In response to a flood of complaints about debt collectors and credit bureaus, the Consumer Financial Protection Bureau has proposed a new rule that would make the biggest players in these genres — including Equifax, TransUnion, and Experian — subject to the same oversight policies that apply to banks.
The agency, which was created under the 2010 Wall Street Reform and Consumer Protection Act, holds the somewhat broad mandate to regulate “consumer protection.” The Bureau’s creation and activities have been totally opposed by bank lobbyists and Republicans, and the current proposal is the group’s most ambitious action to date.
In a story by Tony Pugh for the Boston Herald, Richard Cordray, the director of the Bureau said, “Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”
Major Players in Both Arenas Will Be Affected
There are approximately 175 debt collection agencies that would be subject to the proposed oversight, holding more than $10 million in collection receipts annually. While the agencies represent only 4 percent of the actual number of existing collection firms, they do 63 percent of the yearly debt collection business in the United States.
Some 30 credit reporting agencies, holding $7 million in receipts from annual reporting activities would also face supervision. These firms account for 7 percent of the actual industry presence for the genre, but bring in 94 percent of industry revenue.
Increasing Debt Collection Lawsuits and Credit Reporting Errors
The proposal comes in response to the escalation of federal consumer lawsuits filed since the start of the “Great Recession,” which is now believed to have begun in 2007. That year, there were only 4,372 lawsuits filed under the Fair Debt Collection Practices Act. In 2011 alone, there were 11,811 such lawsuits filed.
The three largest credit reporting agencies — Experian, Equifax, and TransUnion — annually compile financial data on 200 million U.S. consumers, generating reports that are used to determine not just credit ratings, but also job worthiness. According to the Consumer Data Industry, 36 billion credit reports are updated each year, with 3 billion new reports generated.
Inaccuracies on these reports plague consumers, who are often frustrated by the difficulty in getting those mistakes fixed. Estimates suggest that 79 percent of all consumer credit reports are either missing information, show out-of-date account balances, include false delinquencies, or contain other errors.
Trade Associations Downplay Need for the Oversight
In response to the call for oversight, Mark Schiffman, the public affiars director for the Association of Credit and Collection Professionals, said the group will use the 60-day comment period on the bureau’s proposed rule to determine if the guidelines are “overly burdensome.”
Additionally, he said the increase in complaints about debt collection were due to attorneys exploiting the profit potential of the recession. “It’s not an assumption, it’s a fact,” said Schiffman. Attorneys see consumer lawsuits as a viable “cash cow.”