by Broderick Perkins
(2/23/2012) Erate Exclusive - The Consumer Financial Protection Bureau is
moving to take up oversight of debt collectors and consumer credit reporting
agencies, industries whose activities impact hundreds of millions of
While the bureau isn't proposing new rules right now, it is likely to
inject greater transparency into existing regulations and take to task
entities that don't adhere to the law.
About 30 million Americans have debts under collection. The average
amount under collection is $1,400.
The three largest credit reporting agencies - Experian, Equifax and
TransUnion - alone maintain information on 200 million American consumers,
but the new oversight will also include more than two dozen additional
smaller operations in the same industry.
The Dodd-Frank Wall Street
Reform and Consumer Protection Act, which created the CFPB, authorizes
the CFPB to supervise non-banks primarily in the specific markets of
residential mortgages, payday lending, and private education lending, but
also in the area of "larger participants," in the financial services
The Bureau must define "larger participants" by rule, initially by July
21, 2012. Last summer, CFPB opened for public comment possible markets to
include in the initial rule.
"Consumer financial products and services have become more complex over
the years and they have expanded well beyond traditional banks," said Richard Cordray, CFPB
Currently governed by the Federal Trade Commission (FTC), debt collectors
and credit reporting agencies, have been troublesome and are the first to
come under the "larger participants," rule and the bureau published the
proposal "Defining Larger Participants in Certain Consumer Financial
Product and Service Markets" in the Federal Register on Feb. 17. The
proposal is open to public comment until April 17, 2012.
"Our proposed rule would mean that debt collectors and credit reporting
agencies that qualify as larger participants are subject to the same
supervision process that we apply to the banks," Cordray added.
Under the proposed rule for the CFPB to govern debt collectors, debt
collectors with more than $10 million in annual receipts from debt
collection activities would be subject to supervision. Regulatory
supervision for the industry is guided by the existing "Fair
Debt Collection Practices Act (FDCPA)."
Consumers complain to the FTC about debt collection services more than any other issue
except identity theft and the numbers are rising, according to the
The CFPB estimates that the proposed rule would cover approximately 175
debt collection firms, only 4 percent of all debt collection firms, but
these firms account for 63 percent of annual receipts from the debt
Consumer credit reporting agencies
Consumer reporting agencies, better known as credit reporting agencies or
credit bureaus, retain millions of consumers' credit reports, comprised
primarily of credit behavior data. The reports also are used to generate credit scores.
The credit reporting market has a dominant role in consumers' financial
lives as lenders use credit reports when evaluating applications for credit,
including credit cards, mortgages, automobile loans, and other types of
credit. Specialty consumer reporting agencies also collect and provide
information used to make eligibility decisions for a variety of products and
services, including applications for rent, checking accounts, insurance,
The big three, Experian, Equifax and TransUnion, dominate the market
selling comprehensive credit reports and other data, but existing
FTC-enforced regulations, the "Fair
Credit Reporting Act (FCRA)", also govern credit report resellers as
well as specialty consumer reporting agencies.
Each year, this industry accounts for 36 billion updates to consumer
files, three billion reports issued and information maintained on 200
million consumers, according to the Consumer Data Industry Association.
Under the proposed rule, consumer reporting agencies with more than $7
million in annual receipts from consumer reporting activities would be
subject to CFPB supervision. The proposed threshold would allow the CFPB to
cover about 30 consumer reporting agencies which account for about 94
percent of the annual receipts from consumer reporting.
Credit reporting agency behavior has been dicey over the years.
Years of being charged with producing error-prone credit reports and
keeping consumers blind to their own personal credit report data along with
other questionable, information-handling behavior led to the "Fair and Accurate Credit Transactions Act (FACT Act),"
an amendment to the FCRA designed to force the industry to reform.
FACT Act is responsible for giving consumers free access to their credit
reports and a more consumer-friendly credit reporting industry.
A study last year by the Policy & Economic Research Council (PERC), "U.S. Consumer Credit Reports: Measuring Accuracy
and Dispute Impacts" found that credit bureaus had either cleaned up
their act or previous studies were faulty.
The study found that less than one percent, 0.93 percent, of all credit
reports examined prompted a dispute that resulted in a credit
score correction and an increase of a credit score of 25 points or
The study also discovered scads of satisfied consumers -- nearly all, 95
percent of all consumers who participated in the dispute process were
satisfied with the outcome.
However, the FTC repeatedly has had to reprimand the industry about luring
free-credit-report-seeking consumers into purchasing unnecessary services.
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