On February 16, the Consumer Financial Protection Bureau (CFPB) released a proposed expansion of the authority of the nonbank supervision program, whose mission is to ensure that nonbank financial institutions follow federal consumer financial regulations and to investigate potential risks to consumers from financial institutions. The proposed rule will expand the CFPB’s authority to include supervision of the largest debt collection services and consumer reporting agencies, subjecting these businesses to federal regulation for the first time. The proposed rule is available for public comment for 60 days after its publication.
The CFPB was created under the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2007 recession. The Bureau assembles the majority of federal consumer financial protection authority in one place. Its mission is to protect consumers who are in the market for financial products and services and to supervise consumer financial businesses that had not been subjected previously to federal oversight. The CFPB protects American consumers from abusive, deceptive, and unfair financial practices. The CFPB has already issued guidelines for revised, easier-to-read credit card agreements.
The Bureau is authorized to investigate any type of business that may be violating the law, but it has limited direct supervisory authority. The Dodd-Frank Act specifies that the CFPB would have the authority to supervise “larger participants” in some nonbank financial markets. However, the Bureau must define what kind of businesses are “larger participants” by a rule, the initial version of which must be issued by July 21, 2012.
Approximately 30 million American consumers are the subject of debt collection, with the average amount of debt being $1,400. The CFPB will regulate three types of debt collection companies: those that collect debts for clients for a fee; those that buy debts and collect the proceeds for themselves, and attorneys that acquire debt payments through litigation. Many companies use all three methods to collect debt payments.
The proposed rule issued on the 16th would give the CFPB authority over debt collection companies with more than $10 million in annual receipts, an estimated 175 businesses in the debt collection market. Although they constitute only approximately 4% of the debt collection businesses, the larger providers bring in 63% of the total annual receipts for the industry.
The proposed rule would also cover the largest credit reporting companies, including consumer report resellers and specialty consumer reporting companies. Credit reports and credit scores influence the lives of many American consumers by determining eligibility for mortgages, credit cards, and other types of credit. The three top credit reporting companies alone hold information about 200 million Americans and the industry issues an estimated 3 billion reports a year.
The proposed rule would give the CFPB supervision over consumer reporting agencies with more than $7 million in annual revenue, representing approximately 30 consumer reporting agencies. The affected agencies make up only 7% of the market, but account for an estimated 94% of the market’s annual receipts.