Consumer Watchdog to Keep Eye on Debt Collectors, Credit Reporting Agencies

Debt collectors and credit reporting agencies — businesses that impact thousands of consumers — would face federal supervision for the first time under a rule a new federal watchdog proposal, which would allow the Consumer Financial Protection Bureau (CFPB) to examine approximately 200 firms, including large debt collectors.

According to the proposal, these two segments of the consumer finance industry will be a high priority for the CFPB as it scrutinizes the inner-workings of banks, as well as thousands of firms that offer a wide-range of financial services.  The bureau is planning to police payday lenders as well as non-bank firms that offer home and student loans.  Congress created the agency through the 2010 Dodd-Frank financial bill to control misleading financial practices and  examine segments of the financial marketplace that had previously escaped federal scrutiny.

“This oversight would help restore confidence that the federal government is standing beside the American consumer,” said CFPB Director Richard Cordray.  The number of Americans with debt under collection has grown to about 30 million Americans over the past 10 years, according to the New York Federal Reserve.  The average amount under collection has also steadily grown over the years to $1,400.  According to the CFPB, the market is dominated by firms that collect debt owned by another company in return for a fee; firms that purchase debt and collect the proceeds for themselves; and debt collection attorneys and law firms that litigate to collect.

“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,” Cordray said.

Considering that there are so many consumers struggling with unemployment and debt, Cordray said that more Americans are indebted to debt collectors and credit reporting companies, which employers frequently consult prior to hiring.  Cordray said that employers’ use of credit reports in hiring decisions “may not always be fair for consumers, but it reflects the reach and scope and importance of the consumer reporting field.”  That explains why the bureau wants to target those who gather and analyze consumer financial data, as well as those who are tasked with collecting on unpaid bills.  The consumer bureau will soon announce what other kinds of non-banking financial firms it plans to scrutinize in coming months, Cordray said.

The process of examining records and collecting data from these firms can lead to enforcement if regulators find violations of the law.  In these cases, the consumer bureau could find breaches of the Fair Debt Collection Practices Act or the Fair Credit Reporting Act.  Under the proposal, debt collectors with more than $10 million in yearly receipts from collection will undergo supervision by the consumer bureau.  This threshold would cover nearly 175 debt collection companies — four percent of all such companies — that collectively account for 63 percent of the industry’s annual revenue.

Cordray said the goal is to hold these companies to the same oversight as banks. “This oversight would help restore confidence that the federal government is standing beside the American consumer.”  Cordray continued, “The supervision tool is a very powerful tool. It’s a very powerful way for us to secure compliance with the law. It’s an authority I wish I had had in previous positions.”  He stressed that smaller companies in the two industries are still required to follow consumer protection laws and could be subject to CFPB regulation. But under the proposed rule, the CFPB would gain “complete access” to the books and information of large companies to ensure they are following those requirements, and will devote individual attention to each.

According to Dodd-Frank, the rule must be finalized by July 21, one year after the agency opened its doors.