The Consumer Financial Protection Bureau recently announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program — marking the first time these consumer financial market participants are subject to federal supervision.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday lending and private education lending.
In addition, for other nonbank markets for consumer financial products or services, officials noted the CFPB has the authority to supervise “larger participants.”
As directed by Dodd-Frank, the Bureau must define such “larger participants” by rule, and an initial such rule must be issued by July 21.
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.
“Debt collectors and consumer reporting agencies touch millions of American consumers,” stressed bureau officials, who estimated about 30 million Americans have debt under collection with the average amount being $1,400.
CFPB rattled off the three main kinds of debt collection firms that dominate the market:
—Firms that collect debt owned by another company in return for a fee.
—Firms that buy debt and collect the proceeds for themselves.
—Debt collection attorneys and law firms that collect through litigation.
The bureau also pointed out a single company may collect through any or all of these activities.
Under the proposed rule, officials explained debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision.
Based on available data, the CFPB estimated that the proposed rule would cover approximately 175 debt collection firms — or 4 percent of debt collection firms — and that these firms account for 63 percent of annual receipts from the debt collection market.
“The consumer reporting market plays a critical role in the consumer financial services marketplace and in consumers’ financial lives,” officials emphasized.
“It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies,” they added.
According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and 3 billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.
CFPB reiterated that lenders use consumer reports, which are commonly called credit reports, when evaluating applications for credit cards, home mortgage loans, automobile loans and other types of credit. Specialty consumer reporting agencies collect and provide information used to make eligibility decisions for a variety of products, such as checking accounts.
Under the proposed rule, the Bureau explained consumer reporting agencies with more than $7 million in annual receipts from consumer reporting activities would be subject to supervision. This would include approximately 7 percent of consumer reporting agencies based on available data.
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