The Consumer Financial Protection Bureau proposed a regulation that would let it examine the books of debt collectors and consumer reporting businesses as part of its program to supervise non-bank financial companies.
“Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks,” the bureau’s director, Richard Cordray, said in an e-mailed statement today.
The regulation, which must be finalized by July 21, would bring credit bureaus such as Experian Plc, Equifax Inc. and TransUnion Corp. under federal supervision for the first time. It would also extend to Fair Isaac Corp., the company that developed and maintains the algorithm used to calculate consumers’ credit ratings, known as FICO scores.
The proposal would cover, also for the first time at the federal level, debt collectors such as Asset Acceptance Capital Corp., Portfolio Recovery Associates Inc. and Encore Capital Group Inc.
Supervision, the process of examining records and collecting data from companies, can lead to enforcement action if regulators find violations of the law. In the case of these companies, the consumer bureau could find breaches of the Fair Debt Collection Practices Act or the Fair Credit Reporting Act.
Rating the Raters
In comments to reporters before the announcement, Cordray pointed out that banking supervision involves assigning ratings to banks, which affect their ability to conduct certain business. The agency may follow the same route for non-banks.
“That may matter a lot to these entities, particularly the publicly traded ones because it might affect their ability to effectuate transactions,” Cordray said. “There could be quite a bit of power to this supervisory authority.”
Even before this rule is finalized, the bureau intends to designate companies in other markets for supervision, Peggy Twohig, the bureau’s assistant director for supervision, told reporters. In July, the bureau requested public comment on supervision of different markets, including prepaid cards, debt settlement and consumer lending.
Under today’s proposal, debt collectors with more than $10 million in annual receipts from collection activities will face supervision by the consumer bureau. According to the agency, this threshold would cover about 175 debt collection companies - - 4 percent of all such companies -- that together account for 63 percent of the industry’s annual revenue.
Targeting Larger Companies
Consumer reporting companies with more than $7 million in annual revenue would be supervised, according to the proposal. That would cover about 30 companies that together account for about 94 percent of the industry’s annual revenue.
Under the Small Business Regulatory Enforcement and Flexibility Act, agencies including the consumer bureau have to vet the potential impact of regulations on companies with less than $7 million in receipts, according to Richard Eckman, a lawyer with Pepper Hamilton LLP in Wilmington, Delaware.
“This is clearly an attempt to avoid the SBREFA process on the regulation,” Eckman said in an e-mail.
Republicans have criticized the potential impact of consumer bureau regulations on small business.
The bureau requested public comment on the proposal for 60 days after publication in the Federal Register.
The Dodd-Frank law of 2010 requires the bureau to issue a rule by July 21 on what “larger participants” in the non-bank consumer financial services market it will supervise. The bureau began examination of banks with assets above $10 billion on consumer issues on July 21, 2011.
Dodd-Frank directs the bureau to supervise mortgage originators, payday lenders and student loan companies. That program began on Jan. 5, shortly after President Barack Obama installed Cordray as the bureau’s first director.