August 15, 2011
Consumer Financial Protection Bureau
1801 L Street, NW
Washington, DC 20220
Re: CFPB Docket No. CFPB-HQ-2011-2, Defining Larger Participants in Certain Consumer
Financial Products and Services Markets
To Whom It May Concern:
The Conference of State Bank Supervisors (CSBS) and American Association of Residential
Mortgage Regulators (AARMR) are pleased to have the opportunity to comment on the
Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) Notice and Request for
Comment on Defining Larger Participants in Certain Consumer Financial Products and Services
Markets, Docket No. CFPB-HQ-2011-2. Section 1024 of the Dodd-Frank Act provides that the
CFPB has authority over “a larger participant of a market for other consumer financial products
or services,” with those larger market participants to be identified by the CFPB by rule.
State regulators have a wealth of experience regulating nondepository financial institutions and
look forward to harmonizing the collective efforts of the States and the CFPB in supervising
these entities. Through communication and coordination, the States and CFPB can efficiently
utilize resources to ensure consumers are protected throughout the country. Issuing a Notice and
Request for Comment is the proper first step in this communication process, and the States have
preliminary recommendations for the CFPB to consider in their deliberations.
I. DESIGNATED MARKETS
The states welcome a nondepository supervision partner in the CFPB and believe with proper
implementation the transition process can be implemented with minimal disruptions in the
existing state framework. To that end, because of the impact that the Bureau’s definitions likely
will have on state law, state regulation, and state-regulated entities, we think it crucial that the
CFPB consult with state regulators as it develops these definitions. States have engaged in
multi-state examinations in several of the consumer financial product and service markets the
CFPB is considering, proving regulators can work together effectively with proper planning.
These examinations can occur because state definitions are generally consistent. If the CFPB’s
definitions fit into this framework, the states can seamlessly work with the CFPB both on an
individual and multi-state basis to promote more consistent, comprehensive, and efficient
regulation in a manner that manages the burden on regulated entities.
In several of the potential markets listed in the Request for Comment, state law definitions exist
and are largely consistent. Uniform laws developed by the National Conference of
Commissioners on Uniform State Laws (NCCUSL) serve as the base for many state laws,
including the Consumer Credit Code, Money Services Act, and Debt-Management Services Act.
States have also adopted definitions from federal statutes, 1 regulations, and self-regulatory
organizations like FINRA. Where such generally consistent definitions exist in state law, we
encourage the Bureau to rely on those existing definitions.
The main issue for State regulatory coverage is jurisdiction. While definitions remain relatively
similar, regulation of specific consumer financial markets varies from state to state. CSBS and
AARMR have several resources the CFPB can utilize to determine whether a state has regulatory
authority over particular providers of consumer financial products or services, including the
CSBS Profile of State Chartered Banking (Profile), which is provided to all federal regulatory
agencies. The Profile is a periodic survey of state banking departments that compiles a variety of
information about state banking departments, including the scope of industries under
C. Prioritization of Markets to be Included in the Initial Rule
When determining which markets should be included in the CFPB’s initial rule regarding larger
market participants, CSBS and AARMR recommend first addressing markets with a clear record
of consumer harm and markets with limited regulatory oversight.
Section 1024(b)(2)(D) of Dodd-Frank requires the CFPB to look at the extent of existing state
regulation and oversight, among other factors, in developing its risk-focused supervisory regime
for nondepository covered persons. Similarly, CSBS and AARMR believe that the extent of
state regulation should also be considered as part of the CFPB’s prioritization efforts related to
larger market participants. The extent of existing state regulation over a given consumer
financial market or industry can vary state-to-state, and fully understanding the nature and scope
of existing state oversight and authority will require a robust dialogue with the states.
Additionally, the CFPB should leverage existing state resources that might provide information
and data regarding state supervision, including the CSBS Profile of State Chartered Banking.
As a matter of importance, CSBS and AARMR suggest prioritizing those companies that are
beyond the physical reach of state regulators, particularly companies operating strictly on the
internet. The states have found extensive illegal activities targeting state consumers; however,
state regulators have been unable to enforce the laws because servers are physically located
For example, many debt collection definitions are derived from the Fair Debt Collection Practices Act.
outside of the reach of the state seeking to enforce the law. This is the case in many of the
industries potentially subject to “larger participant” designation, as well as payday lending.
Similarly, the States often have problems enforcing consumer protection laws against companies
that operate over complex phone networks. The CFPB’s ability to track companies purposely
avoiding state and federal laws through technology will be a tremendous benefit to consumers.
As the CFPB prioritizes markets, CSBS and AARMR note that the most important markets are
going to change as the economy changes. For example, companies engaged in debt activities are
more active in poor economic climates. Accordingly, the CFPB should look to trends in activity
when prioritizing industries. We suggest the CFPB establish an advisory group of state regulators
to identify trends and emerging problems in consumer finance. A mechanism to tap into the
activities of local markets will be critical to the CFPB being able to respond timely and
II. CRITERIA AND THRESHOLDS
Identifying “larger” market participants is a complex task, particularly given that harm to
consumers is not dependent on institution or transaction size. CSBS and AARMR strongly urge
the CFPB to make a determination that is flexible, industry-specific, and includes aggregation of
In identifying and utilizing criteria and thresholds, it will be important for the CFPB to be
flexible and to consider a variety of factors. It is likely that a mix of absolute and relative
thresholds can be used to ensure that a carefully structured business does not escape CFPB
supervision. For example, the number of states in which a company is licensed to operate gives a
great picture of the reach of a company. Additionally, for certain industries, the number of
locations and/or agents is a better predictor still of the market share and activity of a company. A
debt collector may be licensed in three states, but employ a majority of the debt collectors in
those three states. In this scenario, a high absolute threshold for state licenses will allow the
entity to escape supervision, whereas a relative threshold for employees is likely to appropriately
subject the company to CFPB supervision. The criteria and threshold need to be fashioned in a
manner that does not create loopholes, and this can only be done through the application of a
variety of criteria.
When implementing a variety of criteria, it is important that the criteria be consistent.
Consistency will provide certainty for nondepository institutions and prevent surprise
designations as “larger participants.”
B. Industry-by-Industry Determinations
The proper mix of size criteria will vary significantly from market to market. Each of these
markets is unique, requiring individual criteria and thresholds to determine the appropriate scope
for CFPB jurisdiction. For example, the average transaction size at a debt relief services
company is likely to be significantly different from a check casher. Accordingly, criteria and
thresholds must be industry-specific to ensure that larger participants are properly covered.
C. Aggregate Institutional Ownership
Consumer financial services companies often have complex organizational structures to limit
liability exposure to both customers and regulators. To understand the full scope of an
institution’s operation, size must be based on an aggregation of agents, affiliates, and entities
held under common ownership. A grocery store operating as a money transmitter affiliate should
be considered as part of the broader money transmitter company, as should separate LLCs
formed in each individual state by the same owner(s). Aggregation is a crucial capability of the
CFPB, as states have often been blocked from engaging in broader actions because of calculated
organizational structures that limit jurisdiction to a small segment of a company’s business.
Where there is no other data available to determine ownership structure, the CFPB can rely upon
each state’s requirement to register entities conducting business within the state.
III. REGISTRATION AND LARGER MARKET PARTICIPANTS
Section 1022(c) of Dodd-Frank authorizes the CFPB to require registration of covered persons
and requires the Bureau to consult with the State agencies in the development and
implementation of any registration requirements or systems. Registration can be used to provide
important data that can inform the identification of larger market participants, and it can serve as
an important component of the CFPB’s supervisory regime for larger nondepository market
For several years, the states have been in the process of building and implementing a national
registration and licensing system and database for mortgage companies and mortgage loan
originators, known as the Nationwide Mortgage Licensing System & Registry (“NMLS”). The
States and industry alike have benefitted tremendously from the efficiencies of one system that
tracks individuals and companies across state lines and over time.
At the request of state regulators, CSBS has developed a plan to modify NMLS to allow state
agencies to manage financial service industries beyond mortgage. The expansion plan already
encompasses most of the industries contemplated by the CFPB. The State Regulatory Registry
has working groups of state regulators to review and modify the forms in NMLS to make them
appropriate for a wide range of non-depository financial services. These groups include:
• Debt Collectors
• Debt Servicers
• Debt Management Companies (Debt Adjustors, Credit Counselors)
• Debt Settlement Companies
• Credit Repair Companies
• Debt Cancellation Programs
• Consumer Finance Brokers/Lenders
• Payday Lenders
• Title Lenders
• Refund Anticipation Lenders
• Student Loan Lenders
• Escrow Agents
• Industrial Loan Companies
• Notification Filer Repossession Agencies & Repo Agents
• Retail Installment Sellers
• Sales Finance Companies
Money Services Businesses Working Group:
• Money Transmitters
• Check Cashers
• Check Sellers (Money Orders, Travelers Checks)
• Currency Exchange
• Prepaid Access
Based on the states’ experience with regulating a variety of nondepository consumer financial
markets and with developing and, now, expanding the NMLS, CSBS and AARMR propose that
if the CFPB chooses to pursue a registration framework, the CFPB establish the framework
along the following lines:
1. The CFPB should require all covered persons, as defined, to be registered with the CFPB
in each State in which they do business.
2. If a State licenses a covered person through the NMLS, then the covered person is
deemed to be registered with the CFPB in that State.
3. If a State does not license a covered person or does not use the NMLS, then the CFPB
should consider using the NMLS (pursuant to 1022(c)(7)(C)) as its system of registration
for each covered person in that State.
With a registration system set up along these lines, the state-by-state licensing/registration
information could then factor into the CFPB’s determination as to whether a given entity is a
larger market participant.
By implementing a system that accepts and shares state licensing and registration requirements,
the CFPB and state regulators can maximize the use of resources that have already been
developed and are being utilized by the States. If the CFPB uses an existing system such as the
NMLS as their registry, the shared supervisory responsibilities between the CFPB and States can
be efficiently managed and based on the same sets of information. Registration in each State that
a covered person does business ensures that all regulators can rely on a single system of record.
This model has already been implemented for federal banking agencies to great success.
If the CFPB pursues a registration framework, the centralized NMLS system is also a source for
data collection that can inform the CFPB’s efforts to determine whether a covered person meets
any volume, asset, or size based criteria as a larger market participant. The recently
implemented Mortgage Call Report gathers data from all state licensed entities, marking the first
standardized information collection for the nonbank residential mortgage industry. The NMLS
Mortgage Call Report provides timely, comprehensive and uniform information, giving state
regulators pertinent information to more effectively supervise licensees and allowing state
regulators to better monitor licensed companies that operate in one or more states. For the
industry, aggregate statistical information will also be gathered over time from the Mortgage Call
Report, which will be particularly useful for organizations to assess how they compare and relate
to peers on a regional and national level. This registry and data collection backbone can be
applied to other nondepository industries, and the NMLS has taken the initial steps required to
expand the system accordingly.
CSBS and AARMR stand ready to coordinate with the CFPB for a prioritized expansion of the
NMLS, which can be used to track covered persons across state and business lines. This
centralized source of information will be invaluable as a source for regulators to track and risk-
scope consumer financial products and services companies.
In developing the CFPB and its responsibilities, Congress clearly recognized the role and
authority of state regulators, particularly in the area of supervision of nonbank consumer
financial services providers. CSBS and AARMR appreciate the already robust dialogue that
state regulators have had with the CFPB regarding various aspects of the Bureau’s functions.
Such communication and coordination will be particularly important as the Bureau builds out its
functions in the areas addressed in the Request for Comment. An approach by the CFPB to
larger nondepository market participants that integrates the Bureau’s functions with existing state
authority and existing state systems will be vital to effective and efficient regulatory oversight
for consumer financial services industries.
Neil Milner Darin Domingue
President & CEO President