Washington – The nation’s new cop on the consumer-finance beat is zeroing in on debt collectors and credit reporting companies.
Join our WhatsApp groupSubscribe to our Daily Roundup Email
The Consumer Financial Protection Bureau said Thursday that it wants to add debt collectors and credit bureaus to the list of industries that agency officials can supervise in person.
The agency has already started supervising payday lenders, mortgage companies and private student lenders. It gained that power last month, after President Barack Obama installed its director.
The CFPB can also write rules to supervise big companies in other industries. Thursday’s announcement was a first step toward defining which industries the CFPB wants to scrutinize.
The housing bust and recession have transformed debt-collection and credit-reporting companies, making them a much bigger part of consumers’ lives, agency Director Richard Cordray told reporters.
More people have overdue debts that have been handed to collection agencies, he said, and many people’s credit scores have been hit by foreclosures, a lost job or a family member hurt by the recession, he said.
About 30 million Americans have debts in collection, Cordray said. He said debt collectors receive more complaints than any other industry, according to a database of complaints maintained by the Federal Trade Commission.
Consumers are vulnerable to abuse by debt collectors and faulty credit reports because they can’t take their business elsewhere, Cordray noted.
Oversight by the CFPB will help companies follow the rules by clarifying how they will be enforced, one industry executive said.
“Agencies like ourselves are really hoping that the CFPB, if they’re going to have increased regulation of the collection world, they’ll provide clarity on what you can and can’t do,” said Tim Smith, senior vice president of banking and financial services at Firstsource Solutions. Smith’s division collects debt for many of the nation’s biggest credit-card issuers.
Firstsource and its competitors expect the CFPB to stir major changes over the next year, and many are ramping up internal controls and audits to prepare for the new oversight, he said.
Banks have long been subject to strict scrutiny by regulators focused on their safety and financial stability. Yet much of the abusive lending that inflated the housing bubble occurred far from that spotlight, because the lenders were not subject to bank oversight.
The CFPB was created in part to close the regulatory gap. Its officials can visit, inspect and collect information from a broad slice of the financial-services market that previously lacked such oversight.
Until now, the government could bring lawsuits against companies that broke laws aimed at protecting consumers from heavy-handed debt collection tactics. Bank-style supervision allows officials to look closely at the practices of healthy companies that are not accused of wrongdoing.
The list of industries subject to CFPB supervision will continue to grow. In a preliminary outline of its plans last June, the agency named prepaid debit cards, money-transfer services, check cashers and debt-relief firms, among others.
Under Thursday’s proposal, debt collectors with more than $10 million in annual receipts and consumer reporting agencies with more than $7 million in consumer-data revenue would be subject to supervision. The CFPB estimates that it will cover agencies that do 63 percent of the nation’s debt collection and generate 94 percent of the consumer credit revenue.