Vol. 77 Friday, 

No. 140 July 20, 2012 

Part III 

Bureau of Consumer Financial Protection 

12 CFR Part 1090 

Defining Larger Participants of the Consumer Reporting Market; Final Rule 


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42874 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

1Public Law 111–203 (12 U.S.C. 5301 et seq.). 

2The provisions of 12 U.S.C. 5514 apply to 

nondepository (nonbank) covered persons 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 [nonbank covered person] 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 [nonbank 

covered person], subject to those provisions of 

law.’’ 

3See 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). 

4 12 U.S.C. 5514(a)(1)(A), (D), and (E). 

5 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,’’ that 

such covered person ‘‘is engaging, or has engaged, 

in conduct that poses risks to consumers with 

regard to the offering or provision of consumer 

financial products or services.’’ 12 U.S.C. 

5514(a)(1)(C). The Bureau has published a notice of 

proposed rulemaking to establish uniform 

procedures relating to this provision of the DoddFrank Act. 77 FR 31226 (May 25, 2012). 

6 12 U.S.C. 5514(b)(1). 

7The Bureau’s supervision authority also extends 

to service providers of covered persons subject to 

supervision under 12 U.S.C. 5514. See 12 U.S.C. 

5514(e) (establishing the Bureau’s supervisory 

authority relating to service providers); see also 12 

U.S.C. 5481(26) (defining ‘‘service provider’’). 

8The final rule describes one market for 

consumer financial product or services, which the 

rule labels ‘‘consumer reporting.’’ The definition in 

the rule does not encompass all activities that could 

be considered consumer reporting. Any reference 

herein to ‘‘the consumer reporting market’’ means 

only the particular market for consumer reporting 

identified by the final rule. 

9 76 FR 38059 (June 29, 2011). 

10 In July 2011, the Bureau held four roundtable 

discussions on the Notice. More than 70 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1090 

[Docket No. CFPB–2012–0005] 

RIN 3170–AA00 

Defining Larger Participants of the 

Consumer Reporting Market 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is 

publishing a final rule pursuant to the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act. That statute 

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 to define such larger 

participants must be issued by July 21, 

2012. The Bureau issues this final rule 

to define larger participants of a market 

for consumer reporting. The final rule 

thereby facilitates the supervision of 

nonbank covered persons active in that 

market. 

DATES: Effective September 30, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Christopher Young, Senior Counsel, 

(202) 435–7408, or Nicholas Krafft, 

Consumer Financial Protection Analyst, 

(202) 435–7252, 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 tests for defining 

larger participants of two markets 

identified by the Bureau: consumer 

reporting and consumer debt collection. 

The Bureau issues this final rule to 

define larger participants of a market for 

consumer reporting. After the issuance 

of this final rule, the Bureau will take 

further action regarding the proposed 

consumer debt collection market. This 

initial rule to define larger participants 

will be followed by a series of 

rulemakings covering additional 

markets for consumer financial products 

and services. 

I. Overview 

Title X of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Dodd-Frank Act) 1 established the 

Bureau of Consumer Financial 

Protection (Bureau) on July 21, 2010. 

One of the Bureau’s responsibilities 

under the Dodd-Frank Act is the 

supervision of certain nonbank covered 

persons,2 and very large banks, thrifts, 

and credit unions and their affiliates.3

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

supervisory authority over nonbank 

covered persons of any size 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.4 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.5 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 to consumer financial markets.6 The 

Bureau is required to issue an initial 

larger participant rule by July 21, 2012. 

This final rule establishes, in part, the 

scope of the Bureau’s supervision 

authority for nonbank covered persons 7

under 12 U.S.C. 5514, by defining 

‘‘larger participants’’ of a market for 

consumer reporting.8 The Bureau 

intends the final rule to be the first in 

a series of rules to define larger 

participants of other markets. After the 

issuance of this rule, the Bureau will 

take further action relating to its notice 

of proposed rulemaking to define larger 

participants of a market for consumer 

debt collection. 

The final rule pertains only to 

defining larger participants of a 

specified market and thereby 

delineating, in part, the scope of the 

Bureau’s nonbank supervision 

authority. It does not impose new 

substantive consumer protection 

requirements. Nor does it delineate the 

scope of the Fair Credit Reporting Act 

(FCRA), provisions of the Dodd-Frank 

Act related to consumer reporting 

activities, or any other Federal 

consumer financial law. 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. 

II. Background 

On June 29, 2011, through a notice 

and request for comment (Notice), the 

Bureau solicited public comment on 

developing a proposed larger participant 

rule.9 The Bureau also held a series of 

roundtable discussions with industry, 

consumer and civil rights groups, and 

State regulatory agencies and 

associations.10 The Bureau considered 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42875 

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. 

11 77 FR 9592 (Feb. 17, 2012). 

12As noted above, the Proposed Rule also 

addressed a market for consumer debt collection; 

that market will be the subject of a later publication. 

13See 12 U.S.C. 5481(15)(A)(ix). Under the final 

rule, ‘‘consumer reporting’’ does not include the 

activities of a person to the extent that a person 

provides consumer report or other account 

information that is used or expected to be used 

solely regarding a decision for employment, 

government licensing, or a residential lease or 

tenancy involving a consumer, or to be used solely 

in any decision regarding the offering or provision 

of a product or service that is not a consumer 

financial product or service. 

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).11 The Bureau requested and 

received public comment on the 

Proposed Rule. 

The Proposed Rule defined certain 

terms, including ‘‘affiliated company,’’ 

‘‘annual receipts,’’ ‘‘consumer 

reporting,’’ and ‘‘nonbank covered 

person.’’ The Proposed Rule also set 

forth a test for determining whether a 

nonbank covered person is a larger 

participant of the consumer reporting 

market.12 Under this test, a nonbank 

covered person with more than $7 

million in annual receipts resulting 

from consumer reporting activities 

described in the Proposed Rule would 

be a larger participant of the consumer 

reporting market. As defined in the 

Proposed Rule, the determination of 

annual receipts is generally derived 

from a three-year average of receipts. 

Under the Proposed Rule, once a 

nonbank covered person met a largerparticipant test for a particular market, 

the person would retain largerparticipant status for a period of at least 

two years. The Proposed Rule also set 

forth a procedure for a person to 

challenge an assertion by the Bureau 

that the person qualified as a larger 

participant of a covered market and a 

mechanism by which the Bureau could 

request information to assess whether a 

person is a larger participant. 

The Bureau received 82 comments on 

the Proposed Rule from, among others, 

consumer groups, industry trade 

associations, companies, State financial 

services agencies, and individuals. 

These comments are discussed in more 

detail below in the section-by-section 

analysis of the final rule. 

III. Summary of the Final Rule 

The final rule is the first in what the 

Bureau intends to be a series of rules to 

define ‘‘larger participants’’ of specific 

markets for purposes of establishing, in 

part, the scope of coverage of the 

Bureau’s nonbank supervision program. 

The rule contains two main 

components. Subpart A establishes 

general definitions, concepts, protocols, 

and procedures relating to the Bureau’s 

supervision of larger participants and 

assessment of whether entities are larger 

participants. Subpart B identifies a 

market for consumer reporting, 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 that market. As the 

Bureau identifies additional markets in 

which to supervise larger participants, 

the Bureau expects to include the 

relevant market descriptions and largerparticipant tests in Subpart B. 

In its general provisions under 

Subpart A, the final rule defines terms 

relevant to the rule, such as ‘‘affiliated 

company,’’ ‘‘consumer financial product 

or service,’’ and ‘‘nonbank covered 

person,’’ adopting (with minor 

modifications) the proposed definitions 

for these terms. The final rule adopts the 

provision of the Proposed Rule that 

once a nonbank covered person 

qualifies as a larger participant, the 

person will be deemed a larger 

participant for a period not less than 

two years from the first day of the tax 

year in which the person last met the 

applicable test. The final rule also 

adopts the proposed procedure for a 

person to challenge that it qualifies as 

a larger participant, during a specified 

time period after being notified by the 

Bureau that the Bureau intends to 

conduct some type of supervision 

activity in connection with the person. 

However, in response to comments, the 

Bureau has extended the specified time 

period from 30 days to 45 days. To 

facilitate the Bureau’s supervision of 

nonbank covered persons, to enable the 

Bureau to carry out the purposes and 

objectives of the Dodd-Frank Act 

relating to supervision, and to prevent 

evasion, the final rule also adopts the 

proposed provision that the Bureau may 

require submission of records, 

documents, and other information for 

purposes of assessing whether a person 

is a larger participant of a covered 

market. 

Under Subpart B, the final rule 

defines the term ‘‘consumer reporting’’ 

by describing market-related activities; 

defines the term ‘‘annual receipts,’’ the 

criterion by which entities’ level of 

participation in the consumer reporting 

market is measured; and sets forth the 

test for which participants are larger 

participants. The consumer reporting 

market, as defined in the final rule, 

includes consumer reporting agencies 

selling consumer reports, consumer 

report resellers, analyzers of consumer 

reports and other account information 

(analyzers), and specialty consumer 

reporting agencies (collectively referred 

to as consumer reporting entities). As a 

general matter, some consumer 

reporting agencies collect, among other 

information, information about credit 

accounts, items sent for collection, and 

public records such as judgments and 

bankruptcies. Resellers purchase 

consumer information from one or more 

of the agencies that collect information, 

typically provide further input to the 

consumer report (including by merging 

files from multiple agencies or adding 

information from other data sources), 

and then resell the report to lenders and 

other users. Analyzers apply statistical 

and other methods to consumer reports 

and other account information to 

facilitate the interpretation of such 

information and its use in decisions 

regarding other products and services. 

Certain analyzers develop and sell 

credit scoring services and products. 

Specialty consumer reporting agencies 

primarily collect and provide specific 

types of information that may be used 

to make decisions regarding particular 

consumer financial products or services, 

such as payday loans or checking 

accounts, or for other determinations, 

such as eligibility for employment or 

rental housing. However, some of these 

specialty consumer reporting agencies, 

depending on their activities, may not 

be engaged in offering or providing 

consumer financial products or services 

within the meaning of the Dodd-Frank 

Act, and therefore would not, on the 

basis of their activities, become 

‘‘covered persons’’ subject to the 

Bureau’s supervisory authority.13 These 

exclusions are implemented in the 

definition of ‘‘consumer reporting’’ in 

the final rule. 

As detailed in the Proposal, consumer 

reporting is a consumer financial 

product or service that is of 

fundamental importance to markets for 

many other consumer financial products 

and services. Consumer reports 

(sometimes referred to as ‘‘credit 

reports’’), which may contain 

information about consumers’ credit 

histories and other transactions, and the 


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42876 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

14Stuart Pratt, President, CDIA, Statement Before 

House Committee on Financial Institutions and 

Consumer Credit, ‘‘Keeping Score on Credit Scores: 

An Overview of Credit Scores, Credit Reports, and 

their Impact on Consumers,’’ at 7 (March 24, 2010), 

available at (http://www.house.gov/apps/list/

hearing/financialsvcs_dem/pratt_testimony.pdf). 

See also Federal Trade Commission, Report to 

Congress Under Sections 318 and 319 of the Fair 

and Accurate Credit Transactions Act of 2003 at 8– 

9 (2004). 

15See Stuart Pratt, President, CDIA, Statement 

Before House Committee on Financial Services, 

‘‘Credit Reports: Consumers’ Ability to Dispute and 

Change Inaccurate Information,’’ at 23 (June 19, 

2007), available at http:// 

archives.financialservices.house.gov/hearing110/ 

ospratt061907.pdf. 

16Stuart Pratt, Comments of CDIA to National 

Telecommunications and Information 

Administration, ‘‘Information Privacy and 

Innovation in the Internet Economy,’’ at 2 (June 13, 

2010), available at http://ntia.doc.gov/files/ntia/

comments/100402174-0175-01/attachments/

Consumer%20Data%20Industry%20

Association%20Comments.pdf. 

17 12 U.S.C. 5511(a). 

18 July 21, 2012, is one year after the Bureau’s 

‘‘designated transfer date.’’ This was the date on 

which certain authorities transferred from other 

Federal agencies to the Bureau. 12 U.S.C. 5581; see 

12 U.S.C. 5582 (mechanism for setting ‘‘designated 

transfer date’’); 75 FR 57252 (Sept. 20, 2010) 

(establishing ‘‘designated transfer date’’ as July 21, 

2011). 

19 5 U.S.C. 553(d). 

credit scores derived from credit files, 

affect many aspects of consumers’ lives. 

Consumer reports are important tools 

that lenders use to assess borrower risk 

when evaluating applications for credit 

cards, home mortgage loans, automobile 

loans, and other types of credit. 

Consumer reports may also be used to 

determine eligibility and pricing for 

other types of products and services, 

such as checking accounts. The 

consumer reporting market affects 

hundreds of millions of consumers. The 

Consumer Data Industry Association 

(CDIA), a trade association that 

represents, among others, the consumer 

reporting industry, estimates that each 

year there are more than 36 billion 

updates made to consumer files at 

consumer reporting agencies,14 and 

three billion reports issued.15 It also 

estimates that each of the three largest 

consumer reporting agencies maintains 

credit files on more than 200 million 

consumers.16 Because of the significant 

connections between consumer 

reporting and other consumer financial 

products and services, supervision of 

consumer reporting will further the 

Bureau’s mission to ensure that all 

consumers have access to fair, 

transparent, and competitive markets for 

such products and services.17

The final rule establishes a test, based 

on ‘‘annual receipts,’’ to assess whether 

a nonbank covered person is a larger 

participant of the consumer reporting 

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 rule adopts the proposed test for 

qualifying as a larger participant of the 

consumer reporting market: More than 

$7 million in annual receipts resulting 

from relevant consumer reporting 

activities. 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 rule is tailored to the 

consumer reporting market identified by 

the rule. The Bureau has not determined 

that annual receipts, or a threshold of $7 

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 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, and require the Bureau 

to issue an initial such rule by July 21, 

2012; 18 (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 rule, noting that the 

Administrative Procedure Act generally 

requires that rules be published not less 

than 30 days before their effective 

dates.19 The Bureau received a few 

comments requesting a postponement of 

the effective date. 

Two industry commenters urged the 

Bureau to adopt an effective date at least 

180 days after issuance of the final rule. 

One of these commenters, representing 

the consumer reporting industry, asked 

the Bureau to consider the fact that 

some of the companies affected by the 

final rule have never been examined at 

the Federal or State level and will need 

time to develop processes and engage in 

training to prepare for examinations. 

Another commenter, representing 

online payday lenders, stated that the 

Bureau should adopt an effective date 

no earlier than six months after issuance 

of the final rule and one year after 

publication by the Bureau of final 

examination manuals and procedures 

for the markets covered in the Proposed 

Rule. This commenter noted that, unlike 

the various examination procedures for 

banks and lenders that the Bureau has 

released, any such procedures with 

respect to the covered markets 

published by the Bureau will be 

completely new, and industry will need 

time to prepare for examinations. 

The Bureau appreciates the fact that 

supervision by a Federal agency will be 

new to many larger participants of the 

consumer reporting market. The Bureau 

does not believe, however, that this is a 

sufficient reason for a substantial delay 

of the effective date of the final rule. 

The final rule itself does not impose 

substantive conduct requirements with 

respect to which larger participants 

might require time to come into 

compliance. Although larger 

participants might choose to increase 

their compliance with Federal consumer 

financial law in response to the 

possibility of supervision, market 

participants are already obligated to 

comply, and should already be in 

compliance with, applicable Federal 

consumer financial law, regardless of 

whether they are subject to supervision. 

Thus, entities that qualify as larger 

participants under the final rule should 

not require additional time to come into 

compliance with Federal consumer 

financial law. In addition, the Bureau is 

concerned that postponing the effective 

date by too much would unnecessarily 

delay the Bureau’s supervision of larger 

participants of the consumer reporting 

market. This could adversely affect 

consumers because, among other 

reasons, the Bureau would be delayed, 

with respect to the consumer reporting 

activities covered by the rule, in 

assessing compliance with Federal 

consumer financial law, detecting and 

assessing risk to consumers, and 

obtaining information about activities 

and compliance systems or procedures, 

and thus delayed in taking any 

appropriate corrective action. 

The Bureau believes that, for the 

reasons described above, a long 

postponement of the effective date as 

suggested by the commenters is not 

warranted. However, 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, the Bureau believes it is 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42877 

20The Bureau notes that the final rule is 

structured differently than the Proposed Rule. 

Unlike the Proposed Rule, the final rule is divided 

into Subparts A and B, as described in the 

Summary of Final Rule (Section III) above, resulting 

in different section numbers. This section-bysection analysis refers to the section numbers in the 

final rule except as otherwise noted. 

21 12 U.S.C. 5481(1). 

22See, e.g., 12 CFR 41.3(i) (Office of the 

Comptroller of the Currency (OCC) rule defining 

‘‘common ownership or common corporate control’’ 

in connection with the FCRA); 12 CFR 336.3(b) 

(Federal Deposit Insurance Corporation (FDIC) rule 

defining ‘‘control’’ in connection with postemployment restrictions on former FDIC 

examiners); 12 CFR 1805.104(q) (Department of the 

Treasury rule defining ‘‘control’’ in connection with 

the Community Development Financial Institutions 

Program). 

23See 12 U.S.C. 5481(1) (definition of ‘‘affiliate’’). 

reasonable to extend the effective date 

to September 30, 2012, to give entities 

some time to prepare for Federal 

supervision, and adopts this effective 

date for the final 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 entities may be subject to 

Bureau supervision under the rule. 

V. Section-By-Section Analysis of the 

Final Rule 20

Subpart A—General 

Section 1090.100—Scope and Purpose 

Proposed § 1090.100 set forth the 

scope and purpose of Part 1090. It stated 

that the Part defines those nonbank 

covered persons that qualify as larger 

participants of certain markets for 

consumer financial products or services, 

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

(a)(2). Proposed § 1090.100 further 

explained that a larger participant of a 

market covered by the Part will be 

subject to the supervisory authority of 

the Bureau under 12 U.S.C. 5514. 

Finally, § 1090.100 provided that the 

Part establishes rules to facilitate the 

Bureau’s supervisory authority over 

larger participants pursuant to 12 U.S.C. 

5514(b)(7). 

The Bureau received one comment 

recommending that the Bureau clarify 

that the scope and purpose of the final 

rule does not include the supervision of 

nonprofit organizations engaged in 

offering credit counseling services. This 

comment relates specifically to the 

market for consumer debt collection and 

will be addressed in the final rule for 

that market. The Bureau notes, however, 

that the Bureau does not believe that the 

scope and purpose section is the 

appropriate place to exclude any type of 

activity from a market covered by the 

final rule. Subpart B addresses the 

nature and scope of activities included 

in the market covered by the rule. 

Section 1090.100 is adopted as 

proposed, with minor technical 

amendments for consistency. 

Section 1090.101—Definitions 

Section 1090.101 defines terms used 

in the final rule that are applicable both 

to the consumer reporting market and to 

other markets that may be addressed in 

future rulemakings. If a term is defined 

in the Dodd-Frank Act, the final rule 

generally incorporates that definition, 

with clarifications and modifications as 

appropriate. The Bureau received 

comments on a number of definitions 

set forth in the Proposed Rule and 

discusses the comments below in the 

context of the definition to which they 

relate. 

Affiliated company. To compute 

activity levels for purposes of 12 U.S.C. 

5514(a)(1) and its implementing rules, 

12 U.S.C. 5514(a)(3)(B) provides that the 

activities of affiliated companies (other 

than insured depository institutions or 

insured credit unions) shall be 

aggregated. The term ‘‘affiliated 

company’’ is not defined in the DoddFrank Act. The Proposed Rule defined 

the term ‘‘affiliated company’’ in a 

manner guided by the definition of 

‘‘affiliate’’ set forth in the Dodd-Frank 

Act,21 with modifications to track the 

requirements of 12 U.S.C. 5514(a)(3)(B). 

Thus, the Proposed Rule stated that the 

term ‘‘affiliated company’’ of a person 

means any company (other than an 

insured depository institution or 

insured credit union) that controls, is 

controlled by, or is under common 

control with the person. 

For purposes of the definition of 

‘‘affiliated company,’’ the Proposed Rule 

provided that the term ‘‘company’’ 

means any corporation, limited liability 

company, business trust, general or 

limited partnership, proprietorship, 

cooperative, association, or similar 

organization. The Bureau received one 

comment suggesting that this definition 

be revised to include professional 

corporations and professional limited 

liability companies. The Bureau 

believes that the proposed definition, 

which encompasses ‘‘similar 

organization[s]’’ to those expressly 

enumerated, is sufficiently broad to 

cover professional corporations and 

professional limited liability companies, 

as well as other forms of organization 

comparable to those on the enumerated 

list that exist or may arise. Thus, the 

Bureau deems the suggested amendment 

unnecessary. 

Also for purposes of the definition of 

‘‘affiliated company,’’ the Proposed Rule 

set forth when a person would be 

considered to have control over another 

person, guided by the definitions of the 

term ‘‘control’’ provided in section 2 of 

the Bank Holding Company Act (BHCA) 

(12 U.S.C. 1841) and rules issued by 

other Federal financial regulators.22 The 

proposed definition provided that a 

person has control over another person 

if: (i) The person directly or indirectly 

or acting through one or more other 

persons owns, controls, or has power to 

vote 25 percent or more of any class of 

voting securities or similar ownership 

interest of the other person; (ii) the 

person controls in any manner the 

election of a majority of the directors, 

trustees, members, or general partners of 

the other person; or (iii) the person 

directly or indirectly exercises a 

controlling influence over the 

management or policies of the other 

person, as determined by the Bureau. 

The Bureau received a number of 

comments from consumer groups 

requesting that the Bureau include in 

the final rule provisions to prevent 

market participants from structuring 

business forms and activities to evade 

coverage as larger participants. For 

example, one commenter suggested that 

the Bureau should prevent evasion by 

aggregating not only the revenues of 

‘‘affiliated companies,’’ but also those of 

‘‘joint enterprises,’’ defined as two or 

more companies that act with a common 

purpose, in coordination, or through a 

contractual relationship to provide 

consumer financial products or services. 

Similarly, many consumer groups 

suggested aggregating the receipts of a 

firm’s agents and contractors. 

The Bureau understands commenters’ 

concern regarding possible evasion of 

the final rule that could potentially 

occur by a market participant’s 

structuring business activities through 

separate entities. For example, a covered 

person might attempt evasion by 

dividing its consumer reporting tasks 

among several unaffiliated companies, 

each having less than $7 million in 

annual receipts, to avoid Bureau 

supervision. However, control or 

common control is a prerequisite for 

being an ‘‘affiliate’’ under the DoddFrank Act; and the Bureau likewise 

proposed to make control or common 

control a prerequisite for being an 

‘‘affiliated company.’’ 23 The Bureau 

further believes that the test for control 

in the Proposal, which considered, 

among other things, whether one person 

directly or indirectly exercises a 

controlling influence over the 

management or policies of another, 

provides an adequate tool to address the 

type of structuring to evade supervision 

coverage that the commenters describe. 

The Bureau therefore declines to amend 


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42878 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

24 If two companies might be considered affiliates 

due to a ‘‘controlling influence,’’ the Bureau might 

assert that their aggregated receipts placed them 

over the threshold for a relevant market. After 

issuing correspondence initiating supervisory 

activity, pursuant to § 1090.103 of the final rule, the 

Bureau would entertain arguments that the 

companies were not linked by a ‘‘controlling 

influence,’’ along with other arguments relating to 

larger-participant status. The Proposed Rule’s use of 

the phrase ‘‘as determined by the Bureau’’ was not 

meant to suggest that the Bureau would make a 

prior determination with respect to ‘‘controlling 

influence.’’ The Bureau therefore omits that phrase 

from the definition of ‘‘control’’ in the final rule. 

25 12 U.S.C. 1841. 

26 12 CFR 41.3(i) (the OCC’s definition of 

‘‘control’’ under the FCRA); 12 CFR 717.3(i) (the 

National Credit Union Administration’s (NCUA) 

definition of ‘‘control’’ under the FCRA); 12 CFR 

1805.104(q) (Treasury Department’s definition of 

‘‘control’’ for purposes of the Community 

Development Financial Institutions Program); 12 

CFR 336.3 (the FDIC’s definition of ‘‘control’’ for 

purposes of post-employment restrictions on former 

FDIC examiners). 

27 12 U.S.C. 1842. 

28 12 U.S.C. 1841(a)(1). 

29See, e.g., 12 U.S.C. 1843 (restricting activities 

in which a bank holding company may engage). 

30 12 U.S.C. 5514(b)(1). 

31 12 U.S.C. 1841 (BHCA); 12 CFR 41.3(i) (the 

OCC’s definition of ‘‘control’’ under the FCRA); 12 

CFR 717.3(i) (the NCUA’s definition of ‘‘control’’ 

under the FCRA); 12 CFR 1805.104(q) (Treasury 

Department’s definition of ‘‘control’’ with respect to 

Community Development Financial Institutions 

Program); 12 CFR 336.3 (the FDIC’s definition of 

‘‘control’’ for purposes of post-employment 

restrictions on former FDIC examiners). 

the Proposal to require aggregation of 

the annual receipts of ‘‘joint 

enterprises’’ or of companies that have 

only a cooperative or contractual 

relationship but otherwise do not satisfy 

a test for control in the final rule. 

A few industry commenters objected 

more generally to one concept of control 

recognized in the proposed definition, 

in which one person directly or 

indirectly exercises a controlling 

influence over the management or 

policies of another. These commenters 

stated that a potential larger participant 

would not know in advance which 

companies it is deemed to exercise a 

controlling influence over, and therefore 

how to calculate its aggregated annual 

receipts. Normally, the Bureau believes, 

a market participant could use 

reasonable judgment to determine 

whether it has an affiliated company 

whose annual receipts would be 

aggregated with its own. In addition, 

under the final rule, prior to 

undertaking supervisory activity in 

connection with a market participant, 

the Bureau would notify the participant 

of its intent; the market participant 

would then have the opportunity, 

pursuant to § 1090.103 of the final rule, 

to challenge its status as a larger 

participant, including on the ground 

that its annual receipts should not be 

aggregated with those of certain other 

companies. Accordingly, the Bureau 

believes that, in the context of the 

procedures set forth in the final rule, the 

proposed definition of ‘‘control’’ 

provides market participants sufficient 

advance guidance regarding their status 

as larger participants and does not 

believe it is necessary to amend the 

proposed test for control to address 

these commenters’ concerns. Moreover, 

as indicated above, the Bureau believes 

it is necessary and appropriate to have 

a definition of ‘‘control’’ that is 

sufficiently flexible to prevent evasion 

of the rule. 

One commenter also expressed 

concern that if a large company handles 

a small firm’s day-to-day operations, as 

a service, the larger firm would be 

considered to exercise a controlling 

influence. Therefore, according to this 

commenter, the ‘‘controlling influence’’ 

test for control could distort the market 

for such services. It could also, this 

commenter said, unfairly sweep a small 

firm into the category of larger 

participants, based solely on the small 

firm’s use of a larger participant for such 

operational services. As defined in the 

Proposed Rule, mere execution of 

certain of another company’s activities 

would not constitute ‘‘control’’ over that 

company. Rather, under the proposed 

definition of the term, to constitute 

control, one person must directly or 

indirectly exercise a controlling 

influence over the management or 

policies of another person. The Bureau 

notes that under the Proposal, the 

Bureau would evaluate for each 

company it reviews whether one person 

has a controlling interest over another, 

based on the particular facts and 

circumstances of the relationship.24 If 

one company does in fact have a 

controlling influence over another’s 

management or policies, the Bureau 

believes that it is appropriate to 

aggregate the annual receipts of the 

companies for purposes of assessing 

larger-participant status, and that this 

would not be unfair to a smaller 

company that is controlled by a larger 

one. Therefore the Bureau declines to 

amend the Proposal to delete the 

‘‘controlling influence’’ test. 

Commenters also argued that before 

determining that one person exercises a 

controlling influence over another, the 

Bureau should provide notice and an 

opportunity for a hearing. The Bureau 

recognizes that some other Federal 

statutes, such as the BHCA, provide for 

hearings in assessing whether one 

company has a controlling influence 

over another.25 At the same time, a 

number of other Federal statutes and 

regulations that contain ‘‘controlling 

influence’’ provisions do not contain 

hearing provisions.26 The Bureau 

believes that the need for a hearing, as 

under the BHCA, is not present here. 

Under the BHCA, the Board of 

Governors of the Federal Reserve 

System must approve the establishment 

of a bank holding company.27 A person 

that controls a bank holding company is 

itself a bank holding company under the 

BHCA.28 The activities of a bank 

holding company are highly regulated 

by the Board of Governors.29 Thus, a 

finding of control under the BHCA has 

a much more significant consequence 

than a finding of control would have 

under the final rule. In the case of the 

final rule, the consequence of 

companies’ being affiliated by means of 

a ‘‘controlling influence’’ is that their 

annual receipts would be aggregated for 

purposes of assessing whether they are 

larger participants of a covered market, 

and thus subject to supervision by the 

Bureau’s supervisory authority.30 The 

companies would not be subject to any 

new substantive conduct requirements 

as a result. As discussed below, being 

subject to supervision is not a 

consequence that necessitates a hearing, 

as a matter of due process, on the 

general question whether a company is 

a larger participant. A hearing is 

similarly not necessary on the predicate 

issue of whether two companies are 

affiliated. Therefore, the Bureau believes 

that a hearing provision is not 

warranted for the final rule and declines 

to add such a provision. 

Several industry commenters argued 

that owning voting securities or similar 

interests should not constitute control 

until a person owns 50 percent, rather 

than 25 percent, of any class of voting 

securities or similar interest. One 

pointed out that if the threshold is only 

25 percent, a given entity could be an 

‘‘affiliated company’’ of several persons, 

if each such person owned just over 25 

percent of a class of voting securities. 

The Bureau notes the 25 percent 

threshold test is used in a number of 

statutes and regulations to determine 

whether one person controls another in 

the context of financial institutions.31

The Bureau believes that this widely 

used threshold is appropriate for the 

final rule. The Bureau is concerned that 

increasing the ownership threshold 

from 25 percent to 50 percent would 

mean that if one person owns 49 percent 

of a company, and three others 

separately owned the remaining 51 

percent of that company, no person 

would be deemed to control that 

company, absent the presence of a 

‘‘controlling influence.’’ The Bureau 

believes that raising the ownership 

threshold as requested would too easily 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42879 

32The final rule provides that a ‘‘fiscal year’’ is 

12 consecutive months ending on the last day of 

any month except December 31. A ‘‘calendar year’’ 

is 12 consecutive months beginning on January 1 

and ending on December 31. A ‘‘tax year’’ is an 

annual accounting period for keeping records and 

reporting income and expenses. An annual 

accounting period does not include a ‘‘short tax 

year.’’ A ‘‘short tax year’’ is a ‘‘tax year’’ of less than 

12 months. IRS Publication 538, available at 

http://www.irs.gov/publications/p538/ar02.html. 

33Under these clauses, the term ‘‘financial 

product or service’’ is generally defined to include, 

subject to certain exclusions: (1) Extending credit 

and servicing loans, 12 U.S.C. 5481(15)(A)(i); (2) 

providing real estate settlement services or 

performing appraisals of real estate or personal 

property, 12 U.S.C. 5481(15)(A)(iii); (3) collecting, 

analyzing, maintaining, or providing consumer 

report information or other account information 

used or expected to be used in connection with any 

decision regarding the offering or provision of a 

consumer financial product or service, 12 U.S.C. 

5481(15)(A)(ix); and (4) collecting debt related to 

any consumer financial product or service, 12 

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

permit evasion of, or attempts to evade, 

the aggregation requirement. The 

Bureau therefore declines to increase 

the ownership threshold to 50 percent. 

Finally, one commenter argued that 

when a company acquires another firm, 

the acquiring company cannot 

immediately exercise control over the 

target’s operations. This commenter 

requested a grace period of 12 months 

after the acquisition, during which the 

target firm would not be considered an 

‘‘affiliated company’’ for purposes of 

this rule. The Bureau believes that when 

one company acquires another, the 

acquiring company in fact controls the 

acquired company at the time of the 

transaction. This is true even if the 

acquiring company chooses to exercise 

that control by maintaining the status 

quo. The Bureau also notes that 

‘‘control’’ is a concept used only to 

implement the aggregation requirement 

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

connection with assessing whether a 

person is a larger participant of a market 

for consumer financial products or 

services. Even assuming the acquirer 

lacks effective control over the acquired 

company immediately after the 

acquisition, the annual receipts of the 

combined company are nonetheless an 

appropriate measure of the resulting 

company’s market participation. 

Accordingly, the Bureau declines to 

amend the Proposed Rule to provide a 

12-month grace period as requested. 

For all of the foregoing reasons, the 

Bureau adopts the definition of 

‘‘affiliated company’’ with minor 

technical amendments for consistency. 

Assistant Director. The Proposed Rule 

stated that the term ‘‘Assistant Director’’ 

means the Bureau’s Assistant Director 

for Nonbank Supervision or her or his 

designee. The Proposed Rule further 

stated that the Director of the Bureau 

may perform the functions of the 

Assistant Director as set forth in the 

Proposed Rule, and that, in the event 

there is no Assistant Director, the 

Director of the Bureau may designate an 

alternative Bureau employee to fulfill 

the duties of the Assistant Director. The 

Bureau received no substantive 

comments on this definition and adopts 

the definition as proposed, with minor 

technical amendments for consistency. 

Bureau. The Proposed Rule stated that 

the term ‘‘Bureau’’ means the Bureau of 

Consumer Financial Protection. The 

Bureau received no substantive 

comments on this definition and adopts 

the definition as proposed, with minor 

technical amendments for consistency. 

Completed fiscal year. The Proposed 

Rule stated that the term ‘‘completed 

fiscal year’’ meant any tax year 

including any short tax year. The 

Bureau did not receive any objections to 

the proposed definition. However, the 

Bureau believes that a calendar year, a 

12-month period ending on December 

31, could be an appropriate tax year for 

purposes of this Part. For this reason, 

and for clarification purposes, the final 

rule amends the Proposed Rule to define 

‘‘completed fiscal year’’ as a tax year 

including any fiscal year, calendar year, 

or short tax year,32 with other minor 

technical amendments for consistency. 

Consumer. The Proposed Rule’s 

definition of ‘‘consumer’’ is the same as 

that set forth in 12 U.S.C. 5481(4). The 

Proposed Rule provided that the term 

‘‘consumer’’ means an individual or an 

agent, trustee, or representative acting 

on behalf of an individual. The Bureau 

did not receive any substantive 

comments addressing the proposed 

definition and adopts the definition as 

proposed, with minor technical 

amendments for consistency. 

Consumer financial product or 

service. The Proposed Rule incorporated 

the definition of the term ‘‘consumer 

financial product or service’’ set forth in 

12 U.S.C. 5481(5). Thus, the Proposed 

Rule stated that the term ‘‘consumer 

financial product or service’’ means any 

financial product or service as defined 

in 12 U.S.C. 5481(15) that is described 

in one or more categories under: (a) 12 

U.S.C. 5481(15)(A) and is offered or 

provided for use by consumers 

primarily for personal, family, or 

household purposes; or (b) clause (i), 

(iii), (ix), or (x) of 12 U.S.C. 

5481(15)(A) 33 and is delivered, offered, 

or provided in connection with a 

consumer financial product or service 

referred to in the immediately preceding 

subparagraph. The Bureau did not 

receive substantive comments on the 

definition of the term ‘‘consumer 

financial product or service’’ and adopts 

the definition as proposed, with minor 

technical amendments for consistency. 

Dodd-Frank Act. The Proposed Rule 

stated that the term ‘‘Act’’ means the 

Consumer Financial Protection Act of 

2010. The Bureau did not receive any 

substantive comments on the proposed 

definition. For purposes of consistency 

with other Bureau rulemakings, the final 

rule replaces the defined term ‘‘Act’’ 

with ‘‘Dodd-Frank Act,’’ and otherwise 

adopts the definition as proposed with 

minor technical amendments for 

consistency. 

Larger participant. The Proposed Rule 

defined the term ‘‘larger participant’’ to 

mean a nonbank covered person that 

meets a test under Subpart B, and which 

remains a larger participant for the 

period provided in § 1090.102. The 

Bureau did not receive substantive 

comments on this definition and adopts 

the definition as proposed, with minor 

technical amendments for consistency. 

Nonbank covered person. The scope 

of coverage of the Bureau’s supervisory 

authority under 12 U.S.C. 5514 relates 

to ‘‘covered persons,’’ as defined in 12 

U.S.C. 5481(6), that are neither insured 

depository institutions or credit unions, 

nor affiliates of those insured depository 

institutions or credit unions with assets 

of more than $10 billion, as set forth in 

12 U.S.C. 5515(a) and 5516(a). Thus, the 

proposed definition excluded persons 

described in 12 U.S.C. 5515(a) and 

5516(a) and provided that the term 

‘‘nonbank covered person’’ means, 

except for persons described in those 

sections: (1) Any person that engages in 

offering or providing a consumer 

financial product or service; and (2) any 

affiliate of a person described in 

subparagraph (1) of this paragraph if 

such affiliate acts as a service provider 

to such person. The Bureau did not 

receive any substantive comments on 

the definition of ‘‘nonbank covered 

person’’ and adopts the definition as 

proposed, with minor technical 

amendments for consistency. 

Person. The Proposed Rule 

incorporated the definition of ‘‘person’’ 

set forth in 12 U.S.C. 5481(19). The 

Proposed Rule thus stated that the term 

‘‘person’’ means an individual, 

partnership, company, corporation, 

association (incorporated or 

unincorporated), trust, estate, 

cooperative organization, or other 

entity. The Bureau did not receive any 

substantive comments on the definition 

of ‘‘person’’ and adopts the definition as 

proposed, with minor technical 

amendments for consistency. 

Supervision and supervisory activity. 

The Proposed Rule defined the terms 

‘‘supervision’’ and ‘‘supervisory 

activity’’ to mean the Bureau’s exercise, 


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34Available at http://www.consumerfinance.gov/ 

guidance/supervision/manual/. 

35For specific references in the Dodd-Frank Act 

to supervision authority over ‘‘persons’’ rather than 

particular activities see, e.g., 12 U.S.C. 5514(b)(1) 

(‘‘The Bureau shall require reports and conduct 

examinations on a periodic basis of ‘persons’ 

described in subsection (a)(1) * * *.’’) (emphasis 

added); 12 U.S.C. 5514(a)(1) (‘‘[T]his section shall 

apply to any covered ‘person’ who * * *.’’) 

(emphasis added). 

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

37A service provider is a person that provides a 

material service to a covered person in connection 

or intended exercise, of supervisory 

authority, including by initiating or 

undertaking an examination, or 

requiring a report, of a nonbank covered 

person pursuant to 12 U.S.C. 5514. The 

Bureau did not receive any substantive 

comments suggesting changes to the 

definition of ‘‘supervision’’ and 

‘‘supervisory activity’’ and adopts the 

definition as proposed, with minor 

technical amendments for consistency. 

The Bureau did, however, receive 

several comments related to the scope 

and exercise of the Bureau’s supervisory 

authority. One group representing 

industry participants requested further 

detail about what an examination or 

supervision report would entail. 

Supervision may involve requests for 

information or records, on-site or off-site 

examinations, or some combination of 

these activities. While the specifics of 

an examination may vary by market and 

by firm, the following applies generally 

to the supervision process. Typically, 

Bureau officials begin an on-site 

examination by contacting the firm for 

an initial conference with management, 

and often by also requesting records and 

information. Based on these discussions 

and an initial review of the information 

received, examiners will determine the 

scope of an on-site examination, and 

then coordinate with the firm to initiate 

the on-site portion of the examination. 

While on-site, examiners will 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 firm’s 

compliance management systems. As 

with the Bureau’s bank examinations, 

examinations of nonbanks will involve 

issuing confidential examination reports 

and compliance ratings. 

The Bureau additionally notes that it 

has published a general examination 

manual describing the Bureau’s 

supervisory approach and processes, as 

well as substantive legal areas subject to 

examination. This manual is available 

on the Bureau’s Web site.34 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. The Bureau intends to 

release examination procedures specific 

to consumer reporting prior to 

beginning examinations. 

One consumer group commented that 

where the Bureau has supervisory 

authority over a larger participant by 

virtue of its participation in a particular 

market, the Bureau should examine all 

of the entity’s activities related to 

consumer financial products or services, 

even those that pertain to markets in 

which the entity is not a larger 

participant. A commenter from the 

consumer reporting industry, on the 

other hand, asked the Bureau to make 

clear that it will exclude from its 

examination of a larger participant of a 

market areas of the company’s 

operations outside that particular 

market. 

The Dodd-Frank Act authorizes the 

Bureau to supervise ‘‘covered person[s]’’ 

described in 12 U.S.C. 5514(a)(1)(A) 

through (E). By granting the Bureau 

supervisory authority over such 

‘‘covered persons,’’ as opposed to over 

particular activities in which they 

engage, the Dodd-Frank Act establishes 

that the Bureau’s supervisory authority 

is not limited to the products or services 

that qualified a person for supervision, 

but also includes other activities of such 

a person that involve other consumer 

financial products or services or are 

subject to Federal consumer financial 

law.35 This broad supervisory scope is 

consistent with the purposes that the 

Dodd-Frank Act sets out for the 

Bureau’s supervisory activities. 

Specifically, the Dodd-Frank Act directs 

the Bureau to require reports and 

conduct examinations on a periodic 

basis of the ‘‘persons’’ described in 12 

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

assessing compliance with the 

requirements of Federal consumer 

financial law, (b) obtaining information 

about the activities and compliance 

systems or procedures of such persons, 

and (c) detecting and assessing risks to 

consumers and to markets for consumer 

financial products and services.36 In 

many cases, these broad purposes could 

not be accomplished if the scope of the 

Bureau’s examinations and report 

requests were limited to the particular 

products or services that qualified a 

person for the Bureau’s supervision. For 

example, an entity’s violation of a 

provision of the FCRA in connection 

with activities that fall outside the final 

rule’s definition of consumer reporting 

would still be relevant to whether the 

entity has violated a Federal consumer 

financial law and to whether the entity 

may pose risks to consumers. Moreover, 

such a violation of the FCRA may 

indicate weaknesses in compliance 

systems and the potential for other 

violations and related consumer harms. 

Accordingly, the Bureau concludes 

that if an entity is subject to the 

Bureau’s supervisory authority, the 

Bureau may examine the entire entity 

for compliance with all Federal 

consumer financial law, assess 

enterprise-wide compliance systems 

and procedures, and assess and detect 

risks to consumers or to markets for 

consumer financial products and 

services posed by any activity of the 

entity, not just the activities that 

initially rendered the entity subject to 

Bureau supervision. 

A commenter representing the 

consumer reporting industry urged the 

Bureau to publish examination manuals 

and procedures sufficiently far in 

advance of any examination or other 

supervision activity so that affected 

companies could incorporate such 

manuals and procedures into their 

procedures and training. As noted 

above, the Bureau has published its 

general examination manual as well as 

examination procedures for mortgage 

origination and servicing, and for shortterm, small-dollar loans. The 

examination manual outlines legal 

requirements under the various laws 

applicable to the relevant products and 

services and guides examiners on 

information they should evaluate 

regarding compliance with those laws. 

Many of the laws addressed in the 

examination manual, including but not 

limited to the FCRA, are directly 

applicable to consumer reporting 

entities, and the Bureau intends to 

supplement the manual to include 

procedures specifically addressed to 

consumer reporting before beginning 

examinations. As noted in the 

discussion on the effective date above 

(Section IV(B)), however, market 

participants are required to be in 

compliance with applicable Federal 

consumer financial law, regardless of 

whether they are subject to supervision 

by the Bureau. 

The Bureau received several 

comments regarding the supervision of 

service providers to larger participants. 

Neither the Proposed Rule nor the final 

rule addresses the scope or manner of 

the Bureau’s supervisory authority over 

service providers to nonbanks pursuant 

to 12 U.S.C. 5514. The Proposal simply 

observed that the Dodd-Frank Act vests 

the Bureau with supervisory authority 

over service providers.37 Consequently, 


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with a consumer financial product or service. 12 

U.S.C. 5481(26)(A). The Dodd-Frank Act provides a 

non-exhaustive set of examples of such material 

services. 12 U.S.C. 5481(26)(A). 

38One commenter suggested that the Bureau 

publish a policy that it will not examine any service 

provider until after it has examined the entity 

receiving the services. The Bureau will consider 

this comment in the course of its supervision. 

39For example, assume a nonbank consumer 

reporting entity’s fiscal year ran from July 1 to June 

30. Assume the entity had $8 million in receipts in 

each of the fiscal years of 2011, 2012, and 2013 

(July 1, 2010 to June 30, 2011; July 1, 2011 to June 

30, 2012; and July 1, 2012 to June 30, 2013, 

respectively). During the 2014 tax year, beginning 

on July 1, 2013, the three most recently completed 

fiscal years would be 2011, 2012, and 2013, with 

an average of $8 million in receipts. The entity 

would therefore be a larger participant during its 

2014 tax year. Because that status lasts for two 

years, the entity would also be a larger participant 

during its 2015 tax year (from July 1, 2014 through 

June 30, 2015), even if its 2014 ‘‘annual receipts’’ 

were below $7 million. For example, suppose the 

entity had only $2 million in receipts for the 

completed 2014 fiscal year. The decreased receipts 

would first factor into the ‘‘annual receipts’’ 

calculation for 2015, when they would reduce the 

company’s ‘‘annual receipts’’ to $6 million. But the 

company would still be a larger participant during 

that year, as a result of the above-threshold annual 

receipts calculated for the 2014 tax year. 

40The Bureau believes that while it would have 

this authority under 12 U.S.C. 5514 even absent a 

regulation, a regulation is useful to provide clarity 

on the issue. 

41 12 U.S.C. 5514(b)(7)(D) provides that in 

developing requirements or systems under that 

provision, the Bureau shall consult with State 

agencies regarding requirements or systems 

(including coordinated or combined systems for 

registration) where appropriate. Given the focus of 

these provisions of the Proposal on obtaining 

particularized information relevant to largerparticipant status, the Bureau does not believe that 

such consultation is necessary or appropriate in 

connection with this final rule. The Bureau, 

however, requested comments from relevant State 

agencies on the Proposal, and did receive comments 

from a couple of State regulatory agencies 

expressing their belief that a certain company 

providing information services relating to payday 

lending should be excluded from the rule’s 

coverage. 

comments regarding which service 

providers the Bureau may supervise, 

and how, are not germane to the final 

rule.38

Section 1090.102—Status as Larger 

Participant Subject to Supervision 

The Proposed Rule stated that a 

person qualifying as a larger participant 

shall not cease to be a larger participant 

under this Part until two years from the 

first day of the tax year in which the 

person last met the applicable threshold 

to be defined as a larger participant.39

One industry commenter objected to 

supervision’s continuing for a minimum 

of two years, even if the business 

immediately falls below the applicable 

threshold. The Bureau believes that it is 

important to have sufficient time to 

undertake and complete supervisory 

activities, including any necessary 

follow-up examinations relating to a 

larger participant, and that less than two 

years would not be adequate to achieve 

this goal. Moreover, the threshold is not 

a precise demarcation of what market 

participants are ‘‘larger.’’ For example, a 

firm with annual receipts falling below 

the threshold for the consumer reporting 

market may still be a relatively large 

participant of the market, especially if 

its annual receipts, calculated using the 

procedures specified in the final rule, 

were above the threshold within the 

previous two years. To conclude that 

such a firm should still be a larger 

participant within the Bureau’s 

supervisory authority is consistent with 

setting the threshold at more than $7 

million. Indeed, the two-year period is 

part of the Bureau’s definition of ‘‘larger 

participant,’’ a fact the Bureau took into 

account in setting the threshold for the 

consumer reporting market at more than 

$7 million in annual receipts. 

Accordingly, the Bureau adopts 

§ 1090.102, as proposed in § 1090.103 of 

the Proposed Rule, with minor technical 

amendments for consistency. 

Section 1090.103—Assessing Status as a 

Larger Participant 

The Bureau explained in the Proposal 

that it expects to use various data 

sources, including publicly available 

data, to identify which nonbank covered 

persons appear to qualify as larger 

participants. One commenter asked the 

Bureau to describe the nature of these 

‘‘various data sources.’’ The Bureau 

intends to use any data sources that it 

determines are appropriate, which may 

include SEC filings, public shareholder 

information, industry surveys, or data 

obtained through proprietary sources. In 

some instances, if sufficient information 

is not available to the Bureau to assess 

a person’s larger-participant status, the 

Bureau may, as discussed below, 

request information to facilitate such an 

assessment. 

As explained in the Proposal, the 

Bureau recognizes that there may be 

instances when the Bureau seeks to 

supervise a person but that person 

disputes whether it is a larger 

participant. The Proposed Rule 

therefore sets forth a procedure for such 

a person to challenge its status as a 

larger participant by providing to the 

Assistant Director for Nonbank 

Supervision of the Bureau an affidavit 

setting forth an explanation of the basis 

for the person’s assertion that it does not 

meet the definition of larger participant. 

The Proposed Rule further permitted a 

person to include with the response 

copies of any records, documents, or 

other information on which the person 

relied to make the assertion. The 

Proposed Rule also provided that a 

person waives the right to rely, in 

disputing whether it qualifies as a larger 

participant, on any argument, records, 

documents, or other information that it 

failed to submit to the Assistant Director 

under this section. Moreover, the 

Proposed Rule stated that a person that 

fails to respond to the Bureau’s written 

communication within 30 days would 

be deemed to have acknowledged that it 

is a larger participant. Under the 

Proposed Rule, after reviewing the 

affidavit and any other information 

submitted by the person challenging its 

status as a larger participant or deemed 

relevant by the Assistant Director, the 

Assistant Director would send the 

person an electronic transmission 

explaining whether the person meets 

the definition of a larger participant. 

Additionally, the Proposed Rule stated 

that the Assistant Director may require 

that a person provide to the Bureau such 

records, documents, and information as 

the Assistant Director may deem 

appropriate for assisting assessments of 

entities’ status as larger participants.40

These provisions were proposed 

pursuant to the Bureau’s authority 

under 12 U.S.C. 5514(b)(7). 

Subparagraph (7)(A) authorizes the 

Bureau to ‘‘prescribe rules to facilitate 

[its] supervision’’ of, among other 

things, larger participants of the markets 

to be covered by regulations like the 

Proposed Rule. The ability to acquire 

information to support an assessment of 

whether a person meets the test for 

being a larger participant will serve that 

purpose.41 In addition, subparagraph 

(7)(B) authorizes the Bureau to require 

persons described in 12 U.S.C. 

5514(a)(1) to provide records to 

facilitate the Bureau’s supervision. 

Section 1090.103 of the final rule was 

also proposed pursuant to 12 U.S.C. 

5512(b)(1), which grants the Director of 

the Bureau the authority to prescribe 

such 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, such as the Bureau’s 

supervision of larger participants, and to 

prevent evasions of such law. Providing 

a process whereby entities must come 

forward with information if they wish to 

challenge their status as larger 

participants, and providing the Bureau 

the ability to obtain information related 

to the status of persons as larger 

participants under the rule, is necessary 

and appropriate for the Bureau to 

implement and efficiently exercise its 

supervision authority and to prevent 

evasion of 12 U.S.C. 5514. 

The Bureau received a number of 

comments on the proposed process for 


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42 In addition, the Dodd-Frank Act does not 

mandate any mechanism like what the rule 

provides. 

43See, e.g., Karpova v. Snow, 497 F.3d 262 (2d 

Cir. 2007); FDIC v. Coushatta, 930 F.2d 1122 (5th 

Cir. 1991). 

44See Mathews v. Eldridge, 424 U.S. 319, 344–45 

(1976). 

45Waiver, under this provision of the Proposed 

Rule, would apply with respect to the particular 

year for which an entity’s status as a larger 

participant was at issue. If an entity’s annual 

receipts declined in later years, and the Bureau 

nevertheless initiated supervisory activity, provided 

it is outside of the two-year supervision period, the 

entity would have a chance to dispute whether it 

was a larger participant in those later years. 

allowing a person to submit to the 

Bureau documents and information 

supporting the person’s assertion that it 

is not a larger participant. A 

representative of the consumer reporting 

industry suggested that the Bureau 

create a mechanism and procedures for 

appeal. Another commenter stated that 

the proposed method of challenging 

larger-participant status violates due 

process. 

The Bureau believes that the proposed 

procedure is an appropriate method by 

which a person may provide 

documents, records or other information 

to the Bureau if it wishes to dispute 

whether it meets the larger-participant 

threshold for a market. Due process 

concerns, as put forward by 

commenters, do not mandate any 

particular procedures for the initiation 

of supervision,42 because a decision to 

initiate supervision does not implicate 

an interest protected by the Fifth 

Amendment. Supervision alone does 

not impose any penalty on an entity, 

does not deprive it of any property, and 

does not restrict its ability to engage in 

a viable business. Moreover, even if a 

protected interest were at stake, the rule 

provides procedures that are 

comparable to those offered in 

numerous other situations that 

implicate protected interests.43 The 

Bureau will provide notice of its intent 

to supervise an entity; receive written 

submissions, accompanied by evidence; 

and entertain entities’ arguments that 

they do not qualify as larger 

participants. Due process does not 

necessitate a hearing in every instance, 

and the evidence involved in assessing 

a larger participant’s annual receipts 

from consumer reporting is not of the 

kind that requires oral presentation.44

The Bureau proposed to respond to 

entities’ challenges to larger-participant 

status because the Bureau believed it 

would be useful to have an informal 

method for resolving whether a person 

is a larger participant. For all the above 

reasons, the Bureau does not believe 

additional procedures are necessary to 

comport with due process. 

Other commenters suggested that the 

30-day time period allowed to challenge 

larger-participant status and provide the 

documents relied on for the challenge 

was not sufficient. One commenter 

representing the consumer financial 

services industry stated that nonbanks 

identified as larger participants should 

be able to provide additional arguments, 

records, documents, or other 

information to the Assistant Director as 

needed, particularly since the initial 30- 

day period is a narrow window and 

there is no deadline for a decision by 

the Assistant Director. Another industry 

representative said that it believes that 

30 days is a wholly inadequate time 

period for a business to identify all of 

the relevant information and to prepare 

its argument, especially because of the 

difficulty of apportioning receipts. 

Similarly, a commenter representing the 

consumer reporting industry suggested 

eliminating or significantly revising the 

provision whereby a person that fails to 

respond to the Bureau within 30 days 

will be deemed to acknowledge that it 

is a larger participant. This commenter 

also stated that an entity should be able 

to challenge its status as a larger 

participant at any time if it has a goodfaith basis for doing so, and failure to 

respond in any manner to a notice from 

the Bureau should not constitute waiver 

of the opportunity to submit evidence.45

Various industry commenters suggested 

that the final rule allow greater response 

times to challenge larger-participant 

assessments that ranged from 60 to 90 

days, to an unlimited period. 

The Bureau, however, believes that it 

is necessary to have a firm time limit for 

this dispute process. Eliminating the 

deadlines and permitting additional 

records, documents, or other 

information to be presented to the 

Bureau at any time would create 

unnecessary uncertainty and be 

administratively difficult to implement. 

A firm deadline for submission of 

records, documents, or other 

information, on the other hand, would 

permit the timely and orderly resolution 

of an assessment of larger-participant 

status. Holding firms to have waived the 

opportunity to offer information and 

arguments that they do not present 

during the specified timeframe is an 

appropriate mechanism for enforcing 

the deadline. 

At the same time, the Bureau 

recognizes that entities may need time 

to collect and assemble relevant 

documentation regarding largerparticipant status. The Proposed Rule 

included a provision under which the 

Assistant Director might modify the 

response time on her or his own 

initiative or at the request, based on a 

showing of good cause, of the person 

responding. The Bureau adopts in the 

final rule this provision for requesting 

an extension. In addition, the Bureau 

concludes that increasing the general 

time limit for response from the 

proposed 30 days to 45 days strikes an 

appropriate balance between providing 

a reasonable opportunity to challenge 

larger-participant status and not 

allowing so much time as to be 

disruptive to the supervisory program. 

A representative of the consumer 

reporting industry suggested that the 

final rule should require that the Bureau 

have a reasonable basis to believe that 

a person is a larger participant before 

sending a written communication 

initiating supervisory activity. As the 

Bureau has explained above, the Bureau 

expects to use various data sources, 

including publicly available data, to 

identify which nonbank covered 

persons appear to qualify as larger 

participants. The Bureau intends to use 

the best available data to make 

assessments regarding a person’s status 

as a larger participant. If needed, the 

Bureau will request relevant 

information to help assess whether a 

person is a larger participant. Thus, the 

Bureau will make an informed 

assessment of larger-participant status. 

The Bureau believes neither that the 

Dodd-Frank Act requires, nor that it 

would be appropriate or necessary, for 

the Bureau to set forth in the regulation 

a specific standard regarding largerparticipant status that must be met 

before the Bureau can undertake 

supervisory activity. The Bureau 

therefore declines to amend the 

Proposal in the manner suggested by 

this commenter. 

An industry commenter suggested 

that the dispute process could be an 

inefficient and costly exercise if there is 

no intent to supervise a person. The 

Bureau notes, however, that the 

response process only comes into play 

if the Bureau informs a person that it 

intends to undertake a supervisory 

activity in connection with that person, 

and if that person decides to dispute 

whether it is a larger participant. 

The Bureau also received a comment 

suggesting that the final rule provide a 

way for a person to request and obtain 

from the Bureau an advance largerparticipant determination. The Bureau 

believes that providing an assessment as 

to whether a person qualifies as a larger 

participant, absent any intent of the 

Bureau to initiate supervisory activities 

in connection with the person, would be 

unnecessary and burdensome to the 

Bureau. A market participant should be 


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46 77 FR 39617 (July 5, 2012), codified at 12 CFR 

Part 1070. 

47 12 U.S.C. 5514(b)(2). 

48 12 U.S.C. 5514(b)(2). 

49The rule defining larger participants must be 

promulgated ‘‘in accordance with paragraph (2),’’ 

which means paragraph (a)(2), not paragraph (b)(2). 

Paragraph (a)(2) does not refer to the multiple 

considerations listed in paragraph (b)(2). 50 13 CFR 121.104. 

capable of evaluating whether its 

activities qualify it as a larger 

participant. Additionally, such a 

process would be burdensome to the 

Bureau because, in addition to making 

such assessments with respect to market 

participants it considered examining, 

the Bureau could also be placed in the 

position of responding to myriad 

requests from market participants it 

does not have near-term plans to 

supervise. For these reasons the Bureau 

declines to amend the Proposed Rule to 

provide for advance determinations as 

described. 

Finally, the Bureau received 

comments from attorney and industry 

representatives expressing concern that 

nonbank covered persons will be 

obligated to provide attorney-client 

privileged information when 

challenging larger-participant status, or 

when the Bureau requires a person to 

provide information to support the 

Bureau’s evaluation of entities’ largerparticipant status. But the Proposal did 

not require that any covered person 

provide privileged documents to the 

Bureau to support a challenge of largerparticipant status. Of course, a person 

may choose to submit privileged 

documents in the course of such a 

challenge, although it is difficult to 

conceive of a need to submit privileged 

information to document an entity’s 

representations as to its annual receipts. 

Pursuant to a rule recently adopted by 

the Bureau, such a submission would 

not result in a waiver of any applicable 

privilege as to third parties.46 Similarly, 

while under § 1090.103(d) the Bureau 

may require the submission of 

documents, the Bureau does not 

presently anticipate that, absent unusual 

circumstances, it would request 

attorney-client privileged material 

under this provision. In any event, the 

Bureau’s recently adopted rule 

regarding submissions of privileged 

information would apply to material 

provided in response to such a request. 

For the reasons discussed above, the 

Bureau adopts § 1090.103, as proposed 

in § 1090.104 of the Proposed Rule, 

amended to increase the response 

period for disputing larger-participant 

status from 30 days to 45 days with 

additional minor technical amendments 

for consistency. 

Subpart B—Markets 

Section 1090.104—Consumer Reporting 

Market 

As discussed in the Summary of the 

Final Rule, above, the consumer 

reporting market is of fundamental 

importance to markets for many other 

consumer financial products and 

services, affecting hundreds of millions 

of consumers. The market includes 

consumer reporting agencies selling 

comprehensive consumer reports, 

consumer report resellers, analyzers, 

and specialty consumer reporting 

agencies (collectively these market 

participants are referred to as consumer 

reporting entities). 

Several commenters criticized the 

Bureau’s decision to supervise larger 

participants of the proposed consumer 

reporting market. They contended that 

the Dodd-Frank Act requires the Bureau 

to consider four specific factors in 

issuing a rule under 12 U.S.C. 

5514(a)(2): ‘‘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.’’47 These commenters 

argued that a failure to consider these 

four factors would be arbitrary and 

capricious. 

The Bureau believes that these 

commenters have misinterpreted the 

scope and purpose of 12 U.S.C. 

5514(b)(2). That subsection describes 

how the Bureau must ‘‘exercise its 

authority under paragraph [(b)](1),’’ 48

which in turn authorizes the Bureau to 

supervise ‘‘persons described in 

subsection (a)(1).’’ The final rule does 

not exercise authority provided by 

subsection (b)(1). Rather, it 

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

falling within subsection (a)(1), by 

defining a category of ‘‘larger 

participant[s].’’ In choosing which 

persons subject to that authority to 

supervise, the Bureau will consider the 

factors set forth in paragraph (b)(2). The 

Dodd-Frank Act does not mandate 

consideration of those factors before 

issuing the rule that establishes the 

category itself under paragraph (a)(1).49

The text of paragraph (b)(2) supports 

this interpretation. The factors to 

consider include ‘‘the asset size of the 

covered person’’ and the transaction 

volume of ‘‘the covered person.’’ These 

factors are relevant with respect to a 

particular person being considered for 

supervision. The reference to a single 

covered person suggests this provision 

does not apply to a rule, like the instant 

one, defining a category of many 

covered persons. 

These commenters also asked the 

Bureau to explain why it is choosing 

consumer reporting 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 of a given market that 

the market identified in the rule has a 

higher rate of non-compliance, 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 

supervision’s purposes include 

assessing compliance and risks posed to 

consumers, suggests that the Bureau 

need not determine the level of 

compliance and risk in a market before 

issuing a rule that renders larger 

participants of the market subject to 

supervision. Choosing consumer 

reporting as the subject of this rule is 

reasonable because consumer reporting, 

as defined in the rule, is an important 

activity that affects hundreds of millions 

of consumers and because supervision 

of larger participants of this market will 

be beneficial to consumers and markets 

and will further the Bureau’s mission to 

ensure consumers’ access to fair, 

transparent, and competitive markets for 

consumer financial products and 

services. 

Section 1090.104 (a)—Market-Related 

Definitions 

Annual receipts. The proposed 

definition of ‘‘annual receipts’’ was 

informed by the method of calculating 

‘‘annual receipts’’ used by the SBA in 

determining whether a firm is a ‘‘small 

business’’ concern.50 Under the 

proposed definition, for purposes of 

calculating ‘‘annual receipts,’’ the term 

‘‘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. Under the Proposal, the 

term would not include net capital gains 

or losses. As proposed, annual receipts 

are measured as the average of a 

person’s three most recently completed 

fiscal years, as appropriate, or over the 

entire period the person has been in 

business if that is less than three 


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51 ‘‘Completed fiscal year’’ is a defined term 

under § 1090.101 of the final rule. A ‘‘completed 

fiscal year’’ means a ‘‘tax year’’ including any 

‘‘fiscal year,’’ ‘‘calendar year,’’ or ‘‘short tax year.’’ 

A ‘‘fiscal year’’ is 12 consecutive months ending on 

the last day of any month except December 31. A 

‘‘calendar year’’ is 12 consecutive months beginning 

on January 1 and ending on December 31. A ‘‘tax 

year’’ is an annual accounting period for keeping 

records and reporting income and expenses. An 

annual accounting period does not include a ‘‘short 

tax year.’’ A ‘‘short tax year’’ is a ‘‘tax year’’ of less 

than 12 months. IRS Publication 538, available at 

http://www.irs.gov/publications/p538/ar02.html. 

52Comments relating solely to the debt collection 

market will be addressed in the final rule for that 

market. 

53See IRS tax forms 1120 and 1120S. 

54As noted in the Proposal, if an entity has not 

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

will reflect the shorter period of its existence. 

55 12 U.S.C. 5481(15)(A)(ix). 

56This definition might also include entities such 

as credit scoring companies. Whether such an entity 

completed fiscal years.51 The proposed 

calculation of annual receipts would 

also 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. 

The Bureau received a number of 

comments relating to ‘‘annual 

receipts.’’ 52 Many commenters 

expressed concerns or raised objections 

to the use of annual receipts to measure 

participation in the consumer reporting 

market. One commenter asked whether 

the Bureau intends to bind itself to IRS 

guidance and related tax law and 

recommended that the Bureau provide 

examples of how different industry 

participants should calculate annual 

receipts under the final rule. The 

Bureau notes that to the extent IRS tax 

forms are utilized by a nonbank covered 

person to calculate receipts, which 

consist of ‘‘total income’’ (or in the case 

of a sole proprietorship, ‘‘gross 

income’’) plus ‘‘cost of goods sold,’’ the 

person should rely on IRS guidance. 

Additionally, the Bureau believes that 

there may be a variety of circumstances 

facing covered persons and the Bureau 

is not in a position to ascertain the most 

appropriate or useful examples to 

include in the final rule. Therefore, the 

Bureau declines to provide examples of 

how market participants should 

calculate annual receipts. 

Several industry commenters argued 

that the definition of ‘‘annual receipts’’ 

counts part of a company’s revenue 

twice, by including both total sales and 

cost of goods sold. These commenters 

suggested raising the threshold for 

qualifying as a larger participant of the 

consumer reporting market from more 

than $7 million to $14 million in annual 

receipts. Properly understood, the 

measurement of ‘‘annual receipts’’ does 

not involve double counting. In 

calculating total income, cost of goods 

sold is subtracted from various sources 

of income.53 Thus, in calculating annual 

receipts, cost of goods sold is added 

back in to offset the original subtraction 

of the identical figure. The Bureau 

therefore declines to amend the 

definition of ‘‘annual receipts’’ based on 

this comment. 

The Bureau received several 

comments on the appropriate 

measurement period for assessing 

larger-participant status (and thus when 

the supervision period begins). One 

consumer group suggested that to 

capture participants whose annual 

receipts are increasing, a person should 

be deemed a larger participant if the 

person had annual receipts meeting the 

applicable threshold either as an 

average of annual receipts over the last 

three fiscal years, or in the most recent 

fiscal year. Conversely, some 

commenters, believing the Proposal 

already specified that larger-participant 

status would be triggered by a single 

year’s results, argued that businesses 

would forego growing in order to avoid 

accidentally coming within the Bureau’s 

supervisory authority. One commenter 

suggested that an entity should qualify 

as a larger participant only if its receipts 

were above the threshold for three years 

in a row. 

To clarify, under the rule ‘‘annual 

receipts’’ generally are not based solely 

on the receipts of a single year.54 The 

Bureau agrees with those commenters 

who suggested that temporary 

fluctuations generally should not render 

an entity a larger participant. The 

proposed definition, by averaging a 

company’s receipts over a three-year 

period, reduces the impact of sudden 

and potentially temporary fluctuations 

in receipts a company may experience— 

both decreases and increases. Thus the 

Bureau declines to include generally as 

larger participants persons who have 

receipts above the threshold in only the 

most recent fiscal year. For the reasons 

discussed above, the Bureau adopts the 

definition of annual receipts as 

proposed, with minor technical 

amendments, including a relocation of 

the definition into the section for 

consumer reporting market-specific 

definitions (Subpart B, § 1090.104(a)). 

Consumer reporting. The final rule 

defines a market for ‘‘consumer 

reporting,’’ which is among the 

consumer financial products or services 

described in 12 U.S.C. 5481(15)(A)(ix) 

and (5)(B). Activities covered under 

these provisions of the Dodd-Frank Act 

include, subject to certain exceptions, 

‘‘collecting, analyzing, maintaining, or 

providing consumer report information 

or other account information, including 

information relating to the credit history 

of consumers, used or expected to be 

used in connection with any decision 

regarding the offering or provision of a 

consumer financial product or 

service.’’ 55 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 final rule describes a market for 

products and services that fall within 

the category of consumer financial 

products and services described by 

these provisions of the Dodd-Frank Act. 

The final rule’s definition of ‘‘consumer 

reporting’’ is not meant to track related 

provisions in the Dodd-Frank Act. The 

final rule has a different purpose: rather 

than describing the scope of a certain 

consumer financial product or service, it 

identifies a specific market for such a 

product or service. That market is not 

necessarily co-extensive with the 

statutory category into which the market 

activities fit. Indeed, the final rule 

excludes from ‘‘consumer reporting’’ the 

activities of persons that furnish 

information about their own, or their 

affiliates’, experiences or transactions 

with consumers to consumer reporting 

entities and persons that use consumer 

report or other account information for 

their own purposes. Such activities may 

be within the ambit of the consumer 

financial products or services described 

in 12 U.S.C. 5481(15)(A)(ix) and (5)(B), 

but the Bureau does not regard them as 

part of the market covered by the final 

rule, for the reasons discussed in the 

paragraphs below. 

The Proposal stated that the term 

‘‘consumer reporting’’ means collecting, 

analyzing, maintaining, or providing 

consumer report information or other 

account information, used or expected 

to be used in any decision by another 

person regarding the offering or 

provision of any consumer financial 

product or service. The Bureau stated 

that the proposed definition would 

cover different types of consumer 

reporting entities such as credit bureaus, 

consumer report resellers, analyzers, 

and specialty consumer reporting 

agencies like those specializing in 

consumer check verification and 

reporting of payday lending 

transactions.56 The proposed definition 


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is covered under this definition would depend 

upon its particular activities. To the extent that a 

credit scoring company is engaged in collecting, 

analyzing, maintaining, or providing consumer 

report or other account information for the purposes 

described above, it would be covered by the 

proposed definition. Several consumer groups 

suggested that the Bureau should explicitly state in 

the text of the regulation that credit scoring 

providers or developers are service providers. 

Assessing whether a particular entity is a service 

provider to a larger participant under the DoddFrank Act requires an evaluation of the person’s 

activities. The Bureau declines to identify specific 

activities that might make a person a service 

provider to a larger participant, or to provide an 

exhaustive list of such activities. 

57The FCRA defines ‘‘consumer report’’ as ‘‘any 

written, oral, or other communication of any 

information by a consumer reporting agency bearing 

on a consumer’s credit worthiness, credit standing, 

credit capacity, character, general reputation, 

personal characteristics, or mode of living which is 

used or expected to be used or collected in whole 

or in part for the purpose of serving as a factor in 

establishing the consumer’s eligibility for—(A) 

credit or insurance to be used primarily for 

personal, family, or household purposes; (B) 

employment purposes; or (C) any other purpose 

authorized under [the FCRA].’’ 15 U.S.C. 

1681a(d)(1). There are several statutory exclusions, 

including one for reports of information relating 

solely to transactions or experiences between the 

consumer and the person making the report. 15 

U.S.C. 1681a(d)(2). The definition of ‘‘consumer 

reporting agency’’ covers any person that, for 

monetary fees, dues, or on a cooperative nonprofit 

basis, regularly engages in the practice of 

assembling or evaluating information on consumers 

for the purpose of furnishing consumer reports to 

third parties. 15 U.S.C. 1681a(f). 

58The Bureau received several comments 

asserting that specific activities that the 

commenters described, or in a few cases specific 

companies, were not within the market described 

by the rule. For example, one commenter suggested 

that providing a credit report on the owner of a 

small business to support a lender’s decision 

whether to extend credit to the business should not 

be within the scope of the consumer reporting 

market. The Bureau does not believe it is 

appropriate to address whether each activity or firm 

mentioned by a commenter would be covered by 

the final rule. Whether specific activities fall within 

the definition of ‘‘consumer reporting’’ will be 

assessed by the Bureau when considering whether 

to initiate supervisory activities relating to a given 

company. 

59The Bureau also does not believe that it is 

necessary to define the term ‘‘consumer reporting 

agency’’ in the regulation, as one commenter 

requested. A person may look to the definition of 

‘‘consumer reporting’’ to determine whether it 

engages in activities that may qualify it as a larger 

participant of that market. The Bureau refers to the 

various participants of the market, including credit 

bureaus, resellers, analyzers, and specialty 

consumer reporting agencies, collectively as 

consumer reporting entities. 60 12 U.S.C. 5514(b)(1). 

also excluded several activities from the 

consumer reporting market. First, a 

person’s providing information on its 

own transactions or experiences with 

consumers to its affiliates would not 

constitute consumer reporting. Second, 

a person’s providing information on its 

own (or its affiliates’) transactions or 

experiences to a consumer reporting 

entity would also be excluded. Third, 

the proposed definition incorporated 

the exclusion detailed in 12 U.S.C. 

5481(15)(A)(ix) for information used 

solely in a decision regarding 

employment, government licensing, or 

residential leasing. 

The final rule adopts the proposed 

definition of ‘‘consumer reporting’’ with 

several modifications. The final rule 

prescribes a broader exclusion for 

providing a company’s information on 

its own transactions and experiences 

with consumers; the Bureau will not 

treat a company’s provision of such 

information to any other person to be 

‘‘consumer reporting.’’ The final rule 

also adds an exclusion for information 

that amounts to an authorization or 

approval of a specific extension of 

credit, directly or indirectly, by the 

issuer of a credit card or similar device. 

The Bureau received many comments 

on the definition of the term ‘‘consumer 

reporting.’’ One category of comments 

focused on the relationship between the 

consumer reporting activities covered 

by the Proposed Rule and those subject 

to the FCRA. First, a number of 

commenters criticized the definition for 

departing from the definitions of 

‘‘consumer report’’ and ‘‘consumer 

reporting agency’’ in the FCRA.57

Several of these commenters suggested 

that the difference between the 

Proposed Rule and the FCRA would 

cause uncertainty and confusion. They 

argued that some persons that do not 

consider themselves to be in the 

consumer reporting market would, 

unknowingly, nevertheless be subject to 

Bureau supervision. Other persons, the 

commenters contended, would 

erroneously believe they were subject to 

supervision and would waste effort 

preparing for examinations.58

The Bureau did not intend the 

Proposal’s definition of ‘‘consumer 

reporting’’ to mirror the scope of the 

FCRA’s definitions of ‘‘consumer 

report’’ and ‘‘consumer reporting 

agency.’’ 59 In some respects the 

proposed definition of ‘‘consumer 

reporting’’ was narrower than these 

FCRA definitions because it excluded 

information to be used solely in a 

decision for employment, government 

licensing, or residential leasing or 

tenancy. In other respects the proposed 

definition may have been somewhat 

broader than the coverage of the FCRA. 

For example, ‘‘consumer report 

information, or other account 

information,’’ for purposes of the 

Proposed Rule, could include 

information beyond what would be 

considered a ‘‘consumer report’’ under 

the FCRA. Similarly, certain entities 

that are not ‘‘consumer reporting 

agencies’’ within the meaning of the 

FCRA—such as certain analyzers of 

consumer report information—may be 

larger participants of the consumer 

reporting market delineated by the final 

rule. The Bureau’s rule and the FCRA 

serve two different purposes. The FCRA 

is a substantive consumer protection 

statute that governs the activities of 

consumer reporting agencies (and other 

persons that furnish information to or 

receive information from such agencies). 

The rule, by contrast, defines larger 

participants of a market for consumer 

reporting for purposes of initially 

delineating the scope of coverage of the 

Bureau’s supervision authority. 

The Bureau’s supervisory activities 

will extend beyond assessing consumer 

reporting agencies’ compliance with the 

FCRA. The Bureau will also assess 

compliance with other Federal 

consumer financial law, and compliance 

with such law by persons other than 

those that the FCRA defines as 

consumer reporting agencies. Moreover, 

the Bureau’s supervisory activities will 

seek to obtain information regarding 

activities and compliance systems and 

procedures of supervised persons and to 

detect and assess risks to consumers and 

markets for consumer financial products 

or services.60 The Bureau emphasizes 

that the proposed definition of 

‘‘consumer reporting’’ is relevant only to 

the final rule and has no applicability to 

the scope, coverage, definitions, or any 

other provisions of the FCRA or any 

other law or regulation. Therefore, the 

Bureau declines to conform the 

proposed definition of ‘‘consumer 

reporting’’ to the FCRA’s definitions of 

‘‘consumer report’’ and ‘‘consumer 

reporting agencies.’’ 

Second, several commenters pointed 

to what they said was a particularly 

important departure from the FCRA. 

According to these commenters, the 

proposed definition of ‘‘consumer 

reporting’’ covered circumstances in 

which a person does not provide 

information to a third party, for the 

third party’s use in connection with a 

decision regarding the offering or 

provision of a consumer financial 

product or service. As an initial matter, 

it should be noted in this context that 

the final rule excludes a person’s 

provision for any purpose of 

information about its own transactions 

or experiences with consumers. 

Moreover, under the proposed 

definition, the consumer reporting 

market covered collecting, analyzing, 

maintaining, or providing consumer 

report or other account information for 

its use or expected use ‘‘by another 

person’’ in a decision regarding the 

offering or provision of a consumer 


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61The Bureau also noted in the Proposal that 

many large furnishers of information to consumer 

reporting entities are already subject to the Bureau’s 

supervisory authority under the Dodd-Frank Act, 

and future larger participant rules may bring 

additional furnishers of information under the 

Bureau’s supervisory authority. As noted above, 12 

U.S.C. 5514 grants the Bureau authority to 

supervise, regardless of size, nonbank covered 

persons that offer or provide to consumers: (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. Additionally, the Bureau has the authority to 

supervise nonbank covered persons it has a 

reasonable cause to believe pose risks to consumers, 

after providing notice and a reasonable opportunity 

to respond. 12 U.S.C. 5514(a)(1)(C). Thus to the 

extent a significant nonbank covered person 

engaged in furnishing not otherwise covered is 

posing risks to consumers, the Bureau could 

exercise supervisory authority over the person on 

some other basis. Furthermore, under 12 U.S.C. 

5515, the Bureau has the authority to supervise 

other furnishers such as very large banks, thrifts, 

and credit unions, and their affiliates. 

62Because the Bureau is adding a broad exclusion 

permitting a person to provide its own transaction 

and experience information with other persons to 

the final rule, the exclusion for furnishing 

information to a consumer reporting entity has been 

amended to address only the activity of a person 

providing transaction and experience information 

of an affiliate to a consumer reporting entity. 

63A similar exclusion is also included in the 

FCRA. 15 U.S.C. 1681a(d)(2)(B) (exclusion from the 

definition of ‘‘consumer report’’). 

financial product or service. Thus, the 

person using or expected to use the 

information must be different from the 

market participant collecting, analyzing, 

maintaining, or providing the 

information. It bears emphasizing, 

however, that the person using or 

expected to use the information in a 

decision regarding a consumer financial 

product or service need not be a market 

participant’s immediate customer. For 

example, resellers generally assemble 

and merge information contained in the 

databases of other consumer reporting 

agencies, and then provide reports 

including that information to third 

parties such as creditors that use the 

information to make a credit decision. 

Providing consumer report information 

to a reseller is included in the market, 

even though the reseller itself may not 

make decisions regarding the offering or 

provision of consumer financial 

products or services. 

Third, commenters also suggested 

dividing the consumer reporting market 

identified by the Proposal into 

submarkets. One commenter suggested, 

for example, defining a separate market 

to cover consumer reporting entities 

over which the Bureau wishes to 

exercise supervisory authority but that 

are not consumer reporting agencies 

under the FCRA. Another proposed 

having two markets, demarcated by a 

distinction that, the commenter said, the 

FCRA makes between national credit 

repositories and consumer report 

resellers. 

The Bureau believes that resellers, 

national credit repositories, specialty 

consumer reporting agencies, analyzers, 

and others engaged in consumer 

reporting activities as defined in the 

final rule are properly included in a 

single market. These different types of 

firms all participate in the process of 

preparing consumer financial 

information for use in decisions 

regarding consumer financial products 

or services. Moreover, many of the same 

legal requirements cover repositories, 

resellers, and specialty consumer 

reporting agencies. To the extent that 

the activities of larger participants of the 

consumer reporting market differ, the 

Bureau can adjust the scope and focus 

of its supervision activities accordingly. 

Therefore, the Bureau declines to revise 

the definition of consumer reporting to 

establish separate markets for consumer 

report resellers, the national 

repositories, and others engaged in 

consumer reporting activities. 

Another category of comments asked 

the Bureau to alter the scope of the 

proposed exclusions from the consumer 

reporting market. First, the Bureau 

received comments both in favor of 

expanding the exclusion for furnishing 

information and in favor of deleting that 

exclusion. 

Commenters opposing the exclusion 

expressed the view that the Bureau must 

ensure that it supervises major 

furnishers of information to consumer 

reporting entities, in addition to such 

entities as depositories and payday 

lenders that are otherwise subject to the 

Bureau’s supervisory authority. The 

Bureau believes that companies’ 

supplying information to consumer 

reporting entities on their own, or their 

affiliate’s, transactions or experiences 

with consumers was properly excluded 

from the Proposed Rule. Furnishing 

information of that type is typically 

incidental to the furnisher’s primary 

business, and an enormously wide 

variety of businesses furnish such 

information to consumer reporting 

entities. Therefore, including such 

activity in the definition of ‘‘consumer 

reporting’’ could have the unintended 

consequence of delineating such a broad 

consumer reporting market that it would 

encompass, for example, many types of 

consumer creditors. Because furnishing 

a company’s own transaction and 

experience data is fundamentally 

different from the activities defined by 

the rule as consumer reporting, the 

Bureau does not believe such furnishing 

should be included in the same market 

for purposes of implementing the 

nonbank supervision program for 

consumer reporting entities.61

Other commenters suggested 

broadening in various ways the 

exclusion for furnishing information. 

One commenter asked the Bureau to 

clarify that agents and contractors that 

transmit information about a company’s 

transactions or experiences with 

consumers on that company’s behalf do 

not thereby become participants of the 

consumer reporting market. It is the 

Bureau’s view that such agents or 

contractors would not be participating 

in the consumer reporting market 

merely by providing technical or 

operational support services to facilitate 

a person’s furnishing of its own 

transaction and experience information 

to a consumer reporting entity.62

Another commenter provided the 

example of a depository institution that 

provides information about a 

consumer’s account balances to a 

mortgage lender deciding whether to 

extend a loan to the consumer. Because 

the Proposed Rule excluded only an 

entity’s provision of its transaction or 

experience information to its affiliates 

or to consumer reporting entities, this 

commenter believed the provision of 

information in its hypothetical example 

would fall within the scope of consumer 

reporting activities. The Bureau agrees 

that an entity’s providing its own 

transaction or experience information in 

this context should not be treated as a 

consumer reporting activity. 

Accordingly, the Bureau is adopting, in 

the final rule, a simpler, broader 

exclusion. The final rule excludes a 

person’s collecting, maintaining, 

analyzing, or providing its own 

transaction or experience information 

for use or expected use by another 

person in a decision regarding a 

consumer financial product or service. 

Such activity is excluded from the 

consumer reporting market defined by 

the rule, regardless of what person 

receives the information. 

A commenter also suggested 

excluding from the final rule providing 

information to process a transaction 

requested by a consumer, a possible 

activity of payment systems that process 

account transactions. The Bureau agrees 

that such payment system activities 

should be excluded from the final rule 

and amends the final rule by excluding 

any authorization or approval of a 

specific extension of credit directly or 

indirectly by the issuer of a credit card 

or similar device.63

Another commenter stated that 

companies that provide information 

outside the scope of the FCRA, but for 

use by third parties in decisions 

regarding the offering or provision of 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42887 

64Should appropriate circumstances arise, the 

Bureau will consider whether the activities the 

commenter describes fit within the rule’s definition 

of consumer reporting. 

65Moreover, as to the assertion that analyzers 

pose low risk to consumers, the Bureau notes that, 

as discussed in the Summary of Final Rule (Section 

III), above, the market for consumer reporting 

identified by the rule, which includes analyzers of 

consumer report information, is a significant market 

that affects hundreds of millions of consumers. The 

extent to which specific activities within that 

market may pose greater or lower risks to 

consumers does not determine whether to include 

the activities within the market; risk posed by a 

particular larger participant within the market for 

consumer reporting will be considered pursuant to 

12 U.S.C. 5514(b)(2), in the course of the Bureau’s 

exercise of its supervisory authority. 

66Modeling in the consumer reporting market 

often consists of licensing a statistical algorithm to 

other participants of the consumer reporting 

market. These statistical systems or tools that 

establish numerical values or categorizations can be 

used by a person who makes or arranges a loan to 

predict the likelihood of certain credit behaviors. 

These algorithms produce figures commonly known 

as ‘‘credit scores,’’ ‘‘risk predictors,’’ or ‘‘risk 

scores.’’ See 15 U.S.C. 1681g(f)(2)(A). 

67As indicated above, the Bureau may supervise 

a larger participant’s provision of consumer report 

information for employment screening, even though 

such activity does not count in the calculation of 

annual receipts that determines larger-participant 

status. 

consumer financial products or services, 

do not operate in a market that could 

reasonably be considered a ‘‘consumer 

reporting market.’’ This commenter 

specifically referenced what it described 

as Gramm-Leach-Bliley Act (GLBA)- 

covered products, including consumer 

identification authentication, or fraud 

detection and identity theft protection, 

over which the commenter asserted the 

Bureau has no jurisdiction, as a result of 

12 U.S.C. 5481(15)(B)(i). However, the 

cited provision says expressly that it 

applies ‘‘[f]or purposes of (A)(xi)(II),’’ 

and it does not purport to affect whether 

an activity constitutes a consumer 

financial product or service under any 

provision other than (A)(xi). For this 

and other reasons, the provision in 

question is not pertinent to this 

rulemaking. The Bureau therefore 

declines to alter the definition of 

‘‘consumer reporting’’ in the way this 

commenter suggested.64

Another commenter asserted that the 

proposed definition of ‘‘consumer 

reporting’’ included too broad a scope of 

‘‘analytical services.’’ The commenter 

suggested either excluding all analytical 

services or, at a minimum, providing 

other more limited exclusions for 

certain types of such services. The 

commenter also argued that analytical 

services should be excluded because the 

activity has a low risk of harm to 

consumers. 

Analyzing consumer report 

information is an important activity in 

the consumer reporting market, and, as 

with collecting, maintaining, and 

providing information, can be an 

important factor in decisions regarding 

the offering or provision of consumer 

financial products or services. 

Additionally, the Bureau is aware of 

some entities that engage in reporting of 

consumer information and also analyze 

that information, deriving receipts from 

that analysis. Just as businesses 

extending credit rely on the collecting, 

maintaining, or providing of consumer 

report information, some also purchase 

analyses of the underlying consumer 

report information. Analyzing activity 

generally is done for compensation and 

may result in annual receipts for the 

entity providing analytical services, and 

a company that meets the threshold on 

the basis of its analyzing activities will 

likely affect many consumers. For these 

reasons, the Bureau declines to exclude 

analyzing consumer information in 

general from the consumer reporting 

market.65

The commenter also suggested that if 

analytical services are not generally 

excluded, the Bureau should exclude 

analytical services rendered for a 

particular consumer financial services 

provider using that provider’s own 

information. The commenter argued that 

such services could be supervised in the 

context of examinations of the financial 

service provider itself, and that the 

Bureau’s supervision program should 

not be duplicative by covering providers 

of such analytical services as ‘‘larger 

participants.’’ The commenter 

additionally suggested excluding 

analytical services other than certain 

modeling services,66 arguing that the 

Bureau should focus its resources 

elsewhere. 

The Bureau clarifies that the 

consumer reporting market delineated 

in the final rule does not include the 

activity of providing analytical services 

regarding another person’s own 

information to that other person, where 

such analysis is used solely by that 

other person and is not provided to a 

third party (other than the other 

person’s affiliated companies). Such 

activity is not treated differently, in the 

final rule, from a person’s conducting its 

own analysis for its own use. A person’s 

analyzing its own consumer report or 

other account information, without the 

expectation that the information will be 

used in connection with a decision ‘‘by 

another person,’’ is not included in the 

defined consumer reporting market. It is 

the Bureau’s view that agents or 

contractors who analyze a person’s data 

on that person’s behalf, solely for that 

person’s use, are similarly not analyzing 

consumer report or other account 

information for use ‘‘by another 

person.’’ 

The Bureau also received comments 

from consumer groups and consumers 

arguing that the market for consumer 

reporting should include background 

screening for employment purposes. 

The Bureau notes that the proposed 

definition of ‘‘consumer reporting’’ 

excluded collecting, analyzing, 

maintaining, or providing consumer 

report or other information to the extent 

that the information is used solely in a 

decision regarding employment, 

government licensing, or residential 

leasing, because these are explicit 

exclusions under 12 U.S.C. 

5481(15)(A)(ix). Accordingly, the 

Bureau declines to amend the Proposal 

to include the activity of employment 

background screening in the final rule’s 

definition of ‘‘consumer reporting.’’ 67

For the reasons stated above, the 

Bureau adopts the Proposal’s definition 

of ‘‘consumer reporting,’’ amended as 

described above and with minor 

technical amendments for consistency. 

Section 1090.104(b)—Test To Define 

Larger Participants 

Criteria. As noted in the Proposal, the 

Bureau has broad discretion in choosing 

criteria for measuring whether a 

nonbank entity is a larger participant of 

any given market. In issuing the 

Proposal, the Bureau considered several 

criteria for measuring participants of the 

consumer reporting market. These 

included, among others, annual 

receipts; number of unique consumer 

reports sold or otherwise provided to a 

third party annually; number of 

individual consumers a nonbank 

covered person collects, analyzes, and 

maintains data about, or provides 

consumer reports on, annually; and 

number of employees. 

The Bureau proposed to use annual 

receipts as the measure of participation 

in the consumer reporting market. As 

explained in the Proposal, the Bureau 

believes that annual receipts resulting 

from consumer reporting activities is a 

reasonable indication of a person’s level 

of market participation and impact on 

consumers. Consumer reporting entities 

earn income from selling consumer 

reports and from other market-related 

activities that directly affect consumers. 

As a result, the greater the annual 

receipts of a consumer reporting entity, 

the greater its market participation and 

the greater its impact on consumers. 

In addition, as set forth in the 

Proposal, the proposed definition of 


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42888 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

68 Information concerning the SBA’s loan 

programs is available at: http://www.sba.gov/

category/navigation-structure/loans-grants/smallbusiness-loans/sba-loan-programs. 

69As another example, the Bureau’s definition of 

control, which establishes an affiliation between 

companies such that their receipts are aggregated 

during the calculation of ‘‘annual receipts,’’ is 

broader than the SBA’s definition of control. 

70For the purposes of the Economic Census, 

mercantile reporting agencies are ‘‘primarily 

engaged in compiling information on business 

firms, such as credit histories, and providing the 

information to financial institutions and others who 

have a need to evaluate the credit worthiness of 

those businesses.’’ Consumer reporting agencies are 

‘‘primarily engaged in compiling information on 

individuals, such as credit and employment 

histories, and providing the information to financial 

institutions, retailers, and others who have a need 

to evaluate the credit worthiness of those persons.’’ 

http://www.census.gov/epcd/ec97/def/

5614502.HTM and http://www.census.gov/epcd/

ec97/def/5614501.HTM. 

71 Available at http://factfinder2.census.gov/

faces/tableservices/jsf/pages/

productview.xhtml?pid=ECN_2007_US_56SSSZ4&

prodType=table, scroll to NAICS code 561450. 

Many Census tiers have flags in the receipts 

category, which read ‘‘withheld’’ to avoid 

disclosing data for individual companies; data are 

included in higher-level totals. Other aggregated 

revenue data are available in a table showing the 

concentration of revenues among the largest firms, 

which extend through the top 50. 

72 In the Proposal, the Bureau made estimates 

based on data available from the 2007 Economic 

Census for NAICS code 561450. Since issuing the 

Proposal, the Bureau has learned of additional 

detailed Economic Census data for NAICS code 

5614501, which encompasses ‘‘consumer credit 

reporting agencies’’ but not ‘‘mercantile reporting 

agencies,’’ in contrast to code 561450. These 

additional data have permitted the Bureau to refine 

its original estimates. First, the Bureau originally 

concluded that the consumer reporting market 

includes about 401 entities. This estimate was 

based on summary data for NAICS code 561450. 

The more detailed data permit the Bureau to refine 

its estimate to 410 consumer reporting entities. 

Second, the summary data for NAICS code 561450 

informed the Bureau that about 75 percent of 

establishments in the code, over all sizes of firms, 

were consumer reporting entities. The more 

detailed data for NAICS code 5614501 reveal that 

the 75 percent figure is fairly consistent throughout 

the distribution of firm sizes. Third, the more 

detailed data for NAICS code 5614501 permit a 

closer estimate of the number of firms with receipts 

between the threshold and $10 million. This 

estimate does not change the Bureau’s basic 

conclusions about how many firms are larger 

participants given the $7 million threshold; what 

fraction of the market they constitute; and what 

proportion of total receipts in the market they 

represent. The discussion of the threshold, below, 

will be based on the more refined data from NAICS 

code 5614501. The Bureau also received one 

comment suggesting that the Bureau use the 

Nationwide Mortgage Licensing System as a data 

source. However this source does not yet include 

data on the consumer reporting market. Another 

commenter suggested using a database maintained 

by the Federal National Mortgage Association. But 

that database only includes the names of a small set 

of reporting entities, and does not provide any other 

data. 

‘‘annual receipts’’ is adapted from the 

existing measure used by the SBA. 

Because the SBA uses a similar measure 

in its small business loan programs,68

the proposed test is expected to be 

sufficiently straightforward so as not to 

put undue burden on nonbank covered 

persons in determining whether they are 

subject to the Bureau’s nonbank 

supervision program. However, it bears 

noting that the Bureau’s definition of 

‘‘annual receipts’’ differs from the SBA’s 

in important respects. For example, as 

discussed below, the Bureau’s rule 

counts only receipts resulting from 

activities in the identified consumer 

reporting market; the SBA, by contrast, 

counts all receipts of entities engaged in 

certain consumer reporting activities. 

This difference excludes some receipts 

from the amount being counted toward 

the threshold that marks a larger 

participant.69

As further explained in the Proposal, 

the Bureau analyzed data from the 2007 

Economic Census on annual receipts for 

businesses in North American Industry 

Classification System (NAICS) code 

561450 (credit bureaus). One 

commenter noted that analyzers may 

not all be included in this NAICS code. 

The Bureau acknowledges that the 

Economic Census data have certain 

limitations and do not perfectly reflect 

the set of participants of the market 

defined by this rule. First, the Proposed 

Rule’s definition of ‘‘consumer 

reporting’’ does not correspond 

precisely to the NAICS code, which 

encompasses both ‘‘consumer credit 

reporting agencies’’ and ‘‘mercantile 

reporting agencies,’’ 70 but may not 

include other participants covered by 

the final rule’s definition of consumer 

reporting. Second, entities in NAICS 

code 561450 may report to the Census 

revenues that are not included in annual 

receipts resulting from consumer 

reporting as defined in the rule. Third, 

entities that fall within the NAICS code 

may not correctly identify themselves or 

may otherwise fail to respond to the 

Census. The Economic Census data are 

likely therefore both over- and underinclusive. An additional limitation of 

the Economic Census data for these 

codes is that the Census keeps 

aggregated annual receipts data 

confidential in certain tiers.71

Notwithstanding these limitations, the 

data reveal the general distribution of 

the size of participants of the consumer 

reporting market described in the final 

rule. In the Proposal, the Bureau invited 

commenters to provide additional data 

sources. None relevant to the consumer 

reporting market were identified.72

Commenters suggested a variety of 

alternative criteria such as the total 

number of unique consumer reports 

sold, the number of individual 

consumers on which an entity provides 

consumer reports, the number of 

complaints about an entity, an entity’s 

relative market share, or the annual 

receipts of an entity in a given 

geographic or demographic segment. 

The Bureau has broad discretion in 

choosing criteria to define larger 

participants of a given market, and does 

not believe these 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 

to devise a test for defining larger 

participants of the consumer reporting 

market on the basis of them 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 multi-line 

company to apportion employee time 

between market-related and other 

activities, and many responsibilities 

may be fulfilled by contractors rather 

than employees. 

Several commenters in or 

representing the consumer report 

reseller industry asserted that using 

annual receipts would result in double 

counting of cost of goods sold and thus 

result in the rule’s covering much 

smaller businesses than intended. As 

discussed in connection with the 

definition of ‘‘annual receipts’’ above, 

the cost of goods sold is not double 

counted. 

For the reasons set forth above, the 

Bureau declines to amend the Proposed 

Rule to change the criterion used in the 

larger-participant test for the consumer 

reporting 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 a 

nonbank covered person will qualify as 

a larger participant of the consumer 

reporting market. The Bureau proposed 

more than $7 million in annual receipts 

as the threshold to define larger 

participants of the consumer reporting 

market and adopts this threshold in the 

final rule for the following reasons. 

Available data indicate that a 

threshold of $7 million in annual 

receipts from consumer reporting 

activities will enable the Bureau to 

cover in its nonbank supervision 

program the largest consumer reporting 

repositories as well as a range of other 

larger consumer reporting entities that 

play an important role in the consumer 

financial marketplace. Coverage likely 

will include a number of larger specialty 

consumer reporting agencies, resellers, 

and analyzers. The Bureau believes that 

this threshold will cover a sufficient 

number of market participants to enable 

the Bureau effectively to assess 


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73As noted above, the Bureau now has access to 

more detailed data relating solely to consumer 

reporting entities than it did when it published the 

Proposal. The more detailed supplemental data 

confirm the Bureau’s original estimates; the Bureau 

relies on these data for the sake of improved 

accuracy. The Census data indicate there are 410 

consumer reporting businesses in NAICS code 

5614501. This figure is quite close to the number 

(401) estimated in the Proposal based on data for 

NAICS code 561450. The Bureau still regards 410 

as only an estimate for the number of firms in the 

consumer reporting market, because, as discussed 

above, some firms may not report their activities 

properly and some firms (such as certain analyzers) 

may not fall within this NAICS code. 

74See http://factfinder2.census.gov/faces/

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

ECN_2007_US_56SSSZ4&prodType=table, scroll to 

NAICS code 5614501. This calculation assumes that 

the 14 firms in the Census-defined tier between $5 

million and $10 million are evenly distributed 

throughout the tier. Because of uncertainty over the 

distribution within this tier, the Bureau 

acknowledges that its estimate of 30 consumer 

reporting agencies is only approximate, and that 

between 21 and 35 consumer reporting agencies 

may meet the threshold based on Census data. The 

Bureau based the 94 percent calculation on the 

amount of annual receipts generated by the 30 

largest consumer reporting agencies. The 20 largest 

consumer reporting agencies generate 92 percent of 

annual receipts in the industry. The Bureau 

estimates that the next 10 largest firms generate 

about 2 percent of annual receipts in the industry, 

for a total of 94 percent. 

75The median is estimated from data available at 

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

jsf/pages/productview.xhtml?pid=ECN_2007_US_

56SSSZ4&prodType=table, scroll to NAICS code 

5614501. 

76As noted in the Proposal, the Bureau produced 

these estimates by analyzing General Services 

Administration schedules and other publicly 

available price quotes from several consumer 

reporting firms. The Bureau acknowledges that in 

some instances consumer reports may cost more. 

77 In the mortgage market, originators routinely 

purchase ‘‘three-merged’’ and other credit reports 

sold by resellers, in order to facilitate their credit 

decisions. For example, the Federal Home Loan 

Mortgage Corporation, a government-sponsored 

entity that securitizes mortgages, has a Loan 

Prospector service that aids mortgage credit 

decisions. Loan Prospector, in turn, draws on a 

large network of resellers to provide originators 

these types of credit reports. See http://www.loan

prospector.com/about/features/mergedcredit

options.html. 

compliance and identify and assess 

risks to consumers, but at the same time 

cover only entities that can reasonably 

be considered ‘‘larger’’ participants of 

the market. 

As explained in the Proposal, while 

there are hundreds of consumer 

reporting entities, according to the 2007 

Economic Census, a threshold of more 

than $7 million in annual receipts will 

cover approximately 30 consumer 

reporting entities, or 7 percent of market 

participants. The Bureau continues to 

estimate that a threshold of more than 

$7 million will cover approximately 30 

out of 410 consumer reporting 

agencies,73 which collectively generate 

94 percent of industry receipts among 

consumer reporting agencies.74

However, some of those consumer 

reporting entities may be specialty 

consumer reporting agencies providing, 

for example, consumer reports only for 

employment background screening or 

rental decisions. As noted above, such 

entities do not come within the market 

as defined by the final rule. For 

comparison, the Bureau estimates that 

the median value of annual receipts in 

this industry is less than $500,000, 

significantly below the proposed 

threshold.75 Thus, the rule plainly 

brings within the scope of Bureau 

supervision only consumer reporting 

entities that can reasonably be described 

as larger participants of the consumer 

reporting market. 

As explained in the Proposal, the 

threshold of more than $7 million in 

annual receipts is consistent with the 

objective of supervising market 

participants that have a significant 

impact on consumers, in terms of the 

number of consumers affected by their 

operations. In the consumer reporting 

industry, prices range from two to three 

cents for prescreening products, from 

seven cents to sixty two cents for credit 

scores, and from one to two dollars for 

consumer reports, while some specialty 

reports may cost several dollars.76 Thus, 

a company with more than $7 million 

in annual receipts likely impacts several 

million consumers. Further, as stated 

above, the entities meeting the proposed 

threshold generate approximately 94 

percent of industry receipts. The Bureau 

believes that this level of coverage is 

appropriate in light of the highly 

concentrated nature of the consumer 

reporting market and the different types 

of firms encompassed in the market. For 

example, based on the more granular 

Economic Census data recently made 

available, the Bureau estimates that the 

six largest consumer reporting entities 

account for 85 percent of industry 

receipts. The Bureau believes that there 

are firms in addition to the largest six 

entities that have such a high level of 

participation in the market that they are 

reasonably deemed larger participants, 

and thus covering a substantial portion 

of the annual receipts in this market is 

warranted. 

The Bureau received comments from 

some consumer groups arguing that the 

threshold for qualifying as a larger 

participant of the consumer reporting 

market should be lowered. Other 

consumer group commenters suggested 

that the threshold should be revised to 

include any firm that has annual 

receipts of $7 million or more from any 

source, provided that at least $3.5 

million are from consumer reporting— 

which would effectively lower the 

threshold for multi-line businesses. For 

the reasons discussed above, the Bureau 

believes that a threshold of $7 million 

in annual receipts from consumer 

reporting activities serves the purposes 

and objectives of the larger-participant 

supervision program. Accordingly, the 

Bureau declines to alter the threshold 

for the consumer reporting market in 

either manner suggested by these 

commenters. 

As discussed in connection with the 

definition of ‘‘annual receipts,’’ other 

commenters suggested raising the 

threshold from more than $7 million to 

more than $14 million in annual 

receipts. The Bureau does not believe 

that setting the threshold higher than 

that proposed would result in sufficient 

coverage of the participants of the 

consumer reporting market. Defining the 

larger participants of the consumer 

reporting market as including more than 

just the largest firms serves the purposes 

and objectives of the Dodd-Frank Act. 

Some consumers may not have files at 

the largest consumer reporting agencies. 

Many consumers may not utilize a 

credit card or checking account, or 

otherwise participate in mainstream 

financial activities. As a result, the 

largest consumer reporting agencies may 

receive little, if any, data with which to 

maintain files on these consumers. 

However, these consumers may utilize 

alternative financial products such as 

payday loans or check cashing services, 

which in some instances may be 

reported to specialty consumer 

reporting agencies. Likewise, resellers 

may have a large impact on consumers 

in certain credit markets, such as the 

mortgage market.77 Setting the threshold 

too high would make it less likely that 

the larger resellers and larger specialty 

consumer reporting entities that 

compile information about consumers 

in alternative financial markets would 

be subject to supervision. 

Some commenters argued that the 

proposed threshold would cover firms 

with a relatively small amount of 

earnings. Implicitly, these commenters 

take issue with the use of annual 

receipts as a criterion and would prefer 

earnings as an alternative criterion. As 

discussed above, the Bureau believes 

annual receipts reasonably measure 

market participation and has not 

identified a superior alternative 

criterion for measuring such 

participation. Other commenters 

pointed out that the $7 million 

threshold would capture a relatively 

high percentage of firms in various 

market segments. The Bureau recognizes 

that the particular threshold of more 

than $7 million may capture more or 

fewer firms in specific market segments 


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42890 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

78The median is estimated from data available at 

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

jsf/pages/productview.xhtml?pid=ECN_2007_US_

56SSSZ4&prodType=table, scroll to NAICS code 

5614501. 

79 76 FR 63510 (Oct. 12, 2011). 

80The Proposal noted that with a threshold of 

more than $7 million, the category of larger 

participants would not include any small 

businesses (as defined by the SBA). The Bureau did 

not mean to suggest that small businesses cannot, 

in general, be ‘‘larger participants.’’ 81 76 FR 63513. 

within the consumer reporting market. 

Any threshold that operates marketwide will inevitably draw in more firms 

in some market segments than in others. 

Given the range of consumer reporting 

entities in the consumer reporting 

market identified by the final rule, the 

Bureau does not think it is practical to 

prescribe differing thresholds for more 

narrowly defined segments of the 

market. Doing so would effectively 

segregate the consumer reporting market 

covered by the final rule, which, for the 

reasons described above, the Bureau has 

determined would be inappropriate. 

One commenter, referring to the 

Bureau’s supervisory authority, 

pursuant to 12 U.S.C. 5515, over ‘‘very 

large’’ depository institutions and credit 

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

in assets and their affiliates, argued that 

the Bureau correspondingly should 

supervise only very large nonbank 

entities. But the Dodd-Frank 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 that are not subject to Bureau 

supervision under 12 U.S.C. 5515, 

nonbanks in the consumer reporting 

market that are not subject to 

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, 12 U.S.C. 5514 authorizes the 

Bureau to supervise entities that are 

‘‘larger’’ participants in a market, not 

merely ‘‘very large’’ participants. 

Accordingly, the Bureau declines to 

raise the proposed annual receipts 

threshold for the consumer reporting 

market in response to this comment. 

The Bureau also received a comment 

asserting that the proposed threshold 

would not acknowledge the existence of 

a middle market in consumer reporting. 

A pre-existing SBA regulation classifies 

a business in the consumer reporting 

market to be a ‘‘small business,’’ for 

SBA purposes, if its annual receipts are 

below $7 million. The commenter 

argued that if a business with over $7 

million in annual receipts is a ‘‘larger 

participant’’ under the Bureau’s rule, 

then every business in the market is 

either ‘‘small’’ or ‘‘larger,’’ a result the 

commenter considered nonsensical. 

The commenter appears to have 

assumed that ‘‘larger participants,’’ in 

12 U.S.C. 5514(a)(2), refers to the 

absolute size of the businesses in 

question. That is not how the Bureau 

understands the term. The Bureau 

interprets ‘‘larger participants’’ to mean 

those persons that participate to a 

relatively large degree in the relevant 

market. Market participation often 

increases with the size of a business, but 

a small business for SBA purposes can 

in principle be a larger participant, 

depending on market structure. If the 

Bureau recognized a market in which all 

the participants happened to qualify as 

small businesses, under an SBA 

definition, that market could still have 

‘‘larger participants’’ for purposes of the 

Dodd-Frank Act—a result the 

commenter’s assumption would 

foreclose. As described above, in NAICS 

code 5614501, corresponding to 

consumer reporting, the median figure 

for annual receipts is less than 

$500,000.78 Thus, many consumer 

reporting businesses that qualify as 

‘‘small businesses’’ under the SBA 

regulation are actually larger than at 

least 50 percent of market participants. 

The Bureau notes that the SBA has 

proposed to amend its size standard for 

the category corresponding to consumer 

reporting.79 Under the SBA’s proposed 

rule, a consumer reporting business 

would be a ‘‘small business’’ if it had 

$14 million or less in annual receipts. 

However, even if the SBA finalizes a 

regulation in accordance with this 

proposal, that change would not alter 

the degree to which various entities 

participate in the consumer reporting 

market. 

Commenters may have misunderstood 

the relationship between the SBA’s size 

standards and the measurement of 

‘‘larger participants’’ of a market 

because the Bureau adapted its 

definition of ‘‘annual receipts’’ from the 

SBA’s measure. The Bureau chose this 

approach for the convenience of covered 

persons. It did not intend, by doing so, 

to connect the SBA’s ‘‘small business’’ 

size standard to the Bureau’s largerparticipant test, or to suggest that $7 

million in annual receipts was chosen 

on that basis.80 The SBA’s measure and 

the Bureau’s threshold are used for 

different purposes and targeted to 

different statutory objectives. In setting 

its size standard, the SBA considers 

myriad factors—such as eligibility for 

Federal small-business assistance and 

Federal contracting programs; startup 

costs, entry barriers, and industry 

competition; and technological 

change 81—that differ from the concerns 

that motivate the Bureau’s definition of 

‘‘larger participants’’ in this rule. In 

addition, the Bureau’s ‘‘annual receipts’’ 

criterion differs in important respects 

from the SBA’s. For example, the SBA 

counts all of a person’s receipts in 

calculating annual receipts, while the 

Proposed Rule counted only receipts 

resulting from a market-related activity. 

Additionally, for purposes of 

aggregating annual receipts, the SBA 

and the final rule use different tests to 

assess whether persons are affiliates. 

Under the SBA test, one person controls 

another (thus making the two affiliates), 

where one person owns at least 50 

percent of voting stock of the other. 

Under the final rule, by contrast, for the 

reasons explained above, the power to 

vote 25 percent of a class of securities 

counts as control. Because of these 

differences, an entity’s receipts as 

calculated under the SBA regulation 

may be greater than its receipts for 

purposes of this rule. 

Another consumer reporting industry 

commenter stated that the Bureau 

should proceed very cautiously in 

setting the thresholds for coverage in the 

consumer reporting market until it has 

sufficient quantifiable data for 

establishing these thresholds. Although 

the Bureau has limited data, as 

described in the preceding section, the 

Bureau believes that these data are 

sufficient to understand the contours of 

the consumer reporting market and 

rationally set a threshold for larger 

participants of the market. In particular, 

the available data provide detail beyond 

summary statistics by grouping firms 

into size tiers, allowing the Bureau to 

estimate the general distribution of 

receipts throughout the market. This 

distribution of receipts, which the 

Bureau has relied upon for the estimates 

presented above, is adequate for 

defining a category of ‘‘larger 

participants.’’ 

In addition, the Bureau believes that 

one of the purposes of the nonbank 

supervision program as conceived by 

Congress is to gather more information 

about industries as to which little is 

known as compared to depository 

institutions. Congress underlined the 

importance of this effort by setting a 

one-year deadline for the initial larger 

participant rule. Thus, the Bureau 

believes that it should not delay its 

rulemaking because of imperfect data 

and acknowledges that the information 

gained from its supervisory and other 

activities may lead it to revise its 

thresholds over time. 


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82This commenter appears to have 

misapprehended the Proposed Rule to mandate that 

IRS forms are 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 restrict companies to relying solely on 

their IRS forms. The criterion by which market 

participation is measured is annual receipts 

resulting from consumer reporting; the Bureau is 

aware that this specific quantity does not 

necessarily correspond, for every company, to a 

figure reported to the IRS. In addition, the Proposal 

explained 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. 

83Specifically, 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. 

Finally, a few commenters 

recommended that the Bureau index the 

threshold for annual receipts for 

inflation. At this time, the Bureau does 

not intend to index for inflation 

because, to the extent necessary or 

appropriate, it expects to make 

adjustments to the threshold through 

future rulemakings to reflect not only 

inflation, but also other shifts in the 

nature and structure of the consumer 

reporting market and additional data as 

it becomes available to the Bureau. 

Apportionment. As noted in the 

Proposal, the Bureau recognizes that 

there are multi-line companies that 

derive only a portion of their annual 

receipts from activities related to the 

consumer reporting market. The 

Proposed Rule provided that the only 

annual receipts to be considered are 

those ‘‘resulting from’’ activities related 

to the consumer reporting market. 

The Bureau received a number of 

comments on the issue of 

apportionment. One consumer reporting 

industry representative supported the 

concept of apportionment, but suggested 

that it would be difficult and unduly 

burdensome unless the Bureau defines 

the consumer reporting market in a 

manner consistent with applicable 

statutes and industry practices. Another 

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.82 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. A 

consumer group suggested that the 

Bureau should count a company’s total 

annual receipts, from any of its revenue 

streams, toward the larger-participant 

threshold. This commenter 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. A group representing 

attorneys recommended that the Bureau 

provide greater clarity in the definition 

of the categories of annual receipts to be 

calculated to put regulated parties on 

notice of the applicable measurement. 

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. 

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 reporting market. At 

the same time, the Bureau acknowledges 

the concerns regarding burdens 

associated with apportionment. The 

Bureau, however, believes that 

participants of the consumer reporting 

market are reasonably aware of the 

sources of their revenue, and should 

thus be able to apportion without undue 

burden. Moreover, it bears noting that 

market participants are not required to 

apportion their annual receipts on a 

periodic or other basis under the final 

rule. 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 wished to challenge an assertion by 

the Bureau that it qualified 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 marketrelated activities. Furthermore, if the 

person wishes not 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 $7 million 

threshold for larger-participant status. 

Many larger participants would be 

above the threshold with or without 

apportionment. 

The Bureau does not believe that it 

would be helpful to provide specific 

guidance on what accounting methods 

entities should use to apportion annual 

receipts. The Bureau believes that 

nonbank covered persons facing 

different circumstances may 

appropriately use different 

apportionment methods that fairly 

reflect those circumstances and their 

business operations. Therefore the 

Bureau declines to set forth specific 

requirements or guidance on how to 

apportion annual receipts. The Bureau 

also 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 

reporting market. Accordingly, the 

Bureau adopts in the final 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 rule, the 

Bureau has considered potential 

benefits, costs, and impacts.83 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, and the 

National Credit Union Administration 

in connection with this rulemaking, 

including regarding consistency with 

any prudential, market, or systemic 

objectives administered by such 

agencies. 

The final rule establishes, in part, the 

scope of the Bureau’s nonbank 

supervision program, particularly with 

respect to ‘‘larger participants of other 


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84The 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. 

85One 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. Several others 

suggested, also without explanation, that they 

would each need to hire an additional employee to 

respond to Bureau supervision. 

86Pursuant to section 12 U.S.C. 5514(e), the 

Bureau also has supervision authority over service 

providers to nonbank covered persons encompassed 

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

participants. The service providers to consumer 

reporting larger participants might include data 

aggregators, law firms, account maintenance 

services, call centers, data and record suppliers, and 

software providers. The Bureau does not have data 

on the number or characteristics of service 

providers to the roughly 30 larger participants of 

the consumer reporting market. The discussion 

herein of potential costs, benefits, and impacts that 

may result from this Proposal generally applies to 

service providers to larger participants. 

87Another 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. 

markets for consumer financial products 

or services,’’ made subject to 

supervision by 12 U.S.C. 5514(a)(1)(B). 

The rule establishes general definitions, 

concepts, protocols, and procedures 

relating to the Bureau’s supervision of 

larger participants and the assessment of 

larger-participant status. The rule also 

identifies a market for consumer 

reporting in which the Bureau will 

conduct supervision and defines the 

‘‘larger participants’’ of that market. 

Participation in this market is assessed 

on the basis of annual receipts, 

generally averaged over three years, 

resulting from consumer reporting 

activities. If a nonbank covered person’s 

annual receipts from consumer 

reporting are over a threshold of $7 

million, the entity is a larger participant 

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 reporting market. 

B. Potential Benefits and Costs to 

Consumers and Covered Persons 

The 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.84 Before the 

Dodd-Frank Act, there was no Federal 

program for supervision of nonbank 

participants of the consumer reporting 

market. With the statute and the final 

rule in effect, the Bureau will be able to 

supervise participants of the consumer 

reporting market who have annual 

receipts from consumer reporting of 

more than $7 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 FCRA) 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.85 Over time, 

the Bureau expects to develop 

information related to these topics 

through its supervisory activities. 

In light of these data limitations, this 

analysis generally provides a qualitative 

discussion of the benefits, costs, and 

impacts of the final 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 benefits and costs. First, 

after the rule authorizes Bureau 

supervision in the consumer reporting 

market, participants of the market may 

respond to the possibility of supervision 

by changing their systems and conduct. 

Second, when the Bureau undertakes 

supervisory activity at specific firms, 

those firms will incur costs from 

participating in supervision, and the 

results of these individual supervisory 

activities may also produce benefits and 

costs.86 Third, the Bureau analyzes the 

costs associated with firms’ 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 rule subjects larger 

participants of the consumer reporting 

market to the possibility of Bureau 

supervision. That the Bureau is 

authorized to undertake supervisory 

activities with respect to a nonbank 

covered person that 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 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 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 subject 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 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 rule itself 

does not require any entity to alter its 

provision of consumer reporting 

products or services, 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 entities increase their 

compliance in response to the rule, that 

response will result in both benefits and 

costs.87


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42893 

88See Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 

52 (2007) (‘‘Congress enacted the FCRA in 1970 to 

ensure fair and accurate credit reporting, promote 

efficiency in the banking system, and protect 

consumer privacy.’’); see also Gelman v. State Farm 

Mut. Auto. Ins. Co., 583 F.3d 187, 191 (3d Cir. 

2009); Vassalotti v. Wells Fargo Bank, 815 

F.Supp.2d 856, 863 (E.D. Penn. 2011). 

89Several studies have identified the problems 

that inaccurate consumer reporting creates in credit 

markets. E.g., Avery, Robert B., et al., Credit Report 

Accuracy and Access to Credit, 2004 Federal 

Reserve Bulletin 297, 314–15 (estimating fraction of 

individuals for whom inaccuracies in credit reports 

might affect credit terms); see also id. 301–02 (citing 

prior research). 

90Sometimes the providers of consumer financial 

products and services bear the cost of consumer 

reports; sometimes consumers pay directly for 

consumer reports, as when a creditor requires a 

consumer to pay for the report the creditor uses in 

reviewing the consumer’s loan application. 

a. Benefits From Increased Compliance 

Increased compliance would be 

beneficial to consumers that are affected 

by consumer reporting. As discussed 

above, the potential pool of affected 

consumers is very broad. Consumer 

reporting is integrally connected with 

many consumer financial products and 

services and plays a key role in 

decisions regarding such products and 

services. A number of Federal consumer 

financial laws, including, among others, 

the FCRA and Title X of the Dodd-Frank 

Act, and related regulations, offer 

substantive protections to consumers 

regarding consumer reporting products 

and services. Increasing the rate of 

compliance with such laws will benefit 

consumers by providing more of the 

protections mandated by those laws. 

For example, the FCRA encourages 

providers of consumer reports (as 

defined in the FCRA) to ensure that they 

provide accurate information.88

Therefore, increased compliance with 

the FCRA would likely result in the 

availability of more accurate consumer 

report information in the marketplace. 

Because consumer report information is 

often critical in decisions regarding 

consumer financial products and 

services, more accurate information 

could lead to better decisions.89

Inaccurate information, for example, 

could lead to a consumer’s being denied 

a loan that the consumer could afford to 

and would be likely to repay. Inaccurate 

information could also lead to a 

consumer’s being offered credit at an 

interest rate higher than would be 

available if the creditor knew the 

consumer’s true credit history. 

Conversely, some inaccuracies, by 

exaggerating some consumers’ credit 

worthiness, may enable such consumers 

to receive lower interest rates than they 

otherwise would but understate their 

risk of default. In all these cases, 

increasing the accuracy of consumer 

report information should improve the 

pricing and allocation of credit. 

As another example, consumers have 

relatively little control over when and 

with whom a consumer reporting 

business shares information about them. 

Federal consumer financial law protects 

consumers by restricting the 

dissemination of certain information 

about them. Increased compliance 

would mean less disclosure of consumer 

information to improper recipients or in 

inappropriate circumstances. 

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. Entities 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, entities 

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 

incur operating costs. 

An entity that does incur costs in 

support of increasing compliance may 

try to recoup those costs by increasing 

the prices of its consumer reporting 

products and services.90 Whether and to 

what extent this increase occurs will 

depend on competitive conditions in 

the consumer reporting market. For 

example, if changed procedures 

produced more valuable consumer 

report information—for example, due to 

improved accuracy—a company might 

be able to charge more for the 

information. If demand for consumer 

report information is fairly inelastic, 

consumer reporting entities may, in the 

short or medium term, be able to shift 

to the users of consumer reports a larger 

portion of the cost of increased 

compliance. 

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 reporting 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 firm’s compliance 

mechanisms and the risks the firm poses 

to consumers, among other topics. The 

Bureau will share the examination 

report with the subject firm, because 

one purpose of supervision is to inform 

the firm of problems detected by 

examinations. 

Thus, for example, an examination 

may reveal that, due to the design of its 

procedures, a company has an 

unexpectedly high rate of errors in its 

consumer report information. Or an 

examination may determine that a 

company’s handling of consumer 

information poses inappropriately high 

risk of improper disclosure. 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 comply. The 

Bureau might conclude that an 

inadequacy in a company’s information 

system poses avoidable risks to 

consumers. 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 be 

a benefit to consumers. 

Given the obligations consumer 

reporting entities have under Federal 

consumer financial law and the 

existence of efforts to enforce such law, 

the results of supervision may also 

benefit firms under supervision by 

detecting compliance problems early. 

When a firm’s level of noncompliance 

has attracted an enforcement action, the 

company must both face the penalties 

for noncompliance and 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 


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42894 Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 

91The Bureau recognizes that responding to 

examinations and other supervisory requests will 

entail certain other costs, such as photocopying and 

other costs of producing information. The costs of 

collecting and producing information may include 

more general costs for evaluating how to participate 

in and respond to supervisory activity. The Bureau 

has focused on staff time in collecting and 

providing information in order to provide an 

approximate sense of the magnitude of the key cost 

involved. 

92Bureau 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. 

93All figures assume 40 hours of work per week. 

94The 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. 

95One commenter, the National Credit Reporting 

Association, reported that a survey of its members 

in April 2012 found that consumer reporting 

businesses with annual receipts near the threshold 

typically have net profit margins of six to eight 

percent. The commenter did not explain the 

methodology for its survey or explain what 

statistical concept it meant by ‘‘typical.’’ 

Accordingly, the Bureau does not regard the 

commenter’s six to eight percent figure as 

scientifically reliable. However, if the commenter is 

correct that this range represents a profit margin the 

Bureau could reasonably assume for the smallest 

businesses qualifying as larger participants under 

the rule, the estimated upper bound for the cost of 

examinations (0.17 percent for businesses at the 

threshold of qualifying as larger participants and 

0.008 percent industry-wide) is relatively minor. 

96Of course, multiple individuals, both inside 

and outside a firm, might participate in a 

supervisory activity. This rough estimate is meant 

to represent the aggregate amount of labor resources 

a company might dedicate to responding to 

supervisory activity. 

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 

enforcement or private litigation, 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 firms under supervision by 

reducing the need for other 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, to covered persons, or to 

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, and 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 

firms’ 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. 

As described in the section-by-section 

analysis of the definition of 

‘‘supervision and supervisory activity,’’ 

in Section V above, supervisory activity 

may involve requests for information or 

records, on-site or off-site examinations, 

or some combination of these activities. 

For example, in an on-site examination, 

generally, Bureau examiners begin by 

contacting the firm 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 firm’s processes 

and procedures. The examiners will also 

review documents, records, and 

accounts to assess the firm’s compliance 

and evaluate the firm’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 a firm can 

expect the examiners to request and 

review, both before they arrive and 

during their time on-site. The primary 

cost a firm faces in connection with an 

examination is the cost of employees’ 

time to collect and provide the 

necessary information.91

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 

firms may expend to cooperate with 

such examinations. Further, the 

duration of any examination of a firm 

will depend on a number of factors, 

including the size of the firm, the 

compliance or other risks identified, 

whether the firm has been examined 

previously, and the demands on the 

Bureau’s supervisory resources imposed 

by other firms and markets. 

Nevertheless, some rough estimates may 

be useful to provide a sense of the 

magnitude of potential staff costs that 

firms may incur. 

At firms within the category of larger 

participants with annual receipts close 

to the threshold of more than $7 

million, typical examinations might be 

relatively brief. Bureau examiners might 

review materials and interview 

employees for four weeks, and a firm 

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.92 Six weeks of 

such an employee’s time would cost less 

than $12,000.93 For a larger participant 

with annual receipts from consumer 

reporting of $7 million, this cost would 

represent 0.17 percent of those annual 

receipts.94 Even if an examination 

required twice as much employee time, 

the cost would still come to only 0.34 

percent of annual receipts for such a 

firm.95

By contrast, at the very largest firms 

in the market, supervisory activity could 

last much longer. Given the complexity 

of a very large company, Bureau 

examiners might need months to review 

the relevant materials. Such a company 

might dedicate the equivalent of two 

full-time employees to participate in the 

examination.96 The cost of eight months 

of employee time (four months each for 

two employees) would be about 

$68,000, or about 0.07 percent of annual 

receipts for a firm with $100 million in 

receipts. 

For a firm 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 a firm might devote the equivalent 

of one full employee during that time 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42895 

97As noted above, there are roughly 30 entities 

whose annual receipts from consumer reporting 

exceed the $7 million threshold. 

98See http://factfinder2.census.gov/faces/

tableservices/jsf/pages/productview.

xhtml?pid=ECN_2007_US_

56SSSZ4&prodType=table, scroll to NAICS code 

5614501. $4.3 billion represents 94 percent of all 

receipts for ‘‘consumer credit reporting agencies,’’ 

which total $4.55 billion. 99 12 U.S.C. 5514(b)(2). 

and for two weeks beforehand to 

prepare materials for the examination. 

Thus, a typical exam 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 0.008 

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 six largest market 

participants will be examined every 

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

giving an average annual cost of 

$204,000. The Bureau assumes that each 

of the remaining larger participants will 

be examined once every three years, at 

a cost of $20,000 each, giving an average 

annual cost of $160,000. The total staff 

cost of responding to supervision comes 

to approximately $364,000 annually.97

This figure represents 0.008 percent of 

the aggregate annual receipts—$4.3 

billion 98—of the larger participants of 

the consumer reporting market. 

The Bureau declines to predict, at this 

point, precisely how many 

examinations in the consumer reporting 

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 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 companies 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 a 

quantity, annual receipts, that for many 

companies should correspond to data 

they already report to the IRS. For such 

companies, assessing whether they 

satisfy the rule’s definition of larger 

participants will involve minimal 

expense. Potential differences from the 

IRS figures arise only for companies that 

have annual receipts arising from 

activities besides consumer reporting as 

defined in the rule. Some firms may 

have multiple distinct lines of business. 

The Bureau believes that such firms 

ordinarily have records for each 

division of the accounting quantities— 

income and costs—underlying the 

calculation of annual receipts. 

If, in addition, a company provides 

consumer report information sometimes 

for purposes excluded from the market, 

such as employment screening, and 

sometimes for purposes that fit within 

the rule’s definition of consumer 

reporting, the company’s accounting 

systems might not distinguish the two 

types of sale. However, most larger 

participants should not need such 

detailed information. The rule does not 

require market participants to submit 

data regularly on their annual receipts. 

Most of the time, a firm only needs to 

know its annual receipts to the extent it 

wants to determine in advance of any 

supervisory activity by the Bureau 

whether it is a larger participant. A firm 

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 reporting (as defined by the 

rule). A rough estimate would suffice to 

inform such a firm whether its 

consumer-reporting receipts cross the 

threshold. Most likely, the only firms 

that might need a more precise 

calculation of annual receipts would be 

those that have total receipts near the 

threshold and significant receipts from 

activities (like supporting employment 

screening) that would be excluded from 

the calculation. 

The data the Bureau currently has do 

not support a detailed estimate of how 

many companies will incur such costs, 

or how much they might spend. 

Regardless, firms would be unlikely to 

spend significantly more on accounting 

systems 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 firm is not a larger 

participant cannot necessarily protect a 

firm from being supervised. The Bureau 

can supervise a firm whose conduct the 

Bureau determines, pursuant to 12 

U.S.C. 5514(a)(1)(C), poses risks to 

consumers. Thus, a firm 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 

firms would undertake such 

expenditures. 

4. Consideration of Alternatives 

The Bureau considered selecting 

different thresholds for largerparticipant status in the consumer 

reporting market. If the threshold were 

much higher, say $100 million, then the 

Bureau’s supervisory authority under 

the rule would reach only the very 

largest firms—about six entities—in the 

market. Such an approach would reduce 

both the expected benefits to consumers 

and the costs to covered persons, 

because fewer firms would be subject to 

the Bureau’s supervisory authority. As 

the Proposal explained, if a change in a 

firm’s systems or practices results in 

increased compliance with Federal 

consumer financial law, such a change 

would produce greater benefit at a large 

firm than at a smaller one. The largest 

firms are expected to affect the most 

consumers, and any increase in 

compliance by such firms would benefit 

a 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 

firms below $100 million in annual 

receipts have particular compliance 

problems, bringing such firms within 

the Bureau’s supervisory authority, and 

conducting actual examinations at those 

firms, can be expected to produce larger 

increases in compliance than would 

supervising larger firms. The statutory 

criteria regarding supervision should 

ensure that those larger participants that 

are supervised are the same firms where 

the benefits from supervision are likely 

to be highest.99 The selected threshold 

of $7 million gives the Bureau the 

flexibility to direct its supervisory 

resources to the firms 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 


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100According to several commenters, the Bureau 

also overlooked the cost to 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. Yet the Bureau’s examination manual 

does not specify a particular format for compliance 

management policies. Of course, some companies 

may develop more involved compliance 

management systems than would be necessary or 

appropriate for their circumstances. The Bureau 

has, and commenters provided, no information on 

the basis of which to assess the possible magnitude 

of such an effect. 

101Several businesses with annual receipts near 

the $7 million threshold suggested they would each 

need to hire an additional employee to respond to 

Bureau supervision. None provided any support for 

the assertion that the Bureau’s supervisory activity 

would require a dedicated employee at a firm of 

such size. 

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 the 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 firms 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 entities 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 companies 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 entities’ changing their 

conduct in anticipation of possible 

supervision. Second, in the course of 

actual examinations, the Bureau may 

uncover specific problems that 

companies then correct. 

Commenters offered somewhat 

contradictory comments regarding the 

rate of existing compliance. Some 

suggested that the Bureau had 

underestimated the power of firms’ 

existing incentives—from sources such 

as enforcement and supervision by State 

regulators—to comply with 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 

firms will have to develop compliance 

policies and procedures, including 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 companies 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 companies 

to develop compliance management 

systems that they do not already have, 

that result would produce benefits in 

the form of improved compliance and 

costs involved in creating and 

administering such systems. As a 

general matter, the Bureau believes it is 

unlikely that companies can 

consistently comply with the law 

without having reasonably thorough 

systems for promoting and monitoring 

compliance. Without such systems, a 

company may happen to comply with 

law, but it cannot be assured whether 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, therefore, the rule 

will motivate firms to develop 

compliance systems, the current rate of 

compliance is unlikely to be as high as 

some commenters suggested. 

If, on the other hand, compliance 

levels are already high—in part because 

of incentives 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, firms presumably 

already incur corresponding costs. The 

compliance-related costs of the rule will 

therefore be lower as well. In addition, 

the Bureau’s likely level of supervisory 

activity over time will also be lower. 

The commenters provided no evidence 

of the existing level of compliance of 

firms in the consumer reporting market. 

In any event, whatever particular 

increase in compliance may occur as a 

result of the rule, the benefits and costs 

of that increase are associated.100

Commenters also questioned the 

Bureau’s estimates of how much 

supervision would cost firms. An 

industry association asserted that the 

Bureau’s estimate, for actual supervisory 

activity, of four full weeks of employee 

time at a small firm 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.101

The Bureau acknowledges that staff 

time can be a cost for a firm responding 

to particular supervisory activity. The 

Bureau has estimated the magnitude of 

that cost for firms of various sizes. The 

amount of staff time involved represents 

the Bureau’s experience of supervision. 

That amount may be an underestimate 

or overestimate for some supervisory 

activities, depending on the 

circumstances. But even if all 

supervisory activity cost twice as much 

as the Bureau estimated, the cost would 

still, as noted above, be 0.34 percent of 

the annual receipts of an individual firm 

at the $7 million threshold. 

Several commenters suggested that 

the rule would force companies to 

develop new accounting systems to 

generate data on the amount of receipts 

attributable to consumer reporting. 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 firms will spend 

significant amounts on such alterations. 

As noted above, a firm 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 definition of annual receipts, 

the discrepancy would only relate to the 

amount of sales a company makes for 

purposes, like employment screening, 

that the rule excludes from the 

consumer reporting market. As 

discussed above, a firm would only 

need to know such information in detail 

to the degree that the precise facts might 

render the firm not a larger participant. 

Moreover, firms would be unlikely to 

spend significantly more on accounting 

systems than it would cost them to be 

supervised by the Bureau. 


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Federal Register / Vol. 77, No. 140 / Friday, July 20, 2012 / Rules and Regulations 42897 

102As potential users of consumer reporting 

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 

rule. 103 5 U.S.C. 601 et seq. The Bureau is not aware 

of any governmental units or not-for-profit 

organizations to which the Proposal would apply. 

104 5 U.S.C. 601(3). The Bureau may establish an 

alternative definition after consultation with the 

Small Business Administration and an opportunity 

for public comment. 

105 5 U.S.C. 609. 

106The Proposal hypothesized two circumstances 

in which a business might be a larger participant 

of the consumer reporting 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 $7 million threshold. Moreover, the general 

method of averaging a business’s receipts over three 

years reduces the sensitivity of the ‘‘annual 

receipts’’ criterion to fluctuations from a single 

year. 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 companys’ 

receipts would be aggregated towards the $7 million 

threshold. Yet the SBA’s method might not treat the 

two companies as affiliated, and their separate 

receipts might not cross the $7 million line. The 

Bureau anticipates no more than a very few such 

cases in the market covered by today’s rule. 

One commenter also discussed how 

the costs of supervision will affect the 

consumer reporting 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 firms 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 firm 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 firms more 

frequently than those that are just above 

the threshold of qualifying as larger 

participants. As the Proposal noted, the 

benefits gained from detecting 

noncompliance are likely to be greater 

when the firm under examination is 

larger. Larger firms 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 

will 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 

firms—particularly in view of the fact, 

explained above, that the staff costs of 

responding to supervisory activity are 

likely to be small even for firms just 

above the larger-participant threshold. 

This commenter also argued that the 

costs of examination will be passed on 

to consumers and will therefore increase 

the cost of credit. The commenter 

offered no data or argument to support 

this assertion. Whether and to what 

extent newly supervised firms shift the 

cost of supervision, or of increased 

compliance, to their customers who 

then pass the cost increase on to 

consumers will depend on complex 

market conditions. The Bureau believes 

any such effects are likely to be very 

small. In contrast, as discussed above, 

some consumers may see their costs of 

credit decrease, if the availability of 

more accurate consumer report 

information helps creditors assess them 

better as credit risks. Conversely, for 

some consumers, the availability of 

more accurate information may lead 

their costs of credit to increase. In 

general, the Bureau does not have 

enough information to assess in detail 

whether and for what fraction of 

consumers the rule might increase or 

decrease the cost of credit. But the 

overall result should be a more efficient 

allocation of credit. 

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 rule does not apply to 

depository institutions or credit unions 

of any size.102 Nor would the rule have 

a unique impact on rural consumers. 

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.103 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.104

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 business 

representatives prior to proposing a rule 

for which an IRFA is required.105

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 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 rule will define a class of firms 

as larger participants of the consumer 

reporting market and thereby authorize 

the Bureau to undertake supervisory 

activities with respect to those firms. 

Because the rule adopts a threshold for 

larger-participant status of $7 million in 

annual receipts resulting from consumer 

reporting activities, larger market 

participants 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 

businesses.106

Additionally, and in any event, the 

Bureau believes that the 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 an entity 

in the consumer reporting market 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 


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107As discussed above, the cost of participating 

in an examination might be roughly 0.17 percent of 

annual receipts for a firm near the $7 million 

threshold. The proportion would be larger for a 

smaller firm, but the impact will still not be 

substantial. 

108As 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 industry 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 30 larger 

participants of the consumer reporting market is 

likely to be only a small 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 be 

involved. 109 77 FR 9606. 

be minimal in relation to the overall 

activities of the firm.107

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 30 larger participants 

of the consumer reporting market 

delineated in the rule would result in a 

significant economic impact on a 

substantial number of small entities.108

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 

consumer reporting 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 30 consumer reporting 

entities out of approximately 410 firms 

in the market. Out of these 410 entities, 

the Bureau estimates that approximately 

393 market participants would be small 

business entities under the SBA’s 

proposed size standard of $14 million. 

Meanwhile, among the about 30 larger 

participants of the consumer reporting 

market, about 13 might fall below a $14 

million threshold. Thus, the final rule 

would impact only 3.3 percent of 

consumer reporting entities that might 

be considered small businesses under 

the SBA’s proposal, and the impact on 

these entities would not be significant 

anyway. The 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 reporting market[] 

would be supervised is 

probabilistic.’’ 109 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 small 

business protection requirements set 

forth in the Small Business Regulatory 

Enforcement Fairness Act (SBREFA), as 

amended by Section 1100G of the DoddFrank 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 obligations or 

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. Thus, the 

Proposal, like the final 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 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. 

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 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. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau of Consumer 

Financial Protection adds Part 1090 to 

Chapter X in Title 12 of the Code of 

Federal Regulations to read as follows: 

PART 1090—DEFINING LARGER 

PARTICIPANTS OF CERTAIN 

CONSUMER FINANCIAL PRODUCT 

AND SERVICE MARKETS 

Subpart A—General 

Sec. 

1090.100 Scope and purpose. 

1090.101 Definitions. 

1090.102 Status as larger participant subject 

to supervision. 

1090.103 Assessing status as a larger 

participant. 

Subpart B—Markets 

1090.104 Consumer Reporting Market. 

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). 

Subpart A—General 

§ 1090.100 Scope and purpose. 

This part defines those nonbank 

covered persons that qualify as larger 

participants of certain markets for 

consumer financial products or services 

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

(a)(2). A larger participant of a market 

covered by this part is subject to the 

supervisory authority of the Bureau 

under 12 U.S.C. 5514. This part also 

establishes rules to facilitate the 

Bureau’s supervision of such larger 

participants pursuant to 12 U.S.C. 

5514(b)(7). 

§ 1090.101 Definitions. 

For the purposes of this part, the 

following definitions apply: 


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Affiliated company means any 

company (other than an insured 

depository institution or insured credit 

union) that controls, is controlled by, or 

is under common control with, a 

person. 

(1) For purposes of this definition 

‘‘company’’ means any corporation, 

limited liability company, business 

trust, general or limited partnership, 

proprietorship, cooperative, association, 

or similar organization. 

(2) A person has control over another 

person if: 

(i) The person directly or indirectly or 

acting through one or more other 

persons owns, controls, or has power to 

vote 25 percent or more of any class of 

voting securities or similar ownership 

interest of the other person; 

(ii) The person controls in any 

manner the election of a majority of the 

directors, trustees, members, or general 

partners of the other person; or 

(iii) The person directly or indirectly 

exercises a controlling influence over 

the management or policies of the other 

person. 

Assistant Director means the Bureau’s 

Assistant Director for Nonbank 

Supervision or her or his designee. The 

Director of the Bureau may perform the 

functions of the Assistant Director 

under this part. In the event there is no 

such Assistant Director, the Director of 

the Bureau may designate an alternative 

Bureau employee to fulfill the duties of 

the Assistant Director under this part. 

Bureau means the Bureau of 

Consumer Financial Protection. 

Completed fiscal year means a tax 

year including any fiscal year, calendar 

year, or short tax year. ‘‘Fiscal year,’’ 

‘‘calendar year,’’ ‘‘tax year,’’ and ‘‘short 

tax year’’ have the meanings attributed 

to them by the IRS as set forth in IRS 

Publication 538, which provides that: 

(1) A ‘‘fiscal year’’ is 12 consecutive 

months ending on the last day of any 

month except December 31. 

(2) A ‘‘calendar year’’ is 12 

consecutive months ending on 

December 31. 

(3) A ‘‘tax year’’ is an annual 

accounting period for keeping records 

and reporting income and expenses, or, 

if appropriate, a short tax year. An 

annual accounting period does not 

include a short tax year. 

(4) A ‘‘short tax year’’ is a tax year of 

less than 12 months. 

Consumer means an individual or an 

agent, trustee, or representative acting 

on behalf of an individual. 

Consumer financial product or service 

means any financial product or service, 

as defined in 12 U.S.C. 5481(15), that is 

described in one or more categories 

under: 

(1) 12 U.S.C. 5481(15)(A) and is 

offered or provided for use by 

consumers primarily for personal, 

family, or household purposes; or 

(2) Clause (i), (iii), (ix), or (x) of 12 

U.S.C. 5481(15)(A) and is delivered, 

offered, or provided in connection with 

a consumer financial product or service 

referred to in paragraph (1) of this 

definition. 

Dodd-Frank Act means the DoddFrank Wall Street Reform and Consumer 

Protection Act. 

Larger participant means a nonbank 

covered person that has met a test under 

subpart B of this part within the period 

provided in § 1090.102 of this part. 

Nonbank covered person means, 

except for persons described in 12 

U.S.C. 5515(a) and 5516(a): 

(1) Any person that engages in 

offering or providing a consumer 

financial product or service; and 

(2) Any affiliate of a person that 

engages in offering or providing a 

consumer product or service if such 

affiliate acts as a service provider to 

such person. 

Person means an individual, 

partnership, company, corporation, 

association (incorporated or 

unincorporated), trust, estate, 

cooperative organization, or other 

entity. 

Supervision and supervisory activity 

mean the Bureau’s exercise, or intended 

exercise, of supervisory authority, 

including by initiating or undertaking 

an examination, or requiring a report of 

a person, pursuant to 12 U.S.C. 5514. 

§ 1090.102 Status as larger participant 

subject to supervision. 

A person qualifying as a larger 

participant under subpart B of this part 

shall not cease to be a larger participant 

under this part until two years from the 

first day of the tax year in which the 

person last met the applicable test under 

subpart B. 

§ 1090.103 Assessing status as a larger 

participant. 

(a) If a person receives a written 

communication from the Bureau 

initiating a supervisory activity 

pursuant to 12 U.S.C. 5514, such person 

may respond by asserting that the 

person does not meet the definition of 

a larger participant of a market covered 

by this part within 45 days of the date 

of the communication. Such response 

must be sent to the Assistant Director by 

electronic transmission at the address 

included in the communication and 

must include an affidavit setting forth 

an explanation of the basis for the 

person’s assertion that it does not meet 

the definition of larger participant of a 

market covered by this part and 

therefore is not subject to the Bureau’s 

supervisory authority under 12 U.S.C. 

5514. In addition, a person may include 

with the response copies of any records, 

documents, or other information on 

which the person relied in making the 

assertion. 

(b) A person shall be deemed to have 

waived the opportunity, at any time that 

it may dispute that it qualifies as a 

larger participant, to rely on any 

argument, records, documents, or other 

information that it fails to submit to the 

Assistant Director under paragraph (a) 

of this section. A person who fails to 

respond to the Bureau’s written 

communication within 45 days will be 

deemed to have acknowledged that it is 

a larger participant. 

(c) The Assistant Director shall review 

the affidavit, any attached records, 

documents, or other information 

submitted pursuant to paragraph (a) of 

this section, and any other information 

the Assistant Director deems relevant, 

and thereafter send by electronic 

transmission to the person a statement 

explaining whether the person meets 

the definition for a larger participant of 

a market covered by this part. 

(d) At any time, including prior to 

issuing the written communication 

referred to in paragraph (a) of this 

section, the Assistant Director may 

require that a person provide to the 

Bureau such records, documents, and 

information as the Assistant Director 

may deem appropriate to assess whether 

a person qualifies as a larger participant. 

Persons must provide the requisite 

records, documents, and other 

information to the Bureau within the 

time period specified in the request. 

(e) The Assistant Director, in her or 

his discretion, may modify any 

timeframe prescribed by this section on 

her or his own initiative or for good 

cause shown. 

Subpart B—Markets 

§ 1090.104 Consumer Reporting Market. 

(a) Market-Related definitions. 

Annual receipts means 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; Form 1040, Schedule C for 

sole proprietorships). Receipts do not 

include net capital gains or losses; taxes 


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collected for and remitted to a taxing 

authority if included in gross or total 

income, such as sales or other taxes 

collected from customers and excluding 

taxes levied on the entity or its 

employees; and 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 (ii) 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 (ii)(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 (ii) 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. 

Consumer reporting means: 

(i) In general. Consumer reporting 

means collecting, analyzing, 

maintaining, or providing consumer 

report information or other account 

information used or expected to be used 

in any decision by another person 

regarding the offering or provision of 

any consumer financial product or 

service. 

(ii) Exclusion for transaction and 

experience information. Consumer 

reporting does not include the activities 

of a person to the extent that a person 

collects, analyzes, maintains, or 

provides information that relates solely 

to the person’s transactions or 

experiences with consumers. 

(iii) Exclusion for furnishing affiliate 

information to a consumer reporting 

entity. Consumer reporting does not 

include the activities of a person to the 

extent that a person provides 

information that solely relates to 

transactions or experiences between a 

consumer and an affiliate of such person 

to another person that is engaged in 

consumer reporting. 

(iv) Exclusion for certain 

authorizations or approvals. Consumer 

reporting does not include any 

authorization or approval of a specific 

extension of credit directly or indirectly 

by the issuer of a credit card or similar 

device. 

(v) Exclusion for providing 

information to be used solely in a 

decision regarding employment, 

government licensing, or residential 

leasing or tenancy. Consumer reporting 

does not include the activities of a 

person to the extent that a person 

provides consumer report or other 

account information that is used or 

expected to be used solely regarding a 

decision for employment, government 

licensing, or a residential lease or 

tenancy involving a consumer, or to be 

used solely in any decision regarding 

the offering or provision of a product or 

service that is not a consumer financial 

product or service. 

(b) Test to define larger participants. 

A nonbank covered person that offers or 

provides consumer reporting is a larger 

participant of the consumer reporting 

market if the person’s annual receipts 

resulting from consumer reporting are 

more than $7 million. 

Dated: July 13, 2012. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2012–17603 Filed 7–17–12; 4:15 pm] 

BILLING CODE 4810–AM–P 


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