The Consumer Financial Protection Bureau (CFPB) today announced a proposed rule to include debt collectors and consumer reporting agencies under its nonbank supervision program. This would mark the first time these important and far-reaching consumer financial market participants are subject to federal supervision.
“Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks,” said Richard Cordray, CFPB Director. “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. This oversight would help restore confidence that the federal government is standing beside the American consumer.”
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, 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, 2012. 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. About 30 million Americans have debt under collection. For these consumers, the average amount under collection is $1,400. Three main kinds of debt collection firms 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; and debt collection attorneys and law firms that collect through litigation. A single company may collect through any or all of these activities.
Under the proposed rule, 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 estimates 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. It includes the largest credit bureaus selling comprehensive consumer reports, consumer report resellers, and specialty consumer reporting agencies. According to the Consumer Data Industry Association, each year there are 36 billion updates to consumer files, and three billion reports are issued. The three largest consumer reporting agencies alone maintain information on 200 million American consumers.
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, 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. The proposed threshold would allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimates that these 30 companies account for about 94 percent of the annual receipts from consumer reporting.
This is the CFPB’s first in a series of rulemakings to define larger participants. The CFPB chose annual receipts as the criterion for both debt collection and consumer reporting because it approximates market participation in these two markets. As the CFPB adds new markets, it will choose the best criteria and the appropriate thresholds for each market.
The proposed rule is open for comment for 60 days after the rule is published in the Federal Register. The CFPB welcomes comment from the public on the proposed rule.