Government agencies expend a lot of time and money coming up with definitions. These exercises might seem silly until a seemingly obvious term like, say, "bank" gets caught up in some sort of enforcement, prosecution or civil action. Then, the official definition suddenly becomes a serious matter, indeed.
A current example concerns the term "nonbank," soon to be defined by the federal Consumer Financial Protection Bureau, or CFPB.
The term has become important because federal law now authorizes the CFPB to supervise large banks, thrifts, credit unions and other financial institutions -- i.e., nonbanks.
To carry out the supervision, the CFPB has to figure out which companies qualify as financial institutions. A working definition on the CFPB website suggests that any company that offers financial products or services to consumers, but doesn't have a bank, thrift or credit union charter and doesn't take deposits qualifies. Broadly speaking, that could encompass payday lenders, debt collectors, credit reporting bureaus, mortgage banking companies, student loan providers and many other companies as well.
And there's a twist: The law also says CFPB supervision in some cases applies to all financial institutions and in other cases only to financial institutions that are "larger participant(s) of a market for other consumer financial products or services," according to the CFPB website. That means someone has to figure out not only what qualifies as a market participant, but also which participants meet the incredibly vague guideline, set by Congress, of "larger."
The rule must be finalized by July 21, 2012, so there is a lot of time to come up with a proper definition.
Rather than write the definition behind closed doors, the CFPB has asked for public comment. The request for comment identifies six initial areas of interest: debt collection; consumer reporting; consumer credit and related activities; money transmitting, check cashing and related activities; prepaid cards; and debt relief services.
No doubt the thousands of companies that offer consumer financial products and services will have plenty to say on the subject of which of them should or shouldn't be subject to more government supervision.
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