WASHINGTON — The Consumer Financial Protection Bureau wants to place debt collectors and credit bureaus under federal supervision for the first time, after an explosion in complaints about their practices.
The bureau announced a proposed rule Thursday that would make the largest debt-collection agencies and credit-reporting agencies — including Experian, Equifax and TransUnion — subject to the same oversight process that banks are. It's the agency's most ambitious proposal since its creation under the controversial 2010 Wall Street Reform and Consumer Protection Act.
"Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks," said Richard Cordray, the bureau's director. "This oversight would help restore confidence that the federal government is standing beside the American consumer."
Under the proposal, about 175 debt-collection agencies that each hold more than $10 million in annual collection receipts would be subject to bureau oversight. Those agencies make up only about 4 percent of all collection firms, but they account for 63 percent of annual debt collection receipts.
Only about 30 credit-reporting agencies with more than $7 million in annual receipts from reporting activities would face supervision under the proposal. These firms make up about 7 percent of the industry, but they account for nearly 94 percent of industry revenue.
Since the Great Recession hit in 2007, federal consumer lawsuits filed under the Fair Debt Collection Practices Act have more than doubled and complaints about problem collectors have skyrocketed. The 144,000 complaints about debt collectors that the Federal Trade Commission fielded in 2010 were second only to identity theft as the most common consumer complaint category.
A record 11,811 federal consumer lawsuits were filed last year under the Fair Debt Collection Practices Act, up from 4,372 in 2007. The lawsuits and complaints about bill collectors allege illegal contacts with consumers, overly aggressive collection agents and mistaken identities of debtors.
Mark Schiffman, the public affairs director for ACA International, the Association of Credit and Collection Professionals, said the trade group would use the rule's 60-day comment period to review the bureau's oversight plan before making public comments.
He said industry leaders wanted to see how their companies would be affected and to make sure the guidelines weren't "overly burdensome."
Schiffman said the increase in complaints and lawsuits against debt collectors reflected not only more consumers facing financial hardship in the economic downturn, but also a small group of attorneys who filed numerous actions.
"It's not an assumption, it's a fact," Schiffman said, adding that some attorneys see the consumer lawsuits as a "cash cow."
An estimated 36 billion individual credit reports are updated each year and 3 billion new reports are issued, according to the Consumer Data Industry Association. The three largest agencies — Experian, Equifax and TransUnion — compile financial information on 200 million Americans. Their reports are used to determine creditworthiness and to screen job applicants.
For years, consumers have complained about inaccuracies on their credit reports and difficulty in getting them corrected. An estimated 79 percent of consumer credit reports have errors such as missing account information, false delinquencies and out-of-date account balances, said Tanya Clay House, the director of public policy at the Lawyers' Committee for Civil Rights Under Law.
Norm Magnuson, the vice president of public affairs for the Consumer Data Industry Association, said he'd had no time to review the proposal and had no comment.
Gerry Tschopp, a spokesman for Experian, said in an email that his firm had been working with the Consumer Financial Protection Bureau since its creation and would meet "consumers' and clients' needs within regulatory guidelines, while continuing to move our business forward."
TransUnion didn't respond to request for comment.
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