Consumer Financial Protect Bureau Proposes to Oversee Collections and Credit Reporting Industries

When federal legislation called the Dodd-Frank Wall Street Reform and Consumer Protection Act went into effect, it did a number of things. One of the most important was to create the Consumer Financial Protection Bureau (CFPB), a new agency that would protect consumers from predatory and illegal activities by banks, residential mortgage companies, pay-day lenders, student loan companies and other organizations, described as “larger participants,” a term that has yet to be fully defined.

To this end, the new agency proposed a rule that would extends its federal supervisory powers to include debt collectors and consumer reporting agencies. It would be the first time these industries would be subject to federal supervision, said the agency in a press release.

“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” said Richard Cordray, CFPB Director. “Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

According to the Dodd-Frank legislation, the CFPB must define these “larger participants” by July 21, 2012. Last summer, the CFPB sought public comment about possible markets to include in the initial rule and available data sources the Bureau could use to define larger participants in nonbank markets.

The debt collectors and consumer reporting agencies affect nearly all Americans. It's estimated that about 30 million Americans have debt under collection, with an average value of $1,400. As a result, it's a thriving industry, but its business practices are responsible for the most consumer complaints to the Federal Trade Commission (FTC (News - Alert)) each year, and those complaints are escalating with reports of abusive, illegal practices engaged in by some players.

Under the proposed CFPB rule, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision by that agency. While this would affect only about 175 debt collection firms (four percent of debt collection companies), these 175 firms are responsible for about 63 percent of funds recovered annually via debt collection.

The consumer credit rating industry is another powerful industry that the CFPB says would benefit from oversight. According to the Consumer Data Industry Association, there are 36 billion updates to consumer files each year, and three billion reports are issued. The three largest consumer reporting agencies maintain information on 200 million American consumers.

Given the importance of credit reporting in most Americans' lives (and the lack of oversight over the industry), the CFPB believes that the industry naturally fits under its purview. Under the proposed rule, consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision: about seven percent of consumer reporting agencies, accounting for about 94 percent of the annual receipts from consumer reporting.