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Small Businesses Protest CFPB’s ‘Larger Participant’ Definition

ProtestSmall business have voiced their displeasure at being included in the Consumer Financial Protection Bureau’s “Defining Larger Participants of the Automobile Financing Market” proposed rule in one of the 28 comment letters submitted to the CFPB yesterday.

The proposed rule was subjected to a 60-day public comment period after it was published in the Federal Register on October 8. The deadline for comment closed at 11:59 PM last night.

Attorney John Redding, Partner at Buckley Sandler LLP, drafted a letter to the CFPB, arguing that the financial impact and burden on companies caught under the net of the proposed rule would be greater for smaller businesses with fewer resources.

“On their behalf, we have filed a comment suggesting that it’s inappropriate to include small businesses, as defined by the Small Business Administration,” Redding told Auto Finance News. “And who have a very small percentage of the market, and then subject them to supervision, given the impact on their business.”

In the letter, Redding represents a group of small businesses proposing the threshold for contracts that define companies as a larger participant be increased significantly.  The current threshold proposed by the CFPB is companies that make, acquire, or refinance at least 10,000 or more loans or leases in a year.

“The Clients suggest that the Proposed Rule’s threshold be increased significantly from 10,000 aggregate annual originations,” Redding wrote. “For example, and as highlighted by the Bureau, adoption of a 50,000 aggregate annual originations threshold would still provide for supervision of the “17 very largest participants in the market, representing approximately 86% of market activity.”

Attorney Michael Thurman told AFN yesterday that most large nonbank auto finance companies, such as captives, will put more effort into preparing for CFPB supervision, rather than try to amend the proposed rule. It will be the smaller companies, he predicted, that will argue that they do not have the resources to handle periodic examinations.

“A smaller company will be subject to the same scrutiny and they will be required to produce the same information and provide all of same assistance,” Thurman said. “But they won’t necessarily have the same staff to support that. So the cost to a smaller company, and the effect on a smaller company, of being part of the examination process will be greater. On the other hand, what I think the CFPB has tried to do is define a group of larger participants that is big enough that even the smallest member of that group, the impact won’t be excessive or unreasonable.”

Redding disagrees, using as an example in his letter a client that has approximately $30 million in annual receipts for fiscal year 2014. However, because it “exceeds the aggregate annual originations threshold for that same fiscal year,” the CFPB would define that company as a larger participant under the proposed rule. That same client, however, is not one of the 38 companies that the bureau originally anticipated would be subject to the agency’s supervision.

“In light of this fact, it reasonably appears that the data relied upon in reaching the proposed threshold may in fact result in a meaningfully larger group of entities being subject to supervision,” Redding wrote. “Including a perhaps unanticipated number of institutions defined as small businesses by the SBA.”

The next step in the process, according to Thurman, is for the CFPB to take the comments it received to craft a proposed final rule. Thurman anticipates it will be about five months, based on the timeline the bureau employed in defining the larger participants in the international money transfer market. Just how much the comments will affect the final rule, Thurman said, is up to the bureau.

“I think the CFPB always has the discretion to change the rule in response to the comments it receives, so it’s always a possibility that they could change the rule that we’ve seen proposed,” Thurman said. “But my expectation is that there won’t be any substantial changes. The rule that we’ve seen proposed, will very likely be the same, if not very similar to the rule that gets implemented.”

For now companies will have to wait, Redding said, until at least the end of the first quarter to see if the CFPB will amend the threshold, as well as respond to any other changes requested during the comment period.

“I think as we get towards the end of Q1, we may start hearing about where things are going,” Redding told AFN. “But I don’t think we’re going to have a final rule until Q2.  It could even push into Q3, it just depends.”

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2 thoughts on “Small Businesses Protest CFPB’s ‘Larger Participant’ Definition

  1. […] auto finance companies have objected to the proposed larger-participant rule, as has Harley-Davidson Financial Services. Last week, the […]

  2. […] was published in the Federal Register on October 8, 2014. In the comment period, small businesses voiced their displeasure at being included under the […]