Nonbank trade groups are calling on the Consumer Financial Protection Bureau to narrow the definitions it will use to determine which nonbanks will be subject to federal supervision.
The bureau has proposed to regulate large debt collection and credit reporting firms, the first two industries to be identified by CFPB for inclusion in the program. But in comment letters to the agency, industry groups complained that the bureau is skirting a requirement to examine the impact that the proposal would have on small businesses.
They also said the thresholds the bureau has proposed are too low, and would include a number of small companies, rather than simply the largest participants in the market.
"The mere fact that this rule identifies 'larger participants' does not mean that it has no impact on small business," David Hirschmann, the president and chief executive of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, said in a comment letter last month.
Hirschmann said the rule fails to comply with the Small Business Regulatory Enforcement Fairness Act, which requires the bureau to convene a panel of small business experts if it believes a rule would have a significant impact on small firms.
The imposition of exam requirements on larger firms could result in an increase in the cost of credit, as well as less access to it, which could ultimately hurt small companies, he argued. Hirschmann said the bureau should begin the SBREFA process immediately, which would likely delay the rule's implementation beyond July 21, when it is supposed to be finalized under Dodd-Frank.
The agency may already supervise nonbank mortgage, payday and student lenders of any size, but must establish parameters for identifying "larger participants" in other consumer markets.
Some industry groups argued that the bureau's thresholds leave no room for a "middle market" — it merely excludes the smallest firms, rather than including only the largest.
Under the proposal, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision, along with credit reporting firms with more than $7 million in annual receipts.
Using these criteria, the proposal would cover approximately 175 debt collection firms, only about 4% of all such firms, but representing roughly 63% of annual receipts from the entire market, according to CFPB's estimates. It would also cover approximately 7% of all credit reporting agencies, about 30 firms, which represent 94% of the annual receipts from that market.
The National Credit Reporting Association said using annual receipts to determine the threshold ignores another important marker of a "small business" — the number of employees.
"Many smaller companies (some averaging as little as 18 employees), will be classified by the rule as a 'larger participant' and regulated much in the same fashion as a depository institution with consumer funds in their possession," Terry Clemans, the group's executive director, wrote in a comment letter. "The added costs of this regulation may make it difficult for firms in this size category to compete, limiting competition in an already tight marketplace."
The group suggested doubling the threshold to $14 million.
