CFPB targets debt collectors and credit bureaus

WASHINGTON Thu Feb 16, 2012 5:24pm EST

Consumer Financial Protection Bureau Director Richard Cordray testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on ''Holding the CFPB  Accountable: Review of First Semi-annual Report'' on Capitol Hill in Washington January 31, 2012. REUTERS/Kevin Lamarque

Consumer Financial Protection Bureau Director Richard Cordray testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on ''Holding the CFPB Accountable: Review of First Semi-annual Report'' on Capitol Hill in Washington January 31, 2012.

Credit: Reuters/Kevin Lamarque

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WASHINGTON (Reuters) - The new U.S. Consumer Financial Protection Bureau released a proposal to regulate about 200 debt collectors and companies that produce credit reports as part of an effort to extend its oversight beyond the banking industry.

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 targeted for supervision under this power.

CFPB Director Richard Cordray said these industries were chosen, in part, because of the increased role they are playing in consumers' lives following the economic downturn triggered by the 2007-2009 financial crisis.

Cordray also noted that credit reports now play a bigger role in whether consumers can get a loan and are also used by some employers when making hiring decisions.

"This is a very important influence on people's lives," Cordray said of the industry. "Often shadowy, often not understood by them, and that is one of the reasons why we wanted to make this one of our first priorities."

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 oversee 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.

Credit reports quantify a consumer's creditworthiness and are used by banks and other lenders to determine whether to provide a loan or what interest rate should be charged.

The largest companies in this industry include Experian, Equifax and TransUnion.

Equifax spokesman Tim Klein said in an emailed statement that the company looks forward to working with the CFPB.

Experian spokesman Gerry Tschopp said the company has been working with the agency since last year and that "we remain committed to meeting consumers' and clients' needs within regulatory guidelines."

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 industry is less concentrated than the consumer reporting market. Among the top companies are Encore Capital Group Inc and Asset Acceptance Capital Corp.

Debt collection firms are examining the CFPB rule and will work with the regulator as it puts in place its new supervisory powers, said a spokesman for ACA International, an industry trade group.

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

Cordray said that debt collectors have more complaints lodged against them by consumers than any other industry in a database maintained by the Federal Trade Commission.

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

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

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

Cordray said that the bureau intends to put out rules that would allow the agency to supervise other markets under its "larger participant" authority. He did not provide a time line for these decisions.

When the agency sought public input in June on what industries it should oversee, it named prepaid cards and check cashing services as industries officials wanted to learn more about.

(Reporting by Dave Clarke; Editing by Lisa Von Ahn and Steve Orlofsky)

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Comments (7)
DayKayaker wrote:
I’m normally conservative regarding regulation. But my experience the last few years has me reconsidering…

After loosing a business two years ago we found ourselves with a lot of debt. I own up to it, not trying to get out of it.

But I haven’t been late on a single payment in nearly two years, my income has gone from $2,500/yr (last year of operations) to well over the median (working back in corporate world). I’ve been paying down debt with about $40K left to go.

And yet, my credit rating has gone DOWN by 20 points!

Because of this credit card companies are having a field day with me. Only one card left at 29%, but most others are 22% or so (mostly Citi Bank cards). Only Discover is down at 9.99%. I can’t refinance these unsecured debt, or for that matter, my house.

The reason sited is my “Medium” credit. But they know from my history I’ll continue to pay.

I have a long memory, and so do my kids. I’ll remember that once I am free I’ll never do business with Wells Fargo or Citi again.

In the meantime, CFPB Director Richard Cordray, you have my vote go sick’m

Feb 16, 2012 2:34pm EST  --  Report as abuse
Smoothy wrote:
Yeah US are conern now since it credit got lowered, now all a sudden they want to regulate!!!!

Feb 16, 2012 2:44pm EST  --  Report as abuse
hollish wrote:
This country was built without the use of any credit bureaus or credit scores. It is not a fair assessment of an individuals desire or ability to pay. In the old days,(if the 80′s and before are the old days) a person could get behind because of hardship, accident, medical or other reasons and later catch up. He was not crucified and punished for 7-10 years. Credit bureaus have no useful purpose except to charge a person a higher interest rate. They certainly didn’t stop the housing bomb and recession. It also puts the identity theft problem into a new light. Credit bureaus also cause longer recessions because if a person can’t start over then no cars are sold, no houses, no anything except by outrageously high interest rates that people really can’t afford. Again our country was built without them and they don’t need them now. All they do is hold industry and people back.

Feb 16, 2012 2:56pm EST  --  Report as abuse
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