Office of the Executive Secretary
Bureau of Consumer Financial Protection
1700 G Street NW
Washington, DC 20006
RE: "Docket No. CFPB-2012-0005"
To whom it may concern:
The National Association of Credit Management (NACM) has, for more than a century, represented the interests of unsecured trade creditors across the nation. These are generally businesses that extend credit to other businesses, providing the American economy with the financing that keeps companies of all sizes running.
The proposed regulation is of concern to NACM because of the credit reporting and debt collection services which NACM affiliates provide to their members. These two markets are of great importance to the nation's economy and, specifically, the day-to-day activities of commercial trade creditors. Our nearly 20,000 members frequently rely on credit reports to judge a potential customer's creditworthiness, and also rely on debt collectors in order to assist them in the vital task of receiving payment for the goods and services that they've provided to a debtor. Some of NACM's 39 affiliates offer credit reporting and debt collection services to businesses that it would appear the CFPB now seeks to regulate.
The majority of NACM members extend commercial credit, used for business purposes only, and therefore rely on the business, rather than consumer iterations of credit reports and debt collection agencies. Congress and the Federal Government have repeatedly failed to make the distinction between these activities and their consumer credit counterparts. Despite the vast differences between the two, commercial credit activities are often swept in with consumer credit activities, or overlooked altogether.
Neither option is acceptable: either trade creditors are forced to comply with costly regulations that are designed to regulate activity that is fundamentally different than their own, or they're forced to wonder whether or not they're included within the reach of any particular bill or regulation, leading many to
consult the often expensive counsel of a lawyer. NACM has, therefore, made the education of lawmakers and rulemaking agencies part of its mission.
For this reason, NACM recommends that the CFPB ensures that its final determination of what constitutes a "large participant" makes a clear distinction between consumer credit reporting and debt collection and commercial credit reporting and debt collection. Ideally, such a distinction is made by carefully defining these activities, and clearly exempting from regulation credit reports and debt collection activities used for business credit extension only.
While regulations routinely overlook the differences between business and consumer credit, the fact of the matter is that trade creditors do, in some instances, rely on consumer information when selling to sole proprietors or small businesses, or when seeking to add a layer of security to their investment by acquiring a personal guarantee from the debtor business' owner. Studies have shown that a consumer credit report pulled on the owner of a sole proprietorship, or even a small- or medium-sized business, can be an effective predictor of their business' creditworthiness and ability to make timely payment. Similarly, using a personal guarantee to secure the sale of goods on credit terms can provide the trade creditor with a valuable tool to increase the chances that they'll get paid what's rightfully theirs in the instance of that debtor's default or bankruptcy.
Neither of these instances changes the fact that these consumer documents are used for business purposes. However rarely such issues might arise in the world of commercial trade credit, the reality is that using a consumer document to assess a potential business' creditworthiness, or secure an investment, does not change the business purpose into one for personal, family or household purposes. The occasional use of consumer documents by business trade creditors doesn't mean that these trade creditors should be subject to the same rules as banks and other institutions that extend credit directly to consumers, for the purposes of a mortgage or personal loan.
In addition to the differences between personal and business use, with specific regard to credit reports, the trigger mechanism for their usage in trade transactions is also fundamentally different than the trigger for their usage in consumer transactions. For example, in the world of consumer credit, the individual is frequently not the party commencing the activity that requires the use of credit information; credit is offered in many cases to consumers that lenders have previously deemed creditworthy. In the trade world, the opposite is true; the onset of business activity is primarily triggered by an applicant. Businesses, be they corporations, partnerships or sole proprietorships, apply for credit from sellers like our member companies, thereby necessitating the use of a credit report to judge the applicant's creditworthiness. As such, seller companies have little control over who seeks trade credit from them, only control over to whom the credit will be extended. The fact that this activity, which necessitates the use of a credit report, is predominantly initiated by the buyer, rather than offered by the seller, should exempt such sellers from the regulations associated with these reports. The seller should not be subject to regulations due to activity that they themselves never initiated.
Furthermore, the companies that offer products and services such as these to businesses, if meant primarily for business purposes, should not be subject to the CFPB's authority. Providing a consumer credit report on the owner of a business to another business assessing that buyer's creditworthiness for the purpose of extending trade credit should not subject the provider to consumer regulations, because the report is being used for business purposes. The CFPB must also account for this distinction between consumer use and commercial use in their regulation of debt collectors. A collection agency seeking to collect a business debt should not be subject to consumer collection regulations, regardless of that agency's size, save for those already in effect under the Fair Debt Collection Practices Act (FDCPA).
Such a distinction is not unheard of in the realm of federal rulemaking and legislation, most notably in the separate definitions of business and consumer credit in Regulation B of the Equal Credit Opportunity Act (ECOA), which distinguish between these two types of transactions by their primary usage. In essence, NACM similarly believes that how credit reports and debt collection services are used should dictate how they're regulated, and hopes that the CFPB remembers this in its rulemaking efforts.
NACM stands ready to assist the CFPB with the creation of future regulations, and hopes that the Bureau will do its best to acknowledge and promote the distinction between consumer and business credit activity.
We thank you for your time and consideration.
Robin Schauseil, CAE
Marshall Kahn, CCE
Irvin Kahn & Son, Inc.