as well as the likelihood of recovery. 

In addition, the concept of ‘‘annual 

receipts’’ has practical advantages, as 

discussed above. First, the proposed 

criterion can generally be calculated 

using existing business records because 

consumer debt collectors already 

prepare IRS filings on an annual basis 

and maintain accounting systems that 

support those filings.93 Third-party debt 

collectors do not include amounts 

remitted to others in their income 

calculations for purposes of Federal 

income tax reporting. Using gross 

recoveries as the criterion, as the 

commenter suggested, would force 

consumer debt collectors to depart 

significantly from their IRS reports.94

Second, the proposed criterion 

facilitates the Bureau’s analysis of the 

market and development of a threshold 

for larger-participant status because 

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95Such information would also be difficult for the 

Bureau to infer from the Census data, in part 

because some firms function both as third-party 

debt collectors and as debt buyers. To use gross 

recoveries as the criterion, the Bureau would need 

to understand what proportions of these firms’ 

receipts came from which type of activity. 

96As discussed below, the Bureau estimates it 

may examine the majority of larger participants at 

an average rate of up to once every five years. 

Individual consumer debt collectors may be subject 

to examination more frequently, as a result of the 

Bureau’s consideration of the risk-based factors 

enumerated in 12 U.S.C. 5514(b)(2). The $10 

million threshold is not set to enable the Bureau to 

supervise every larger participant on a regular basis 

but rather to permit the Bureau, using the available 

resources and exercising its discretion with respect 

to those risk-based factors, to focus its supervisory 

activity at those entities where it would most 

effectively serve the Bureau’s missions. 

97One ex parte submission noted that out of 745 

collection agencies licensed in Colorado, 162 

reported in an informal survey that they would 

meet the proposed threshold for larger-participant 

status in the consumer debt collection market. 

However, these figures are not comparable to the 

Bureau’s estimates based on the nationwide Census 

data. A collection agency is required to obtain a 

Colorado license if it is located in Colorado; if it 

regularly collects from debtors located in Colorado; 

if it solicits the business of companies located in 

Colorado or if it collects debts on behalf of 

companies located in Colorado. Colo. Rev. Stat. 

§ 12–14–102; Colo. Att’y Gen., Persons Required to 

be Licensed as a Colorado Collection Agency, pp. 

4–5 (Aug. 12, 1994). As a result of Colorado’s 

expansive licensing requirements, neither the count 

of larger participants that are operating in Colorado 

nor the count of debt collection agencies licensed 

there can be extrapolated (on the basis of 

population or other factors) to the overall counts of 

larger participants or consumer debt collectors. 

98The Bureau recognizes that because the 

Economic Census data include the collection of 

medical debt, which, according to the ACA Survey, 

was 35% of new business for debt collectors in 

2010, the Bureau may be overestimating market 

coverage. ACA International, ACA Top Collection 

Markets Survey, 2011. A hypothetical collector 

might have $14 million in actual receipts, but, if 

35% of them resulted from collecting medical debt, 

its annual receipts as defined by the rule would be 

just at the $10 million threshold. In reality, some 

debt collectors have portfolios with higher 

percentages of medical debt than average and some 

have lower. In addition, because recovery rates may 

vary depending on the type of debt being collected, 

medical debts may not account for the same 

proportion of receipts that they do of debts under 

collection. In sum, the Bureau does not have a way 

of ascertaining in detail how any overestimation 

with respect to medical debt might affect the scope 

of the supervisory authority established by the rule. 

The Bureau does not believe the effect is large. Even 

if the Bureau were to change the threshold to $14 

million to account for the exclusion of medical 

debt, a $14 million threshold would cover 

approximately 144 firms, or approximately 3% of 

total firms, and approximately 61% of market share. 

99 12 U.S.C. 5514(a)(1)(C). 

100The Bureau also will examine depository 

institutions, credit unions, and nonbanks, insofar as 

such entities are subject to its supervisory authority, 

with regard to those entities’ processes for 

managing the risks of service-provider relationships 

with any third-party debt collectors whose services 

they use. The Bureau expects covered persons to 

take steps to ensure that their business 

arrangements with service providers do not present 

unwarranted risks to consumers. Such steps should 

include monitoring to ensure whether service 

providers are complying with Federal consumer 

financial law and reviewing service providers’ 

policies, procedures, internal controls, and training 

materials to ensure that service providers conduct 

appropriate training and oversight of employees or 

agents that have consumer contact or compliance 

responsibilities. See Consumer Financial Protection 

Bureau, CFPB Bulletin 2012–03 (Apr. 13, 2012), 

available at http://files.consumerfinance.gov/f/ 

201204_cfpb_bulletin_service-providers.pdf. 

third-party debt collectors already 

report their incomes to the Census on 

this basis. The Bureau is not aware of 

comparable market data on the gross 

recoveries of various consumer debt 

collectors.95

For the reasons set forth above, the 

Bureau declines to depart from the 

proposed criterion for the largerparticipant test for the consumer debt 

collection market and adopts the use of 

annual receipts as proposed. 

Threshold. As noted in the Proposal, 

the Bureau has broad discretion in 

setting the threshold above which an 

entity would qualify as a larger 

participant in the consumer debt 

collection market. The Bureau proposed 

$10 million in annual receipts as the 

threshold. For the reasons stated below, 

the Bureau adopts that proposed 

threshold in the Final Consumer Debt 

Collection Rule. 

Available data indicate that a 

threshold of $10 million in annual 

receipts resulting from consumer debt 

collection activities will enable the 

Bureau to cover in its nonbank 

supervision program a broad range of 

consumer debt collectors. The Bureau 

believes that this threshold will cover a 

sufficient number of market participants 

to enable the Bureau effectively to 

assess compliance and identify and 

assess risks to consumers, but at the 

same time cover only consumer debt 

collectors that can reasonably be 

considered ‘‘larger’’ participants in the 

market. Although the Bureau’s 

supervision program would cover only 

a small percentage of firms in the 

market, the Bureau would have 

supervisory authority over nonbank 

entities interacting with a significant 

portion of consumers with debt under 

collection.96

As explained in the Proposal, based 

on the Economic Census, a threshold of 

$10 million would likely bring within 

the Bureau’s supervisory authority 

approximately 175 out of the 4,500 

entities engaged in debt collection 

under NAICS code 561440.97 Thus, 

larger participants would include about 

4% of all consumer debt collection 

firms, representing about 63% of annual 

receipts in the consumer debt collection 

market.98 The Bureau must deploy its 

limited resources in an efficient manner 

in order to encourage lawful behavior 

and assess risks to consumers. 

Consumer debt collectors that are larger 

participants play a greater role in the 

market, and therefore have a greater 

impact on consumers, than consumer 

debt collectors that are not larger 

participants. Although consumer debt 

collectors that are not larger participants 

may commit abuses, lowering the 

threshold to cover them would require 

significant additional resources yet 

would add less than half the market— 

measured by annual receipts—to the 

Bureau’s supervisory authority. 

Meanwhile, 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.99 In addition, 

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. 

Several commenters suggested that 

the Bureau adopt a threshold lower than 

the one proposed. One suggested that 

the threshold be lowered to $7 million, 

the threshold that the Bureau adopted 

for the consumer reporting market. 

Another did not advocate a particular 

threshold but argued that the Bureau 

could reasonably supervise more than 

4% of participants in the debt collection 

market. One commenter argued that 4% 

of the market is not sufficient coverage 

because small debt collectors commit 

the greatest abuses. Many consumergroup commenters recommended an 

approach that would effectively lower 

the threshold by counting a firm’s 

receipts from any source, as long as at 

least $3.5 million of its receipts resulted 

from the collection of debts related to 

consumer financial products or services. 

For the reasons discussed above, the 

Bureau believes that a threshold of $10 

million serves the purposes and 

objectives of its supervision program.100

One consumer group commented that 

the Bureau did not explain why the 

threshold for consumer debt collection 

differs from the $7 million threshold for 

consumer reporting. As stated in the 

Proposal, the Bureau considers each 

market separately and may adopt 

different criteria and thresholds for each 

market. Among other differences 

between the two markets that are the 

subjects of the Bureau’s first two largerparticipant rules, consumer reporting 

entities and consumer debt collectors 

perform entirely different functions; 

firms in the two markets interact with 

consumers in different ways; the market 

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101For instance, the consumer debt collection 

market is diffuse and is made up of approximately 

4,500 entities, a number which is more than 10 

times greater than the number of consumer 

reporting entities. 

102The statute principally relevant for the 

consumer reporting market is the Fair Credit 

Reporting Act (FCRA), 15 U.S.C. 1681 et seq., while 

the statute primarily relevant to the consumer debt 

collection market is the FDCPA. 

103See 77 FR 9594–9600. 

104The commenter stated that a $250 million 

threshold would account for the economics of the 

debt collection industry in which consumers make 

payments in trust to a consumer debt collector 

which then distributes the payment to the credit 

grantor, less a contingency fee. The commenter did 

not explain, and the Bureau is not aware, why a 

cash flow arrangement of this type should affect the 

selection of the larger-participant threshold, 

particularly given that for third-party debt 

collectors the amounts collected for others do not 

count towards the threshold. 

105 12 U.S.C. 5515. 

106 12 U.S.C. 5514. 

107Estimated from 2007 U.S. Economic Census, 

available at http://factfinder2.census.gov/faces/

tableservices/jsf/pages/productview.xhtml?pid=

ECN_2007_US_56SSSZ6&prodType=table, scroll to 

NAICS code 561440. 

108A commenter noted that the SBA has 

proposed to amend its size standard for the category 

corresponding to debt collector. Under the SBA’s 

proposed rule, a debt collector would be a ‘‘small 

business’’ if it has $14 million or less in annual 

receipts. 76 FR 63510 (Oct. 12, 2011). This 

commenter urged the Bureau to increase the largerparticipant threshold to avoid capturing would-be 

small businesses as larger participants. However, 

even if the SBA finalizes a regulation in accordance 

with its proposal, the change would not alter the 

degree to which various entities participate in the 

consumer debt collection market. Thus, the Bureau 

declines to raise the threshold for the consumer 

debt collection market to $50 million in annual 

receipts. 

109See 2007 U.S. Economic Census, available at 

http://factfinder2.census.gov/faces/tableservices/

jsf/pages/productview.xhtml?pid=ECN_2007_US_

56SSSZ6&prodType=table, scroll to NAICS code 

561440. 

110See id. 

structures are different; 101 the 

substantive Federal consumer financial 

law principally relevant to the two 

markets have major differences; 102 and 

the manner in which annual receipts 

connect to consumer interactions is 

different in the two markets.103 The 

Bureau does not mean to suggest that 

each such difference determines the 

Bureau’s views with respect to the 

criterion or the threshold or that each 

difference would be important to justify 

using different criteria or thresholds for 

larger-participant status with respect to 

the two different markets. Rather, the 

Bureau recites these differences in order 

to explain that the thresholds for the 

consumer reporting and consumer debt 

collection markets, while they are both 

expressed in dollar figures related to 

annual receipts, are simply not 

comparable. 

For these reasons, the Bureau declines 

to lower the threshold for largerparticipant status in the consumer debt 

collection market. 

The same consumer group commenter 

suggested that the Bureau undertake 

another rulemaking to supervise smaller 

debt collectors. The Bureau will 

continue to research and monitor the 

consumer debt collection market to 

determine if additional rulemakings are 

necessary. In addition, as discussed 

above, nonbank covered persons may be 

subject to the Bureau’s enforcement, 

regulatory, and supervisory authority 

even if they are not larger participants. 

A handful of commenters suggested 

raising the threshold. A commenter 

representing third-party debt collectors 

suggested that the threshold should be 

raised to $250 million in annual 

receipts.104 The commenter also argued 

that its suggested threshold would be 

consistent with what the commenter 

said is the Bureau’s mandate under the 

Dodd-Frank Act, to supervise only very 

large nonbank covered persons. This 

commenter, referring to the Bureau’s 

supervisory authority over ‘‘very large’’ 

depository institutions and credit 

unions, i.e., those with over $10 billion 

in assets, and their affiliates,105 argued 

that the Bureau correspondingly should 

supervise only very large nonbank 

entities. But, as the Bureau explained in 

the Consumer Reporting Rule, the DoddFrank Act’s division of supervisory 

authority for insured depository 

institutions and credit unions does not 

govern the supervision of nonbank 

entities. Unlike depository institutions 

and credit unions with less than $10 

billion in assets, nonbanks in the 

consumer debt collection market that 

are not subject to Bureau supervision 

under 12 U.S.C. 5514 generally will not 

be subject to other Federal supervision 

for assessing compliance with Federal 

consumer financial law or for other 

purposes. Moreover, the Dodd-Frank 

Act authorizes the Bureau to supervise 

entities that are ‘‘larger’’ participants of 

a market, not merely ‘‘very large’’ 

participants.106 Accordingly, the Bureau 

declines to raise the proposed annual 

receipts threshold to $250 million for 

the consumer debt collection market in 

response to this comment. 

Additionally, the Bureau does not 

believe that a $250 million annual 

receipts threshold would result in 

sufficient market coverage to allow it 

effectively to assess compliance with 

Federal consumer financial law and 

detect and assess risks to consumers in 

the overall market. The Bureau 

estimates that a $250 million threshold 

would cover, at most, 7 consumer debt 

collectors, less than 0.2 percent of 

market participants and representing 

approximately 20 percent of overall 

collection industry receipts.107 The 

approximately 168 additional entities 

(for a total of about 175) covered by the 

Bureau’s proposed threshold represent 

an additional 43 percent of annual 

receipts in the market. The proposed 

threshold would provide the Bureau 

with the ability to supervise a broader 

range of market participants and 

identify and evaluate risks to 

consumers. 

A commenter representing debt 

buyers suggested that the Bureau raise 

the threshold to $50 million in annual 

receipts to provide ‘‘regulatory relief’’ to 

the many debt buying companies that 

are small businesses. But the SBA’s size 

standard in the debt collection market is 

$7 million.108 Therefore, under the 

larger-participant threshold as proposed 

and adopted—$10 million—no 

businesses that qualify as small 

businesses for SBA purposes would 

ordinarily be classified as larger 

participants. Additionally, the Bureau 

does not believe that a $50 million 

annual receipt threshold would result in 

sufficient market coverage to allow it 

effectively to assess compliance with 

Federal consumer financial law and 

detect and assess risks to consumers. A 

$50 million threshold would cover 

fewer than 30 consumer debt collectors, 

less than one percent of market 

participants and representing only 

approximately 39 percent of overall 

collection industry receipts.109

The Bureau also received comments 

from the debt buying industry and a 

trade association for consumer credit 

agencies asserting that the proposed 

threshold would not reflect the middle 

market for consumer debt collection. 

According to the commenters, there 

must be a market of mid-sized firms that 

includes more than just those between 

$7 and $10 million in annual receipts. 

But the Bureau notes that the SBA’s 

small-business standard and the 

Bureau’s larger-participant threshold 

cannot be compared in this way. 

‘‘[L]arger participants,’’ in 12 U.S.C. 

5514(a)(2), does not refer to the absolute 

size of the businesses in question. As 

explained in the Consumer Reporting 

Rule, the Bureau interprets ‘‘larger 

participants’’ to mean those persons that 

participate to a relatively large degree in 

the relevant market. Given the structure 

of the consumer debt collection market, 

the Bureau believes it is reasonable to 

set a threshold for larger-participant 

status at $10 million in annual receipts. 

In fact, the median annual receipts for 

businesses within the NAICS code for 

debt collection is less than $500,000.110

Finally, two commenters 

recommended that the Bureau index the 

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65790 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

111This commenter also appears to have 

misapprehended the Proposed Rule to make IRS 

forms the only permissible source of information 

about a company’s annual receipts. The commenter 

recommended that the final rule state expressly that 

a market participant may make a good faith 

determination of its annual receipts based on 

records maintained in the ordinary course of 

business. The Bureau does not believe such an 

addition to the regulation is necessary, because the 

rule does not require companies to rely solely on 

their IRS forms. The criterion by which market 

participation is measured is annual receipts 

resulting from consumer debt collection; the Bureau 

is aware that this specific quantity does not 

necessarily correspond, for every company, to a 

figure reported to the IRS. In addition, § 1090.103(a) 

establishes that a person wishing to dispute 

whether it is a larger participant may provide the 

Bureau records, documents, or other evidence 

reasonably identifying what portion of its annual 

receipts result from activities falling outside a 

covered market. 

112The Bureau also received a comment from a 

representative of the loan servicing industry 

recommending that the concept of apportionment 

should apply to both the multi-line entities and 

their affiliates. This commenter apparently 

interpreted the Proposal to mean that only an 

affiliated company’s receipts would be subject to 

apportionment, which would then be aggregated 

with the parent company’s annual receipts from any 

activity. In fact, the rule permits a company to 

apportion both its receipts and its affiliates’ to 

calculate its annual receipts for purposes of the 

rule. 

113Specifically, 12 U.S.C. 5512(b)(2)(A) calls for 

the Bureau to consider the potential benefits and 

costs of a regulation to consumers and covered 

persons, including the potential reduction of access 

by consumers to consumer financial products or 

services, the impact on depository institutions and 

credit unions with $10 billion or less in total assets 

as described in 12 U.S.C. 5516, and the impact on 

consumers in rural areas. In addition, 12 U.S.C. 

5512(b)(2)(B) directs the Bureau to consult, before 

and during the rulemaking, with appropriate 

prudential regulators or other Federal agencies, 

regarding consistency with objectives those 

agencies administer. The manner and extent to 

which the provisions of 12 U.S.C. 5512(b)(2) apply 

to a rulemaking of this kind that does not establish 

standards of conduct is unclear. Nevertheless, to 

inform this rulemaking more fully, the Bureau 

performed the analysis and consultations described 

in those provisions of the Dodd-Frank Act. 

threshold for annual receipts for 

inflation. At this time, the Bureau does 

not intend to index for inflation. To the 

extent necessary or appropriate, the 

Bureau anticipates making adjustments 

to the threshold through future 

rulemakings. These future rulemakings 

may reflect inflation, shifts in the 

market, and other data that may be 

available to the Bureau. 

For the reasons stated above, the 

Bureau adopts the proposed threshold 

of $10 million in annual receipts for the 

consumer debt collection market. 

Apportionment. As noted in the 

Proposal, some multi-line companies 

derive only portions of their annual 

receipts from consumer debt collection 

activities. The Proposed Rule provided 

that the only annual receipts to be 

considered for purposes of determining 

larger-participant status are those 

‘‘resulting from’’ activities related to the 

consumer debt collection market. 

The Bureau received a number of 

comments on the issue of 

apportionment. One industry 

representative said that apportionment 

would present substantial difficulties 

for multi-line companies because IRS 

forms generally do not differentiate 

between income streams within 

organizations, and a multi-line company 

will need to perform burdensome 

calculations beyond the calculations IRS 

forms require.111 A group representing 

attorneys engaged in commercial law 

stated that the Proposed Rule would 

likely require participants to overhaul 

their accounting systems to segregate 

revenue by activity type, at a significant 

cost, in order to determine whether they 

are larger participants or to respond to 

Bureau assertions on that point. Two 

consumer groups suggested that the 

Bureau should count a company’s total 

annual receipts, from any of its revenue 

streams, toward the larger-participant 

threshold. These commenters stated that 

determining a company’s status as a 

larger participant using total annual 

receipts would be much simpler than 

trying to segregate annual receipts from 

market-related activities, and would 

serve to prevent evasion by reducing the 

temptation for companies to misclassify 

the source of their revenues to avoid 

supervision. Another commenter said 

that the Bureau should define the term 

‘‘apportionment’’ and use that definition 

when describing the aggregation of 

annual receipts for affiliated 

companies.112 Finally, one commenter 

representing third-party debt collectors 

supported the concept of apportionment 

and asked the Bureau to issue a simple 

form by which market participants 

could report apportioned data. 

The Bureau declines to define the 

term ‘‘apportionment.’’ The term is not 

used in the regulatory text; rather, 

apportionment is a concept that conveys 

the inclusion of receipts ‘‘resulting 

from’’ activities related to the consumer 

debt collection market. The Bureau 

believes it is appropriate to permit 

apportionment of annual receipts. In 

some instances there may be nonbank 

covered persons that have significantly 

different business lines, with certain 

business lines not relating to the 

consumer debt collection market. In 

addition, as noted above, participants of 

the consumer debt collection market 

should be reasonably aware of the 

sources of their revenue, and should 

thus be able to apportion without undue 

burden. To clarify, market participants 

are not required to apportion their 

annual receipts on a periodic or other 

basis under the Final Consumer Debt 

Collection Rule. Accordingly, the 

Bureau finds it unnecessary to publish 

a form by which market participants 

could report such data. On the contrary, 

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. 

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. 

VI. Section 1022(b)(2)(A) of the DoddFrank Act 

A. Overview 

In developing the Final Consumer 

Debt Collection Rule, the Bureau has 

considered potential benefits, costs, and 

impacts.113 The Proposal set forth a 

preliminary analysis of these effects, 

and the Bureau requested and received 

comments on the topic. In addition, the 

Bureau has consulted or offered to 

consult with the Federal Trade 

Commission, the Board of Governors of 

the Federal Reserve System, the Federal 

Deposit Insurance Corporation, the 

Office of the Comptroller of the 

Currency, the Federal Housing Finance 

Agency, the National Credit Union 

Administration, and the United States 

Departments of Education, and Housing 

and Urban Development, in connection 

with this rulemaking, including 

regarding consistency with any 

prudential, market, or systemic 

objectives administered by such 

agencies. 

The Final Consumer Debt Collection 

Rule defines a category of ‘‘larger 

participants of other markets for 

consumer financial products or 

services’’ that will be subject to the 

Bureau’s nonbank supervision program 

pursuant to 12 U.S.C. 5514(a)(1)(B). The 

category defined by the rule includes 

‘‘larger participants’’ of a market for 

‘‘consumer debt collection’’ that the rule 

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Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 65791 

114The Bureau has discretion in any rulemaking 

to choose an appropriate scope of analysis with 

respect to potential benefits and costs and an 

appropriate baseline. The Bureau, as a matter of 

discretion, has chosen to describe a broader range 

of potential effects to more fully inform the 

rulemaking. 

115One commenter asserted without explanation 

that medium-sized firms would need to dedicate 

between three and eight employees to the 

supervision process during the two weeks before 

and two weeks of an examination. 

116Pursuant to section 12 U.S.C. 5514(e), the 

Bureau also has supervisory authority over service 

providers to nonbank covered persons encompassed 

by 12 U.S.C. 5514(a)(1), which includes larger 

participants. The Bureau does not have data on the 

number or characteristics of service providers to the 

roughly 175 larger participants of the consumer 

debt collection market. The discussion herein of 

potential costs, benefits, and impacts that may 

result from the Final Consumer Debt Collection 

Rule generally applies to service providers to larger 

participants. 

117Another approach to considering the benefits, 

costs, and impacts of the rule would be to focus 

almost entirely on the supervision-related costs for 

larger participants and omit a broader consideration 

of the benefits and costs of increased compliance. 

As noted above, the Bureau has, as a matter of 

discretion, chosen to describe a broader range of 

potential effects to more fully inform the 

rulemaking. 

describes. Participation in this market is 

assessed on the basis of annual receipts, 

generally averaged over three years, 

resulting from consumer debt collection 

activities. If a nonbank covered person’s 

annual receipts from consumer debt 

collection are over a threshold of $10 

million, the entity is a larger participant 

in that market and thus subject to the 

Bureau’s supervisory authority. With 

the rule in place, the Bureau will be able 

to commence supervisory activities in 

the identified consumer debt collection 

market. 

B. Potential Benefits and Costs to 

Consumers and Covered Persons 

This analysis considers the benefits, 

costs, and impacts of the key provisions 

of the rule against a pre-statutory 

baseline; that is, the analysis evaluates 

the benefits, costs, and impacts of the 

relevant statutory provisions and the 

regulation combined.114 Before the 

Dodd-Frank Act, there was no Federal 

program for supervision of nonbank 

participants of the consumer debt 

collection market. With the statute and 

the Final Consumer Debt Collection 

Rule in effect, the Bureau will be able 

to supervise participants of the 

consumer debt collection market who 

have annual receipts from consumer 

debt collection of more than $10 

million. 

The Bureau notes at the outset that 

limited data are publicly available with 

which to quantify the potential benefits, 

costs, and impacts of the rule. For 

example, although the Bureau has 

general quantitative information, 

discussed above, on the number of 

market participants and their receipts, 

the Bureau lacks detailed information 

about their rate of compliance or noncompliance with Federal consumer 

financial law (including the FDCPA) 

and about the range of compliance 

mechanisms and their costs to market 

participants. The Proposal requested 

information to support the analysis of 

benefits, costs, and impacts, but 

commenters did not provide, or identify 

sources for, relevant data.115 Over time, 

the Bureau expects to develop 

information related to these topics 

through its supervisory and other 

activities. 

In light of these data limitations, this 

analysis generally provides a qualitative 

discussion of the benefits, costs, and 

impacts of the Final Consumer Debt 

Collection Rule. General economic 

principles, together with the limited 

data that are available, provide insight 

into these benefits, costs, and impacts. 

Where possible, the Bureau has made 

quantitative estimates based on these 

principles and data as well as its 

experience of supervision. 

The discussion below describes three 

categories of potential benefits and 

costs. First, after the rule authorizes the 

Bureau’s supervision in the consumer 

debt collection market, larger 

participants in the market may respond 

to the possibility of supervision by 

changing their systems and conduct. 

Second, when the Bureau undertakes 

supervisory activity at specific 

consumer debt collectors, those 

consumer debt collectors will incur 

costs from participating in supervision, 

and the results of these individual 

supervisory activities may also produce 

benefits and costs.116 Third, the Bureau 

analyzes the costs associated with 

entities’ efforts to assess whether they 

qualify as larger participants under the 

rule. 

1. Benefits and Costs of Responses to the 

Possibility of Supervision 

The Final Consumer Debt Collection 

Rule subjects larger participants of the 

consumer debt collection market to the 

possibility of Bureau supervision. That 

the Bureau is authorized to undertake 

supervisory activities with respect to a 

nonbank covered person who qualifies 

as a larger participant does not 

necessarily mean the Bureau will in fact 

undertake such activities regarding that 

covered person in the near future or at 

all. Rather, as explained in the Proposal, 

supervision of any particular larger 

participant as a result of this rulemaking 

will be probabilistic in nature. For 

example, the Bureau will examine 

certain larger participants on a periodic 

or occasional basis. The Bureau’s 

decisions about supervision will be 

informed, as applicable, by the factors 

set forth in 12 U.S.C. 5514(b)(2), relating 

to the size and transaction volume of 

individual participants, the risks their 

consumer financial products and 

services pose to consumers, the extent 

of State consumer protection oversight, 

and other factors the Bureau may 

determine are relevant. Each entity that 

believes it qualifies as a larger 

participant will know that it might be 

supervised and may gauge, given its 

circumstances, the likelihood that the 

Bureau will initiate an examination or 

other supervisory activity. 

As the Proposal pointed out, the 

prospect of potential supervisory 

activity may create an incentive for 

larger participants to increase 

compliance with Federal consumer 

financial law. They may anticipate that 

by doing so (and thereby decreasing 

risks to consumers), they can decrease 

their chances of actually being subjected 

to supervision as the Bureau evaluates 

the factors outlined above. In addition, 

an actual examination would likely 

reveal any past or present 

noncompliance, which the Bureau may 

seek to correct through supervisory 

activity or, in some cases, enforcement 

actions. Larger participants may 

therefore judge that the prospect of 

supervision has increased the potential 

consequences of noncompliance with 

Federal consumer financial law, and 

they may seek to decrease that risk by 

curing or mitigating any 

noncompliance. 

The Bureau believes it is likely that 

market participants will increase 

compliance in response to the Bureau’s 

supervisory activities authorized by this 

rule. However, because the Final 

Consumer Debt Collection Rule itself 

does not require any consumer debt 

collector to alter its conduct of 

consumer debt collection, any estimate 

of the amount of increased compliance 

would be a prediction of market 

participants’ behavior. The data the 

Bureau currently has do not support a 

specific quantitative prediction. But, to 

the extent that consumer debt collectors 

increase their compliance in response to 

the Final Consumer Debt Collection 

Rule, that response will result in both 

benefits and costs.117

a. Benefits From Increased Compliance 

Increased compliance would be 

beneficial to consumers that are affected 

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118 15 U.S.C. 1692f(1). 

119 15 U.S.C. 1692c. 

120 15 U.S.C. 1692g (validation of debts). 

121See 15 U.S.C. 1681s–2. 

122How a participant receives its revenue 

depends on the participant’s business model. 

Because third-party debt collectors often collect 

debt on commission, they may demand larger 

percentages. Debt buyers typically buy debt at a 

substantial discount to its face value, and their 

revenue is based on the difference between the 

amount collected and the price paid for the debt. 

These participants might lower the amount they 

were willing to pay for a given amount of debt. 

123The Bureau is aware that changes in 

bankruptcy law that affect creditors’ ability to 

recover amounts lent to consumers have been found 

to affect the pricing and availability of credit offered 

to consumers. If recovery rates for debt subject to 

collection decrease, that change may also affect the 

pricing and availability of credit for those 

consumers whose debts are considered relatively 

likely to end up in collection. However, the Bureau 

is not aware of any published research estimating 

the quantitative magnitude of the latter effect. The 

Bureau notes that the Equal Credit Opportunity Act 

would prohibit creditors from undertaking 

underwriting or pricing actions on a prohibited 

basis. Equal Credit Opportunity Act, 15 U.S.C. 1691 

et seq. 

by consumer debt collection. As 

discussed above, the potential pool of 

consumers who are directly affected by 

debt collection is broad and includes, 

on average, 14% of the population. 

Lawful consumer debt collection is 

important to the functioning of the 

consumer credit market, because 

participants in this market reduce 

creditors’ losses from nonpayment and 

thereby help to keep consumer credit 

accessible and potentially more 

affordable to many consumers. 

Unlawful debt collection can damage 

consumers’ finances and harm them in 

other ways. Unfair, deceptive, and 

abusive practices, to the extent they 

succeed in recovering more from 

consumers (including perhaps more 

than is owed) can also damage the 

broader debt collection market by 

altering the competitive balance. A 

number of Federal consumer financial 

laws, including, among others, the 

FDCPA, the FCRA, and Title X of the 

Dodd-Frank Act, and related 

regulations, offer substantive 

protections to consumers regarding 

consumer debt collection. Increasing the 

rate of compliance with such laws will 

benefit consumers and the consumer 

financial market by providing more of 

the protections mandated by those laws. 

For example, the FDCPA prohibits 

debt collectors from recovering amounts 

that are not expressly authorized by 

agreement or permitted by law.118 The 

FDCPA also prohibits certain forms of 

communication with consumers that 

debt collectors might otherwise be 

tempted to make.119 And it requires 

debt collectors to make information 

available to consumers, in certain 

circumstances, about the origins, status, 

and amounts of debts under 

collection.120 Thus, increased 

compliance by debt collectors with the 

FDCPA would likely result in a decrease 

in the collection of invalid debt claims, 

and an increase in the protections of 

consumers and of the market that the 

FDCPA affords. 

As another example, the Fair Credit 

Reporting Act imposes certain duties on 

businesses that furnish information 

about consumers to consumer reporting 

agencies.121 Debt collectors frequently 

furnish such information, and the 

Bureau’s supervision program may lead 

to their increased fulfillment of FCRA 

obligations. Those obligations may 

include, among others, not furnishing 

information that a furnisher has 

reasonable cause to believe is 

inaccurate; updating or correcting 

information, already furnished, that the 

furnisher determines to have been 

inaccurate; and carrying out reasonable 

investigations of consumer disputes. 

Thus, in general, an increase in a 

furnisher’s compliance with the FCRA 

can lead to an improvement in the 

accuracy of information the furnisher 

provides to consumer reporting 

agencies. Such an increase, to the degree 

it occurs, would tend to benefit 

consumers. An increase would also 

benefit consumer reporting agencies, 

which sell consumer reports, based in 

part on information gathered from 

furnishers, that are meant to be reliable 

sources of information about consumers’ 

past credit experiences, and would also 

benefit users of such reports. 

b. Costs of Increased Compliance 

On the other hand, as discussed in the 

Proposal, increasing compliance 

involves costs. In the first instance, 

those costs will be paid by the market 

participants that choose to increase 

compliance. Consumer debt collectors 

may need to hire or train additional 

personnel to effectuate any changes in 

their practices that are necessary to 

produce the increased compliance. They 

may need to invest in systems changes 

to carry out their revised procedures. In 

addition, consumer debt collectors may 

need to develop or enhance compliance 

management systems, to ensure that 

they are aware of any gaps in their 

compliance. Such changes would also 

require investment and may entail 

increased operating costs. 

An entity that does incur costs in 

support of increasing compliance may 

try to recoup those costs by demanding 

increased revenue for collecting debt.122

Whether and to what extent this 

increase occurs will depend on 

competitive conditions in the consumer 

debt collection market. In addition, if 

increasing compliance leads to lower 

recovery rates, creditors may perceive 

the risk of loss on loans to be greater. 

In either case, consumers’ access to 

credit may decrease, although whether 

and to what extent such a decrease 

might occur would also depend on 

competitive conditions in the consumer 

credit markets.123 At the same time, to 

the extent the decrease in recovery 

resulted from the collection of fewer 

debts for which consumers were not 

legally responsible—such as debts not 

truly owed—the change ought to 

represent an improvement in the 

allocation of credit. Credit should be 

allocated to reflect the real risk of loss— 

without that risk’s being masked by 

collectors’ recovering amounts that are 

not actually owed. 

2. Benefits and Costs of Individual 

Supervisory Activities 

In addition to the responses of market 

participants anticipating supervision, 

the possible consequences of the rule 

include the effects of individual 

examinations or other supervisory 

activity that the Bureau may conduct in 

the consumer debt collection market. 

a. Benefits of Supervisory Activities 

The information gathered during 

supervisory activity will be useful in 

several ways. For example, when an 

examination uncovers deficiencies in a 

company’s policies and procedures, 

both the company and the Bureau will 

become aware of those deficiencies. The 

Bureau’s examination manual calls for 

the Bureau to prepare a report of each 

examination and to assess the strength 

of the subject entity’s compliance 

mechanisms and the risks the entity 

poses to consumers, among other topics. 

The Bureau will share the examination 

report with the subject entity, because 

one purpose of supervision is to inform 

the entity of problems detected by 

examinations. 

Thus, for example, an examination 

may reveal that, due to the design of its 

procedures, a company frequently 

collects on debt that cannot be 

validated. Or an examination may 

determine that a company has 

sometimes failed to provide consumers 

required notices while attempting to 

collect debts, or has engaged in 

inappropriate communications with 

third parties regarding debts subject to 

collection. Examiners may find 

evidence of widespread noncompliance 

with Federal consumer financial law, or 

they may identify specific areas where 

a company has inadvertently failed to 

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124Bureau of Labor Statistics, (BLS), National 

Compensation Survey, Employment Cost Trends, 

available at http://www.bls.gov/ncs/ect/. BLS data 

for ‘‘nondepository credit intermediation’’ indicate 

that the mean hourly wage of a compliance officer 

in that sector is $33.40. BLS data also indicate that 

salary and wages constitute 67.5 percent of the total 

cost of compensation. Dividing the hourly wage by 

67.5 percent yields a wage (including total costs, 

such as salary, benefits, and taxes) rounded to the 

nearest dollar of $49 per hour. 

125All figures assume 40 hours of work per week. 

126The Proposal described four business-weeks of 

employee time as ‘‘a fraction of a percent’’ of 

revenues, for a service provider that was a small 

business. Six business-weeks is also a fraction of a 

percent, as estimated above. 

127Of course, multiple individuals, both inside 

and outside a firm, might participate in a 

Continued 

comply. These examples are only 

illustrative of what kinds of information 

an examination might deliver. 

Detecting and informing companies 

about such problems should be 

beneficial to consumers. When the 

Bureau notifies a company about risks 

associated with an aspect of its 

activities, the company is expected to 

adjust its practices to reduce those risks. 

That response may result in increased 

compliance with Federal consumer 

financial law, with benefits like those 

described above. Or it may avert a 

violation that would have occurred had 

Bureau supervision not detected the risk 

promptly. The Bureau may also inform 

companies about risks they pose to 

consumers short of violating the law. 

Action to reduce those risks would also 

be a benefit to consumers. 

Given the obligations consumer debt 

collectors have under Federal consumer 

financial law and the existence of efforts 

to enforce such law, the results of 

supervision may also benefit consumer 

debt collectors under supervision by 

detecting compliance problems early. 

When an entity’s level of 

noncompliance has resulted in litigation 

or an enforcement action, the company 

must face both the costs of defending its 

actions and the penalties for 

noncompliance—including potential 

liability for statutory damages to private 

plaintiffs—and must also adjust its 

systems to cure the breach. Changing 

practices at this point can be expected 

to be relatively difficult, because a level 

of noncompliance that has attracted the 

attention of enforcement authorities or 

private plaintiffs will sometimes be 

severe enough to represent a serious 

failing of a company’s systems. 

Supervision may detect flaws at a point 

when correcting them is relatively 

inexpensive. And catching problems 

before they involve a company in costly 

private litigation or administrative 

enforcement, and potentially the 

payment of legal penalties or other 

forms of relief, could save the company 

substantial time and money. In short, 

supervision might benefit consumer 

debt collectors under supervision by 

reducing the need for other more 

expensive activities, like enforcement 

and private litigation, to achieve a given 

compliance rate. Accordingly, a shift of 

some amount of regulatory oversight 

from enforcement to supervision would 

be beneficial to market participants. 

Further potential benefits to 

consumers, covered persons, or both 

may arise from the Bureau’s gathering of 

information during supervisory 

activities. The goals of supervision 

include informing the Bureau about 

activities of market participants and 

assessing risks to consumers and to 

markets for consumer financial products 

and services. The Bureau may use this 

information to improve regulation of 

consumer financial products and 

services and enforcement of Federal 

consumer financial law, in order to 

better serve its mission of ensuring 

consumers’ access to fair, transparent, 

and competitive markets for such 

products and services. Benefits of this 

type will depend on what the Bureau 

learns during supervision and how it 

uses that knowledge. 

b. Costs of Supervisory Activities 

The potential costs of actual 

supervision arise in two categories. The 

first involves the costs of individual 

consumer debt collectors’ increasing 

compliance in response to the Bureau’s 

findings during supervisory activity and 

to supervisory actions. These costs are 

similar in nature to the possible 

compliance costs, described above, that 

larger participants in general may incur 

in anticipation of possible supervisory 

activity. This analysis will not repeat 

that discussion. The second category is 

the cost of supporting supervisory 

activity. 

Supervisory activity may involve 

requests for information or records, onsite or off-site examinations, or some 

combination of these activities. For 

example, in an on-site examination, 

generally, Bureau examiners begin by 

contacting the entity for an initial 

conference with management. That 

initial contact is often accompanied by 

a request for information or records. 

Based on the discussion with 

management and an initial review of the 

information received, examiners will 

determine the scope of the on-site exam. 

While on-site, examiners will spend 

some time in further conversation with 

management about the entity’s 

processes and procedures. The 

examiners will also review documents, 

records, and accounts to assess the 

entity’s compliance and evaluate the 

entity’s compliance management 

systems. As with the Bureau’s bank 

examinations, examinations of nonbank 

covered persons will involve issuing 

confidential examination reports and 

compliance ratings. The Bureau’s 

examination manual describes the 

supervision process and indicates what 

materials and information an entity can 

expect examiners to request and review, 

both before they arrive and during their 

time on-site. The primary cost an entity 

faces in connection with an examination 

is the cost of employees’ time to collect 

and provide the necessary information. 

At this early stage in its nonbank 

supervision program, the Bureau does 

not have precise estimates of the 

expected duration and frequency of its 

examinations and the resources that 

entities may expend to cooperate with 

such examinations. The frequency and 

duration of any examinations of any 

particular entity will depend on a 

number of factors, including the size of 

the entity, the compliance or other risks 

identified, whether the entity has been 

examined previously, and the demands 

on the Bureau’s supervisory resources 

imposed by other entities and markets. 

Nevertheless, some rough estimates may 

be useful to provide a sense of the 

magnitude of potential staff costs that 

entities may incur. 

Typical examinations of consumer 

debt collectors within the category of 

larger participants with annual receipts 

close to the $10 million threshold might 

be relatively brief. Bureau examiners 

might review materials and interview 

employees for four weeks, and an entity 

might devote the equivalent of one full 

employee during that time and for two 

weeks beforehand to prepare materials 

for the examination. The typical cost of 

the employee involved in responding to 

supervision can be expected to be 

roughly $49 per hour.124 Six weeks of 

such an employee’s time would cost less 

than $12,000.125 For a larger participant 

with annual receipts from consumer 

debt collection of more than $10 

million, this cost would represent 0.12 

percent of those annual receipts.126

Even if an examination required twice 

as much employee time, the cost would 

still come to only 0.24 percent of annual 

receipts for such an entity. 

By contrast, at the very largest 

consumer debt collectors in the market, 

supervisory activity could last much 

longer. Given the complexity of a very 

large entity, Bureau examiners might 

need months to review the relevant 

materials. Such an entity might dedicate 

the equivalent of two full-time 

employees to participate in the 

examination.127 The cost of eight 

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65794 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

supervisory activity. For example, a firm might seek 

an attorney’s advice on how to respond to and 

participate in an examination. The Bureau of Labor 

Statistics estimates the relevant attorney wage as 

$112.34, and it is conceivable that attorney activity 

might constitute 10 percent of a firm’s overall 

activity during the course of an examination. The 

rough estimate provided above is meant to 

represent the aggregate amount of labor resources a 

company might dedicate to responding to 

supervisory activity. 

128As noted above, there are roughly 175 entities 

whose annual receipts from consumer debt 

collection exceed the $10 million threshold. 

129See http://factfinder2.census.gov/faces/table

services/jsf/pages/productview.xhtml?pid=ECN_

2007_US_56SSSZ4&prodType=table, scroll to 

NAICS code 561440. $7.7 billion represents 63 

percent of all receipts for ‘‘collection agencies,’’ 

which total $12.2 billion. 

months of employee time (four months 

each for two employees) would be about 

$68,000, or about 0.07 percent of annual 

receipts for an entity with $100 million 

in receipts. 

For an entity of a more typical size, 

which would be between the two size 

groupings discussed above, Bureau 

examiners might review materials and 

interview employees for eight weeks, 

and an entity might devote the 

equivalent of one full employee during 

that time and for two weeks beforehand 

to prepare materials for the 

examination. Thus, a typical 

examination would take ten weeks of 

such an employee’s time and would cost 

less than $20,000. 

To put the market-wide impact of 

supervision in perspective, the Bureau 

estimates that the average annual 

market-wide cost of supervision is 0.015 

percent of receipts. The Bureau does not 

expect to supervise every larger 

participant in every year. For purposes 

of estimation, the Bureau assumes that 

each of the sixteen largest market 

participants will be examined at most 

every other year, at a cost of $68,000 

each, for an aggregate annual cost of 

$544,000. By way of estimation, the 

Bureau assumes that each of the 

remaining larger participants, about 160 

in total, will be examined up to once 

every five years, at a cost of $20,000 

each, giving an aggregate annual cost of 

$640,000. The total staff cost of 

responding to supervision comes to 

approximately $1,184,000 annually.128

This figure represents 0.015 percent of 

the aggregate annual receipts—$7.7 

billion 129—of the larger participants of 

the consumer debt collection market. 

The Bureau declines to predict, at this 

point, precisely how many 

examinations in the consumer debt 

collection market it will undertake in a 

given year. Once the rule takes effect, 

the Bureau will be able to undertake 

supervisory activity in the identified 

market; neither the Dodd-Frank Act nor 

the Final Consumer Debt Collection 

Rule specifies a particular level or 

frequency of examination. The 

frequency of examination will depend 

on a number of factors, including the 

Bureau’s understanding of the conduct 

of market participants and the specific 

risks they pose to consumers; the 

responses of larger participants to prior 

examinations and the demands that 

other markets make on the Bureau’s 

supervisory resources. These factors can 

be expected to change over time, and 

the Bureau’s understanding of these 

factors may change as it gathers more 

information about the market through 

its supervision and by other means. 

3. Costs of Assessing Larger-Participant 

Status 

Finally, the Bureau acknowledges that 

in some cases consumer debt collectors 

may incur costs in assessing whether 

they qualify as larger participants and 

potentially disputing their status. The 

rule is designed to minimize those costs. 

Larger-participant status depends on 

annual receipts, a quantity that for many 

consumer debt collectors should 

correspond to data they already report 

to the IRS. For such consumer debt 

collectors, assessing whether they 

satisfy the Final Consumer Debt 

Collection Rule’s definition of larger 

participant in the consumer debt 

collection market will involve minimal 

expense. Potential differences from the 

IRS figures arise only for consumer debt 

collectors that have annual receipts 

arising from activities besides consumer 

debt collection as defined in the Final 

Consumer Debt Collection Rule. Some 

consumer debt collectors may have 

multiple distinct lines of business. The 

Bureau believes that such consumer 

debt collectors ordinarily have records 

for each division of the accounting 

quantities underlying the calculation of 

annual receipts. 

If, in addition, a consumer debt 

collector sometimes engages in debt 

collection that is excluded from the 

market and sometimes in debt collection 

within the defined market, the 

consumer debt collector’s accounting 

systems might not distinguish the two 

types of activity. However, most market 

participants should not need such 

detailed information. The rule does not 

require market participants to submit 

data on their annual receipts. Most of 

the time, a consumer debt collector only 

needs to know its annual receipts 

resulting from market-related activity to 

the extent it wants to determine in 

advance of any supervisory activity by 

the Bureau whether it is a larger 

participant. A consumer debt collector 

with receipts from all activities that are 

above the threshold will not necessarily 

need to trace precisely what quantity 

derives from activities other than 

consumer debt collection (as defined by 

the Final Consumer Debt Collection 

Rule). A rough estimate would suffice to 

inform such an entity whether its 

consumer debt collection receipts cross 

the threshold. Most likely, the only 

consumer debt collectors that might 

need a more precise calculation of 

annual receipts would be those that 

have total receipts not greatly exceeding 

the threshold and significant receipts 

from activities (like collection of 

medical debt) that would be excluded 

from the calculation. 

The data the Bureau currently has do 

not support a detailed estimate of how 

many consumer debt collectors will 

incur such costs, or how much they 

might spend. Regardless, consumer debt 

collectors would be unlikely to spend 

significantly more on specialized 

accounting systems to enable these 

calculations than it would cost them to 

be supervised by the Bureau as larger 

participants. It bears emphasizing that 

expenditures on an accounting system 

intended to prove a consumer debt 

collector is not a larger participant will 

not necessarily mean that the consumer 

debt collector cannot be supervised. The 

Bureau can supervise a consumer debt 

collector whose conduct the Bureau 

determines, pursuant to 12 U.S.C. 

5514(a)(1)(C), poses risks to consumers. 

Thus, a consumer debt collector 

choosing to spend significant amounts 

on an accounting system directed 

toward the larger-participant test could 

not be sure it would not be subject to 

Bureau supervision notwithstanding 

those expenses. The Bureau therefore 

believes it is unlikely that any but a very 

few consumer debt collectors would 

undertake such expenditures. 

4. Consideration of Alternatives 

The Bureau considered selecting 

different thresholds for largerparticipant status in the consumer debt 

collection market. If the threshold were 

much higher—say $250 million, as one 

commenter suggested—then the 

Bureau’s supervisory authority under 

the rule would reach only the very 

largest consumer debt collectors— 

approximately 7—in the market. Such 

an approach would reduce both the 

expected benefits to consumers and the 

costs to covered persons, because fewer 

consumer debt collectors would be 

subject to the Bureau’s supervisory 

authority. As the Proposal explained, if 

a change in an consumer debt collector’s 

systems or practices results in increased 

compliance with Federal consumer 

financial law, such a change would 

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Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 65795 

130 12 U.S.C. 5514(b)(2). 

131According to several commenters, the Bureau 

also overlooked the cost of firms’ organizing their 

compliance management policies in a format 

consistent with the Bureau’s supervision manual. 

These commenters asserted that companies would, 

anticipating the possibility of supervisory activity, 

expand their compliance management systems 

beyond what is appropriate for assuring 

compliance. The Bureau notes that its examination 

manual does not specify a particular format for 

compliance management policies. Of course, it is 

nonetheless possible that some companies may 

develop more comprehensive compliance 

management systems than would be necessary or 

appropriate for their circumstances. The Bureau 

has, and commenters provided, no information with 

which to assess the possible magnitude of such an 

effect. 

produce greater benefit at a large 

consumer debt collector than at a 

smaller consumer debt collector. The 

largest consumer debt collectors are 

expected to affect the most consumers, 

and any increase in compliance by such 

consumer debt collectors would benefit 

a relatively large number of consumers. 

At which market participants 

supervision produces the greatest 

benefits or costs due to increased 

compliance depends on where the 

greatest risks to consumers lie. If some 

consumer debt collectors below $250 

million in annual receipts have 

particular compliance problems, 

bringing such consumer debt collectors 

within the Bureau’s supervisory 

authority, and conducting actual 

examinations at those consumer debt 

collectors, can be expected to produce 

larger increases in compliance than 

would supervising larger consumer debt 

collectors. The statutory criteria 

regarding supervision should ensure 

that those larger participants that are 

supervised are the same consumer debt 

collectors where the benefits from 

supervision are likely to be highest.130

The selected threshold of $10 million 

gives the Bureau the flexibility to direct 

its supervisory resources to the 

consumer debt collectors where 

supervision will be of greatest use, even 

if they are not the very largest in the 

market. 

5. Responses to Comments 

The Bureau received a number of 

comments on its preliminary analysis 

under 12 U.S.C. 5512(b)(2). 

Several comments related to the 

Bureau’s characterization of supervision 

as probabilistic. One commenter 

criticized the Bureau for asserting that 

the rule only authorizes supervisory 

activities and that the Bureau will likely 

not supervise all larger participants in 

any given year. According to this 

commenter, the Bureau was trying to 

avoid acknowledging the costs of 

supervision. Later, when the Bureau 

actually undertakes supervisory activity, 

the commenter claims that the Bureau 

will not consider benefits, costs, and 

impacts because such consideration is 

only necessary for rulemaking, not 

supervision. Another commenter argued 

that the Bureau had assumed the rule 

would produce increased compliance 

yet had discounted the costs as 

‘‘probabilistic.’’ One commenter 

suggested that consumer debt collectors 

will make additional efforts at 

compliance, in anticipation that they 

might be supervised, and will therefore 

bear the resulting costs regardless of 

how often the Bureau actually conducts 

supervisory activity. 

As reflected above, the Bureau 

continues to believe that supervision of 

specific consumer debt collectors 

pursuant to the Final Consumer Debt 

Collection Rule is probabilistic in 

nature. The Bureau has recognized two 

stages in which the rule could increase 

compliance, with its attendant benefits 

and costs. First, the Bureau 

acknowledges that consumer debt 

collectors may respond to the possibility 

of the Bureau’s supervision activity by 

changing their systems and conduct to 

produce more compliance with Federal 

consumer financial law. The discussion 

above presented benefits and costs 

associated with consumer debt 

collectors’ changing their conduct in 

anticipation of possible supervision. 

Second, in the course of actual 

examinations, the Bureau may uncover 

specific problems that consumer debt 

collectors then correct. The benefits 

resulting from this second stage, like the 

costs of actual supervisory activity, are 

indeed probabilistic in nature for the 

reasons described above. 

Commenters offered somewhat 

contradictory comments regarding the 

rate of existing compliance. Some 

suggested that the Bureau had 

underestimated the efficacy of consumer 

debt collectors’ existing incentives— 

from sources such as enforcement and 

supervision by State regulators—to 

comply with the law. Such commenters 

asserted that market participants are 

already aware of the risks of 

enforcement action and regulatory 

oversight and have effective compliance 

mechanisms. Thus, the commenter 

concluded, the benefits of the rule are 

smaller than the Proposal assumed. 

Another commenter stated that the rule 

will be more costly than the Proposal 

acknowledged, because consumer debt 

collectors will have to develop 

compliance policies and procedures, by 

hiring new staff and developing new 

systems. Yet another commenter 

contended that because the rule is not 

substantive, but only establishes the 

possibility of supervision, the Bureau 

cannot assume that consumer debt 

collectors will increase their legal 

compliance in response. 

The comments do not lead the Bureau 

to different conclusions regarding the 

benefits and costs of increased 

compliance as a potential effect of the 

rule. If the rule incentivizes consumer 

debt collectors to develop compliance 

management systems that they do not 

already have, that result will likely both 

produce benefits in the form of 

improved compliance and the costs 

involved in creating and administering 

such systems. As a general matter, the 

Bureau believes it is unlikely that 

consumer debt collectors can 

consistently comply with the law 

without having reasonably thorough 

systems for promoting and monitoring 

compliance. Without such systems, a 

consumer debt collector may happen to 

comply with the law, but it cannot be 

assured that it is doing so; cannot 

reliably learn of problems and fix them; 

and cannot modify its practices to keep 

up with changes in the law. 

If, on the other hand, compliance 

levels are already high—in part because 

of incentives that one commenter 

pointed out, arising from Federal and 

State enforcement and State supervisory 

activity—then the benefits of the rule 

will be lower. However, to achieve high 

levels of compliance, consumer debt 

collectors presumably already incur 

corresponding costs. The compliancerelated costs of the rule will therefore be 

lower as well. In addition, the Bureau’s 

likely level of supervisory activity over 

time may also be lower. The 

commenters provided no evidence of 

the existing level of compliance of 

consumer debt collectors. In any event, 

whatever increase in compliance may 

occur as a result of the rule is 

accompanied by the associated benefits 

and costs of that increase.131

Commenters also questioned the 

Bureau’s estimates of how much 

supervision would cost entities. An 

industry association asserted that the 

Bureau’s estimate, for actual supervisory 

activity, of four full weeks of employee 

time at a small consumer debt collector 

was a significant underestimate. The 

commenter did not offer an alternative 

estimate, but the commenter argued that 

even a month of employee time would 

be burdensome for a small business. 

The Bureau acknowledges that staff 

time can be a cost for an entity 

responding to particular supervisory 

activity. The Bureau has estimated the 

magnitude of that cost for consumer 

debt collectors of various sizes. The 

estimated amount of staff time involved 

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65796 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

132See supra n.123 and accompanying text. 

133As potential users of consumer debt collection 

services, depository institutions and credit unions 

might see changes in the quality and pricing of such 

services. The Bureau knows of, and commenters 

have suggested, no reason to think that these 

entities would be negatively affected by the Final 

Consumer Debt Collection Rule. 

134 5 U.S.C. 601 et seq. The Bureau is not aware 

of any governmental units or not-for-profit 

organizations to which the Final Consumer Debt 

Collection Rule would apply. 

135 5 U.S.C. 601(3). The Bureau may establish an 

alternative definition after consultation with the 

SBA and an opportunity for public comment. 

136 5 U.S.C. 609. 

represents the Bureau’s experience of 

supervision. Depending on the 

circumstances, that amount may be an 

underestimate or overestimate for some 

supervisory activities. But even if all 

supervisory activity cost twice as much 

as the Bureau estimated, the cost would 

still, as noted above, be 0.24 percent of 

the annual receipts of an individual 

entity with receipts just above the $10 

million threshold. 

Several commenters suggested that 

the rule would force consumer debt 

collectors to develop new accounting 

systems to generate data on the amount 

of receipts attributable to consumer debt 

collection. It bears emphasis that the 

rule imposes no such requirement. The 

Bureau has not required market 

participants regularly to submit 

accounting data. Market participants 

might be motivated to alter accounting 

systems to some degree to improve their 

assessments of whether they qualify as 

larger participants, but the Bureau is not 

persuaded by these commenters that 

consumer debt collectors will spend 

significant amounts on such alterations. 

As noted above, a consumer debt 

collector with multiple lines of business 

presumably knows basic accounting 

information, such as receipts, for each 

division. If existing accounting systems 

do not provide detailed information 

corresponding to the rule’s test for 

assessing larger participant status, the 

discrepancy would only relate to the 

amount of receipts related to activities 

that the rule excludes from the 

consumer debt collection market. As 

discussed above, an entity would only 

need to know such information in detail 

to the degree that the precise facts might 

render the entity not a larger 

participant. Moreover, consumer debt 

collectors would be unlikely to spend 

significantly more on accounting 

systems than it would cost them to be 

supervised by the Bureau. 

One commenter also discussed how 

the costs of supervision will affect the 

consumer debt collection market. The 

commenter argued that the cost of 

undergoing examination will be most 

easily borne by large businesses. The 

commenter inferred that the existence of 

supervision would create an economy of 

scale that would favor the growth of 

large consumer debt collectors in the 

market at the expense of smaller 

participants. The commenter did not 

explain whether this hypothesized 

market effect would be beneficial or 

harmful, either to consumers or to 

covered persons. 

Even if, as the commenter contends, 

a larger entity is better able to bear the 

costs of supervision, the rule as a whole 

does not necessarily burden smaller 

firms disproportionately. The Bureau 

may supervise the largest consumer debt 

collector more frequently than those 

that are just above the threshold to 

qualify as larger participants. As the 

Proposal noted, the benefits gained from 

detecting noncompliance are likely to be 

greater when the consumer debt 

collector under examination is larger. 

Larger consumer debt collectors affect 

larger numbers of consumers. The 

benefit from any improvement in 

policies and processes will therefore be 

multiplied across the experiences of 

more consumers. In addition, 

participants’ asset sizes and transaction 

volumes are among the 12 U.S.C. 

5514(b)(2) factors that the Bureau may 

consider in prioritizing its supervisory 

activities. There is little reason to 

believe that the Bureau’s general 

supervision of larger participants of this 

market will skew the playing field in 

favor of the largest consumer debt 

collectors—particularly in view of the 

fact, explained above, that the staff costs 

of responding to supervisory activity are 

likely to be small even for entities just 

above the larger-participant threshold. 

This commenter also argued that the 

costs of examination will be passed on 

to creditors and will therefore lead to a 

decrease in consumers’ access to 

credit.132 The commenter offered no 

data or argument to support this 

assertion. As noted above, an increase in 

the cost of consumer debt collection 

may lead to an increase in the price or 

a decrease in the availability of credit to 

those consumers whose debts are 

regarded as likely to need the work of 

consumer debt collectors. However, 

whether and to what extent newly 

supervised consumer debt collectors 

shift the cost of supervision, or of 

increased compliance, to creditors will 

depend on complex market conditions. 

The Bureau believes any such effects are 

likely to be very small. 

C. Impact on Depository Institutions and 

Credit Unions With Total Assets of $10 

Billion or Less, and Impact on 

Consumers in Rural Areas 

The Final Consumer Debt Collection 

Rule does not apply to depository 

institutions or credit unions of any 

size.133 Nor would the rule have a 

unique impact on rural consumers. The 

Bureau is not aware of any evidence 

suggesting that rural consumers have 

been subject to unlawful collection 

practices at a rate higher than other 

consumers, or that the size distribution 

of consumer debt collectors operating in 

rural areas differs from that of 

participants in the overall market. 

VII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

as amended by the Small Business 

Regulatory Enforcement Fairness Act of 

1996, requires each agency to consider 

the potential impact of its regulations on 

small entities, including small 

businesses, small governmental units, 

and small not-for-profit 

organizations.134 The RFA defines a 

‘‘small business’’ as a business that 

meets the size standard developed by 

the Small Business Administration 

pursuant to the Small Business Act.135

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) and a final 

regulatory flexibility analysis (FRFA) of 

any rule subject to notice-and-comment 

rulemaking requirements, unless the 

agency certifies that the final rule will 

not have a significant economic impact 

on a substantial number of small 

entities. The Bureau also is subject to 

certain additional procedures under the 

RFA involving the convening of a panel 

to consult with small entity 

representatives prior to proposing a rule 

for which an IRFA is required.136

The undersigned certified that the 

Proposal, if adopted, would not have a 

significant economic impact on a 

substantial number of small entities and 

that an initial regulatory flexibility 

analysis was therefore not required. The 

Final Consumer Debt Collection Rule 

adopts the Proposal, with some 

modifications that do not lead to a 

different conclusion. Therefore, a final 

regulatory flexibility analysis is not 

required. 

The Final Consumer Debt Collection 

Rule will define a class of consumer 

debt collectors as larger participants of 

the consumer debt collection market 

and thereby authorize the Bureau to 

undertake supervisory activities with 

respect to those consumer debt 

collectors. Because the Final Consumer 

Debt Collection Rule adopts a test for 

larger-participant status of more than 

$10 million in annual receipts resulting 

from consumer debt collection 

activities, larger market participants 

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Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 65797 

137The Proposal hypothesized two circumstances 

in which a business might be a larger participant 

of the consumer debt collection market yet be a 

small business for RFA purposes. First, a nonbank 

covered person that was not a small business might 

become a small business during the second year 

after it qualified as a larger participant. This 

occurrence would be rare, because relatively few 

nonbank covered persons appear (according to the 

Economic Census data) to have annual receipts near 

the $10 million threshold. The second hypothesized 

circumstance involves the rule’s definition of 

‘‘control,’’ which is somewhat more expansive than 

the SBA’s. A company might be affiliated with 

another company for purposes of this rule, so that 

the two company’s receipts would be aggregated in 

assessing whether the threshold was met. Yet the 

SBA’s method might not treat the two companies 

as affiliated, and their separate receipts might not 

exceed the $10 million threshold. The Bureau 

anticipates no more than a very few such cases in 

the market covered by the Final Consumer Debt 

Collection Rule. Commenters provided no reason to 

alter the Bureau’s evaluation of these issues. 

138As discussed above, the cost of participating 

in an examination might be roughly 0.12 percent of 

annual receipts for a firm near the $10 million 

threshold. The proportion would be larger for a 

smaller firm, but the impact will still not be 

substantial. 

139As the Bureau noted in the Proposal, it reaches 

this judgment in light of the number of relevant 

small firms in the relevant NAICS codes. For 

example, many of these service providers would be 

considered to be in the industries with NAICS code 

522390, ‘‘Other activities related to credit 

intermediation,’’ or 518210, ‘‘Data Processing, 

Hosting, and Related Services.’’ According to the 

2007 Economics Census, there are more than 5,000 

small firms in the first industry group and nearly 

8,000 in the second. The number of firms connected 

to the 175 larger participants of the consumer debt 

collection market is likely to be a fraction of these 

two figures. Moreover, the impact of supervisory 

activities at such service providers would likely be 

no more intensive—and probably much less, given 

the Bureau’s exercise of its discretion in 

supervision—than at the larger participants 

themselves. As discussed above, supervisory 

activities at larger participants would not be 

expected to give rise to a significant economic 

impact. Finally, because it is very unlikely that the 

Bureau would supervise many of such entities, a 

substantial number of entities would not likely be 

affected. 140 77 FR 9606. 

would generally be above the existing 

SBA small-business size standard for 

this market: annual receipts at or below 

$7 million. Moreover, the rule does not 

itself impose any obligations or 

standards of conduct on businesses 

outside the category of larger 

participants. The rule therefore does not 

have a significant impact on a 

substantial number of small entities.137

Additionally, and in any event, the 

Bureau believes that the Final Consumer 

Debt Collection Rule would not result in 

a ‘‘significant impact’’ on any small 

entities that could be affected. As 

previously noted, whether the Bureau 

would in fact engage in supervisory 

activity, such as an examination, with 

respect to a larger participant (and, if so, 

the frequency and extent of such 

activity) would depend on a number of 

considerations, including, among 

others, the Bureau’s allocation of 

resources and the application of the 

statutory factors set forth in 12 U.S.C. 

5514(b)(2). Given the Bureau’s finite 

supervisory resources, and the range of 

industries over which it has supervisory 

responsibility for consumer financial 

protection, whether and when a 

consumer debt collector would be 

supervised is probabilistic. Moreover, 

even in cases where supervisory activity 

were to occur, the costs that would 

result from such activity are expected to 

be minimal in relation to the overall 

activities of the consumer debt 

collector.138

Finally, 12 U.S.C. 5514(e) authorizes 

the Bureau to supervise service 

providers to nonbank covered persons 

encompassed by 12 U.S.C. 5514(a)(1), 

which includes larger participants. As 

the Bureau noted in the Proposal, 

because the rule does not address 

service providers, effects on service 

providers need not be addressed for 

purposes of this RFA analysis. Even 

were such effects relevant, the Bureau 

continues to believe that it is very 

unlikely that any supervisory activities 

with respect to the service providers to 

the approximately 175 larger 

participants in the consumer debt 

collection market delineated in the 

Final Consumer Debt Collection Rule 

would result in a significant economic 

impact on a substantial number of small 

entities.139

One commenter pointed out that the 

SBA has issued a notice of proposed 

rulemaking, considering an increase in 

the small business size standard for the 

debt collection market to $14 million in 

annual receipts. The SBA’s proposal 

does not affect the accuracy of the 

Bureau’s RFA analysis, because the size 

standard has not yet changed. In any 

event, even if a $14 million standard 

applied, the rule would still not impact 

a ‘‘substantial number’’ of small entities. 

The Bureau estimates, using the 

Economic Census data, that the rule 

treats as larger participants 

approximately 175 consumer debt 

collection entities out of approximately 

4,500 entities in the market. Out of these 

4,500 entities, the Bureau estimates that 

approximately 4,356 market participants 

would be small business entities under 

the SBA’s proposed size standard of $14 

million. Among the approximately 175 

larger participants of the consumer debt 

collection market, about 31 might fall 

below a $14 million threshold. Thus, 

the Final Consumer Debt Collection 

Rule would impact only 0.7 percent of 

consumer debt collectors that might be 

considered small businesses under the 

SBA’s proposal, and the impact on these 

consumer debt collectors would not be 

significant in any event, for the reasons 

previously articulated. The Final 

Consumer Debt Collection Rule would 

thus not have a significant impact on a 

substantial number of small entities, 

even if the SBA were to adopt its 

proposed change to the relevant 

definition of small business. 

One commenter argued that the 

Bureau was incorrect in taking the 

positions that ‘‘[t]he rule would not 

itself impose any obligations or 

standards of conduct on larger 

participants for purposes of [Regulatory 

Flexibility Act] analysis’’ and that 

‘‘whether and when an entity in the 

* * * consumer debt collection 

market[] would be supervised is 

probabilistic.’’ 140 This commenter 

stated that the actual imposition of 

examination requirements will have an 

effect on small businesses, because the 

consequences of supervision could 

include an increase in the cost of credit 

and a diminution in access to credit. 

The commenter argued that the Bureau 

should not have certified the Proposed 

Rule and should have convened a panel 

and consulted representatives of small 

entities in compliance with the 

requirements set forth in the Small 

Business Regulatory Enforcement 

Fairness Act (SBREFA), as amended by 

Section 1100G of the Dodd-Frank Act. 

The Bureau believes that its 

certification of the Proposed Rule was 

appropriate and that, as a result, the 

convening of a panel to consult with 

small entities was not required under 

the RFA. The Proposed Rule would not 

have imposed any standards of conduct 

on entities for purposes of RFA analysis, 

but rather would have authorized the 

Bureau to exercise its supervisory 

authority with respect to a class of 

entities. Furthermore, the Bureau does 

not have any evidence suggesting that 

this rule would increase small entities’ 

cost of credit. Thus, the Proposal, like 

the Final Consumer Debt Collection 

Rule, does not give rise to a regulatory 

compliance burden for small entities. In 

any event, the Bureau properly found 

(as described above with respect to the 

Final Consumer Debt Collection Rule) 

that even if the Proposed Rule were 

considered to impose regulatory 

obligations for purposes of RFA 

analysis, it would not have created a 

significant impact on a substantial 

number of small entities. 

Accordingly, the undersigned certifies 

that this rule will not have a significant 

economic impact on a substantial 

number of small entities. 

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65798 Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 

VIII. Paperwork Reduction Act 

The Bureau determined that the 

Proposed Rule would not impose any 

new recordkeeping, reporting, or 

disclosure requirements on covered 

entities or members of the public that 

would constitute collections of 

information requiring approval under 

the Paperwork Reduction Act, 44 U.S.C. 

3501, et seq. The Bureau did not receive 

any comments regarding this 

conclusion, to which the Bureau 

adheres. The Bureau concludes that the 

Final Consumer Debt Collection Rule, 

which adopts the Proposal in relevant 

respects, also imposes no new 

information collection requirements 

subject to the Paperwork Reduction Act. 

List of Subjects in 12 CFR Part 1090 

Consumer protection, Credit. 

For the reasons set forth in the 

preamble, the Bureau amends 12 CFR 

Part 1090 as follows: 

PART 1090—DEFINING LARGER 

PARTICIPANTS OF CERTAIN 

CONSUMER FINANCIAL PRODUCT 

AND SERVICE MARKETS 

■ 1. The authority citation for part 1090 

continues to read as follows: 

Authority: 12 U.S.C. 5514(a)(1)(B); 12 

U.S.C. 5514(a)(2); 12 U.S.C. 5514(b)(7)(A); 

and 12 U.S.C. 5512(b)(1). 

■ 2. Add a new § 1090.105 to subpart B 

to read as follows: 

§ 1090.105 Consumer debt collection 

market. 

(a) Market-Related definitions. As 

used in this subpart: 

Annual receipts means, for the 

consumer debt collection market, 

receipts calculated as follows: 

(i) Receipts means ‘‘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). Receipts do 

not include net capital gains or losses; 

taxes collected for and remitted to a 

taxing authority if included in gross or 

total income, such as sales or other taxes 

collected from customers but excluding 

taxes levied on the entity or its 

employees; or amounts collected for 

another (but fees earned in connection 

with such collections are receipts). 

Items such as subcontractor costs, 

reimbursements for purchases a 

contractor makes at a customer’s 

request, and employee-based costs such 

as payroll taxes are included in receipts. 

(ii) Period of measurement. (A) 

Annual receipts of a person that has 

been in business for three or more 

completed fiscal years means the total 

receipts of the person over its three most 

recently completed fiscal years divided 

by three. 

(B) Annual receipts of a person that 

has been in business for less than three 

completed fiscal years means the total 

receipts of the person for the period the 

person has been in business divided by 

the number of weeks in business, 

multiplied by 52. 

(C) Where a person has been in 

business for three or more completed 

fiscal years, but one of the years within 

its period of measurement is a short tax 

year, annual receipts means the total 

receipts for the short year and the two 

full fiscal or calendar years divided by 

the total number of weeks in the short 

year and the two full fiscal or calendar 

years, multiplied by 52. 

(iii) Annual receipts of affiliated 

companies. (A) The annual receipts of a 

person are calculated by adding the 

annual receipts of the person with the 

annual receipts of each of its affiliated 

companies. 

(B) If a person has acquired an 

affiliated company or been acquired by 

an affiliated company during the 

applicable period of measurement, the 

annual receipts of the person and the 

affiliated company are aggregated for the 

entire period of measurement (not just 

the period after the affiliation arose). 

(C) Receipts are calculated separately 

for the person and each of its affiliated 

companies in accordance with 

paragraph (iii)(B) of this definition even 

though this may result in using a 

different period of measurement to 

calculate an affiliated company’s annual 

receipts. Thus, for example, if an 

affiliated company has been in business 

for a period of less than three years, the 

affiliated company’s receipts are to be 

annualized in accordance with 

paragraph (iii)(B) of this definition even 

if the person has been in business for 

three or more completed fiscal years. 

(D) The annual receipts of a formerly 

affiliated company are not included if 

affiliation ceased before the applicable 

period of measurement as set forth in 

paragraph (iii)(B) of this definition. This 

exclusion of annual receipts of formerly 

affiliated companies applies during the 

entire period of measurement, rather 

than only for the period after which 

affiliation ceased. 

(E) Annual receipts do not include 

receipts that result from the collection 

of debt that was originally owed to a 

medical provider. 

Consumer debt collection is a debt 

collector’s collection of debt incurred by 

a consumer primarily for personal, 

family, or household purposes and 

related to a consumer financial product 

or service. 

Creditor means any person who offers 

or extends credit creating a debt or to 

whom a debt is owed, but such term 

does not include any person to the 

extent that the person receives an 

assignment or transfer of a debt in 

default solely for the purpose of 

facilitating the collection of debt for 

another. 

Debt collector means any person who 

uses any instrumentality of interstate 

commerce or the mails in any business 

the principal purpose of which is the 

collection of any debts, or who regularly 

collects or attempts to collect, directly 

or indirectly, debts owed or due or 

asserted to be owed or due to another. 

Notwithstanding the exclusion provided 

by paragraph (iii) of this definition, the 

term includes any creditor who, in the 

process of collecting his own debts, uses 

any name other than his own which 

would indicate that a third person is 

collecting or attempting to collect such 

debts. The term does not include: 

(i) Any person while acting as a debt 

collector for another person, both of 

whom are related by common 

ownership or affiliated by corporate 

control, if the person acting as a debt 

collector does so only for persons to 

whom it is so related or affiliated and 

if the principal business of such person 

is not the collection of debts; 

(ii) Any nonprofit organization which, 

at the request of consumers, performs 

bona fide consumer credit counseling 

and assists consumers in the liquidation 

of their debts by receiving payments 

from such consumers and distributing 

such amounts to creditors; 

(iii) Any person collecting or 

attempting to collect any debt owed or 

due or asserted to be owed or due 

another to the extent such activity: 

(A) Concerns a debt which was 

originated by such person; or 

(B) Concerns a debt which was not in 

default at the time it was obtained by 

such person; and 

(iv) Any person engaged solely in 

enforcing a security interest. 

Test to define larger participants. A 

nonbank covered person is a larger 

participant of the consumer debt 

collection market if the nonbank 

covered person’s annual receipts 

resulting from consumer debt collection 

are more than $10 million. 

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Federal Register / Vol. 77, No. 211 / Wednesday, October 31, 2012 / Rules and Regulations 65799 

Dated: October 21, 2012. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2012–26467 Filed 10–30–12; 8:45 am] 

BILLING CODE 4810–AM–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2012–0596; Directorate 

Identifier 2011–NM–245–AD; Amendment 

39–17236; AD 2012–21–20] 

RIN 2120–AA64 

Airworthiness Directives; Airbus 

Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for certain 

Airbus Model A330–200 freighter series 

airplanes, Model A330–200 and –300 

series airplanes, and Model A340–200, 

–300, –500, and –600 series airplanes. 

This AD was prompted by reports of the 

ram air turbine (RAT) not deploying 

when tested. This AD requires 

identification of the supplier, part 

number, and serial number of the 

installed RAT actuator, and reidentification of the actuator and RAT, 

or replacement of the RAT actuator with 

a serviceable unit and re-identification 

of the RAT, if necessary. We are issuing 

this AD to prevent non-deployment of 

the RAT, which if occurred following a 

total engine flame-out, or during a total 

loss of normal electrical power 

generation, could result in reduced 

control of the airplane. 

DATES: This AD becomes effective 

December 5, 2012. 

The Director of the Federal Register 

approved the incorporation by reference 

of certain publications listed in this AD 

as of December 5, 2012. 

ADDRESSES: You may examine the AD 

docket on the Internet at http:// 

www.regulations.gov or in person at the 

U.S. Department of Transportation, 

Docket Operations, M–30, West 

Building Ground Floor, Room W12–140, 

1200 New Jersey Avenue SE., 

Washington, DC. 

FOR FURTHER INFORMATION CONTACT: 

Vladimir Ulyanov, Aerospace Engineer, 

International Branch, ANM–116, 

Transport Airplane Directorate, FAA 

1601 Lind Avenue SW., Renton, 

Washington 98057–3356; telephone 

(425) 227–1138; fax (425) 227–1149. 

SUPPLEMENTARY INFORMATION: 

Discussion 

We issued a notice of proposed 

rulemaking (NPRM) to amend 14 CFR 

part 39 to include an AD that would 

apply to the specified products. That 

NPRM was published in the Federal 

Register on June 18, 2012 (77 FR 36209). 

That NPRM proposed to correct an 

unsafe condition for the specified 

products. The MCAI states: 

During a production test flight, a Ram Air 

Turbine (RAT) did not deploy when tested. 

An investigation, conducted by the RAT 

manufacturer Hamilton Sundstrand (HS) and 

Arkwin Industries, revealed that the RAT did 

not deploy due to insufficient stroke inside 

one of the actuator deployment solenoids. 

This condition, if occurring following a 

total engine flame out, or during a total loss 

of normal electrical power generation, could 

possibly result in reduced control of the 

aeroplane. 

For the reasons described above, this 

[European Aviation Safety Agency] AD 

requires the modification of the affected RAT 

actuator deployment mechanism, or 

replacement of the RAT actuator with a 

modified unit. 

The required actions include 

identification of the supplier, part 

number, and serial number of the 

installed RAT actuator, and reidentification of the actuator and RAT, 

or replacement of the RAT actuator with 

a serviceable unit and re-identification 

of the RAT, if necessary. You may 

obtain further information by examining 

the MCAI in the AD docket. 

Comments 

We gave the public the opportunity to 

participate in developing this AD. We 

received no comments on the NPRM (77 

FR 36209, June 18, 2012) or on the 

determination of the cost to the public. 

Conclusion 

We reviewed the available data and 

determined that air safety and the 

public interest require adopting the AD 

as proposed—except for minor editorial 

changes and re-identification of the subparagraphs of paragraphs (g) and (h) of 

this final rule. We have determined that 

these minor changes: 

• Are consistent with the intent that 

was proposed in the NPRM (77 FR 

36209, June 18, 2012) for correcting the 

unsafe condition; and 

• Do not add any additional burden 

upon the public than was already 

proposed in the NPRM (77 FR 36209, 

June 18, 2012). 

Costs of Compliance 

We estimate that this AD will affect 

56 products of U.S. registry. We also 

estimate that it will take about 14 workhours per product to comply with the 

basic requirements of this AD. The 

average labor rate is $85 per work-hour. 

Required parts will cost about $0 per 

product. Where the service information 

lists required parts costs that are 

covered under warranty, we have 

assumed that there will be no charge for 

these parts. As we do not control 

warranty coverage for affected parties, 

some parties may incur costs higher 

than estimated here. Based on these 

figures, we estimate the cost of this AD 

to the U.S. operators to be $66,640, or 

$1,190 per product. 

In addition, we estimate that any 

necessary follow-on actions would take 

about 13 work-hours and require parts 

costing $0, for a cost of $1,105 per 

product. We have no way of 

determining the number of products 

that may need these actions. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. ‘‘Subtitle VII: 

Aviation Programs,’’ describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in ‘‘Subtitle VII, 

Part A, Subpart III, Section 44701: 

General requirements.’’ Under that 

section, Congress charges the FAA with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

Regulatory Findings 

We determined that this AD will not 

have federalism implications under 

Executive Order 13132. This AD will 

not have a substantial direct effect on 

the States, on the relationship between 

the national government and the States, 

or on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify that this AD: 

1. Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866; 

2. Is not a ‘‘significant rule’’ under the 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979); 

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