[Bud Hibbs]

CONSUMER FINANCIAL PROTECTION BUREAU PROPOSES RULE TOSUPERVISE LARGER PARTICIPANTS IN CONSUMER DEBT COLLECTION AND CONSUMERREPORTING MARKETS

Proposed Rule Would Subject Industries to FederalSupervision for the First Time

WASHINGTON, D.C. — The Consumer Financial ProtectionBureau (CFPB) today announced a proposed rule to include debt collectors andconsumer reporting agencies under its nonbank supervision program. This wouldmark the first time these important and far-reaching consumer financial marketparticipants are subject to federal supervision.

“Consumer financial products and services have becomemore complex over the years and they have expanded well beyond traditionalbanks,” said Richard Cordray, CFPB Director. “Our proposed rule would mean that those debt collectors and creditreporting agencies that qualify as larger participants are subject to the samesupervision process that we apply to the banks. This oversight would help restore confidence that the federal governmentis standing beside the American consumer.”

The Dodd-Frank Wall Street Reform and Consumer ProtectionAct, which created the CFPB, authorizes the CFPB to supervise nonbanks in thespecific markets of residential mortgage, payday lending, and private educationlending. In addition, for other nonbankmarkets for consumer financial products or services, the CFPB has the authorityto supervise “larger participants.” As directed by Dodd-Frank, the Bureau mustdefine such “larger participants” by rule, and an initial such rule must beissued by July 21, 2012. Last summer, theCFPB sought public comment about possible markets to include in the initialrule and available data sources the Bureau could use to define largerparticipants in nonbank markets.

Debt collectors and consumer reporting agencies touchmillions of American consumers. About 30million Americans have debt under collection. For these consumers, the average amount under collection is $1,400. Three main kinds of debt collection firmsdominate the market: firms that collectdebt owned by another company in return for a fee; firms that buy debt andcollect the proceeds for themselves; and debt collection attorneys and lawfirms that collect through litigation. Asingle 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 subjectto supervision. Based on available data,the CFPB estimates that the proposed rule would cover approximately 175 debtcollection firms -- or 4 percent of debt collection firms -- and that thesefirms account for 63 percent of annual receipts from the debt collectionmarket.

The consumer reporting market plays a critical role inthe consumer financial services marketplace and in consumers’ financiallives. It includes the largest creditbureaus selling comprehensive consumer reports, consumer report resellers, andspecialty consumer reporting agencies. According to the Consumer Data Industry Association, each year there are36 billion updates to consumer files, and three billion reports areissued. The three largest consumerreporting agencies alone maintain information on 200 million Americanconsumers.

Lenders use consumer reports, which are commonly calledcredit reports, when evaluating applications for credit cards, home mortgageloans, automobile loans, and other types of credit. Specialty consumer reporting agencies collectand provide information used to make eligibility decisions for a variety ofproducts, such as checking accounts.

Under the proposed rule, consumer reporting agencies withmore than $7 million in annual receipts from consumer reporting activitieswould be subject to supervision. Thiswould include approximately 7 percent of consumer reporting agencies based onavailable data. The proposed thresholdwould allow the CFPB to cover about 30 consumer reporting agencies. The CFPB estimates that these 30 companiesaccount for about 94 percent of the annual receipts from consumer reporting.

This is the CFPB’s first in a series of rulemakings todefine larger participants. The CFPB chose annual receipts as the criterion forboth debt collection and consumer reporting because it approximates marketparticipation in these two markets. As the CFPB adds new markets, it willchoose the best criteria and the appropriate thresholds for each market.




The proposed rule is open for comment for 60 days afterthe rule is published in the Federal Register. The CFPB welcomes comment from the publicon the proposed rule.



The proposed rule will be published online on Thursday at11 a.m. here: http://www.consumerf...ce-and-comment/<http://www.consumerf...ce-and-comment/>




More information about the CFPB’s Nonbank SupervisionProgram is available here: http://www.consumerf...vision-program/