Credit-Report Firms, Debt Collectors Face New Oversight

The new Consumer Financial Protection Bureau announced plans to regulate debt collectors and companies that produce credit reports as part of an effort to expand its oversight outside of the banking industry.

CNBC.com

The agency is charged by the 2010 Dodd-Frank financial oversight law with overseeing consumer financial products, such as credit cards and mortgages, offered by banks as well as some products offered outside the industry, including residential mortgages and student loans.

It also has the authority to extend its oversight to companies that are "larger participants" in consumer financial markets.

Debt collectors and credit reporting agencies are the first industries to be tapped for supervision under this power.

CFPB Director Richard Cordray said on Thursday that the goal was to subject these companies to the same oversight as banks.

"This oversight would help restore confidence that the federal government is standing beside the American consumer," he said in a release.

On Thursday, the agency laid out its plan for overseeing these markets in a proposed rule that will be out for 60 days of comment.

Under the proposal, the agency would regulate the biggest players in these markets — debt collectors with more than $10 million in annual receipts and credit bureaus that bring in more than $7 million annually.

This would cover about 175 debt collectors and 30 credit reporting firms, the agency said.

Debt collectors do not use a single business model. Some try to get money from delinquent customers for a fee, while others buy customers' debt from lenders and then try to recover what is owed.

The agency estimates that 30 million U.S. customers are the subject of a collection effort, with $1,400 being the average amount sought.

Some debt collectors have recently run into trouble with federal regulators.

Last month, Asset Acceptance LLC  agreed to pay a $2.5 million civil penalty as part of a settlement with the Federal Trade Commission and Justice Department over charges that it used deceptive collection practices.

The settlement occurred "without any admission by Asset Acceptance of the FTC's claims," said the company's parent, Asset Acceptance Capital Corp

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The CFPB and FTC have agreed to coordinate oversight of markets where they both jurisdiction.

Providers of credit reports, which include Experian, Equifax

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[EFX  Loading...      ()   ] and TransUnion, play a key role in determining whether consumers can get loans based on their past ability to repay debts.

Consumer advocates have criticized credit bureaus of all sizes in recent years for not doing enough to quickly correct errors in their reports that can affect the ability to get credit, particularly for low-income people.