ACA Calls For Higher Revenue Threshold For CFPB Supervision

ACA International argues that the current $10 million annual revenue threshold for defining a “larger participant” is a crucial step in reining in the bureau’s supervisory authority.

The Consumer Financial Protection Bureau is considering amendments to its definitions of larger market participants in several industries for the first time since the bureau was established.

In comments (PDF) on the advance notice of proposed rulemaking, ACA International is urging the CFPB to consider raising the threshold for defining larger market participants in the debt collection industry.

The current Consumer Debt Collection Larger Participant Rule, published on Oct. 31, 2012, defines a nonbank covered person as a larger market participant if the person has more than $10 million in annual receipts resulting from consumer debt collection activities, ACA previously reported.

The information to determine the $10 million threshold has changed, according to the bureau.

ACA CEO Scott Purcell stated in comments to the CFPB that raising the threshold is an important first step in reining in abuse from a politically-driven agency primarily interested in making headlines.

“More action is also needed,” Purcell said. “The CFPB must also take meaningful steps to limit the unreasonable length and frequency of supervisory exams. The CFPB should be held to higher standards to ensure that the press it generates surrounding supervised entities is factual and not ideologically driven. “

Debt Collection Market Thresholds

In 2013, the Small Business Administration (SBA) classified a debt collection agency as a “small business concern” if its annual receipts were less than $7 million. The $10 million threshold was established to exclude those small businesses. However, the SBA classification changed over time, and today it is $19.5 million. Several collection agencies are considered small businesses by SBA standards, but are classified as larger participants by the bureau.

Consolidation in the collections industry and changes in annual receipts are other factors prompting the bureau to consider changing the market thresholds. ACA’s advocacy efforts have played a role in communicating concerns regarding the thresholds, as well as abuses and overreach that occurred in the use of Civil Investigative Demands with those thresholds under former CFPB Director Rohit Chopra.

Purcell said the CFPB should adopt the highest annual receipts threshold as practicable for supervision, as this will reserve supervision for the larger market participants and prevent future abuses of the CFPB’s authority.

“That overlap between small business and larger market participant is nonsensical when one federal government agency is considering businesses small, and one down the street is considering them large,” he said in ACA’s comments.

The highest amount in the request for comment was $100 million.

The current $10 million threshold includes between 200 and 250 firms, of which about half report between $10 and $25 million in annual receipts — showing that they remain as small businesses.

“The SBA tells businesses with revenues under $19.5 million that they are small businesses under federal law — meaning that these entities are guaranteed numerous statutory and regulatory protections that instruct regulators to consider the impacts of their actions on the collectors’ businesses,” Purcell said.

ACA also encourages the bureau to expand its exempted industries beyond medical receipts to include telecommunications and housing, for example.

“Doing so will preserve the CFPB’s authority over financial regulation, while curtailing the potential for future abuses,” Purcell said.

Supervisory Activity

To protect the due process rights of collectors, ACA is pushing for limits on overzealous supervisory actions, including repeat agency audits.

“Previously, if initial audit results had minimal and immaterial findings, the CFPB would not accept this as an answer,” Purcell said. “They would return multiple times until they found what they wanted to find.”

ACA argues that the supervisory process has been deficient in identifying any extreme cases of consumer harm; instead, it focuses on technical issues that often have no direct impact on consumers.

“The larger market participant threshold cannot serve as a blank check for CFPB regulators to spend months, or years, combing through collectors’ data looking for any (and often minor) violations,” Purcell said.

The real issue — bad actors who scam consumers and tarnish the industry’s image — is not solved by supervisory efforts that repeatedly target the same legitimate businesses.

There are also multiple avenues outside of CFPB supervision to monitor collectors’ compliance, such as creditors’ compliance management systems, collection agency audits, and robust state licensing requirements.

ACA proposes a time-based limit on supervision that can only be extended based on tangible evidence justifying additional time and potential enforcement activity.

“Without a temporal limit on the supervisory process, future CFPBs can remain embedded in an entity’s offices and data for limitless periods of time,” Purcell said. “Supervision was never meant to be government conservatorship of the debt collection industry.”

Balanced Priorities

Overall, ACA’s comments underscore the importance of the CFPB striking a balance between its regulatory objectives and the need to maintain a functional and efficient credit system.

“ACA members keep the credit system flowing,” Purcell said. “Actions that make that work more difficult thus inhibit consumers’ access to credit.”

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