CFPB Asserts Authority Over Credit Reporting Firms
By Joe Adler
JUL 16, 2012 12:01am ET
WASHINGTON – The Consumer Financial Protection Bureau plans to unveil Monday new rules for supervising credit-reporting companies, marking the first time such firms will become subject to federal oversight.
The new regulation establishes credit reporting as the first industry the bureau will supervise under special powers granted by the Dodd-Frank Act to examine larger nonbank firms that reside outside the direct lending sphere.
Starting Sept. 30, credit reporting agencies with over $7 million in annual receipts – accounting for 94% of the industry total – will enter the CFPB’s nonbank supervision program. Following that date, the bureau said, it plans to conduct exams, but before doing so will publish additional examination guidance.
The supervision for the credit reporting agencies will share characteristics with how the CFPB has supervised banks and nonbanks that already fall under its oversight, the bureau said.
“The companies will be subject to review of compliance systems and procedures, on-site examinations, discussions with relevant personnel, and they will be required to produce relevant reports,” the CFPB said.
In prepared remarks scheduled to be given in Detroit on Monday, CFPB Director Richard Cordray said the consumer reporting agencies’ “scorekeeping exerts a tremendous and growing influence over the ways and means of” consumers’ “financial lives.”
“So it is important for all of us to understand more about their work and the ways it can affect us,” he said in the prepared remarks, scheduled for a field hearing.
The new regulation, Cordray added, “affords an opportunity to gain a more thorough understanding of their business models and their business practices, to work with them to correct any problems we find, and to find ways to resolve matters that may be causing harm to consumers.”
While it was unclear what types of new regulatory restrictions credit reporting agencies may face under CFPB supervision, the regulator gave clear signals earlier this year that it was interested in the sector.
Under Dodd-Frank, the CFPB was authorized to supervise both large banks and nonbanks for compliance with consumer rules. (The bureau is also charged with writing consumer policies for the entire financial services industry.)
The nonbank supervision authority grants the bureau with express powers to oversee residential mortgage lenders, payday lenders and private student lenders. But the law also allows the CFPB to identify other industries to subject to its examinations.
In a February proposal, the CFPB had listed consumer reporting agencies, along with debt collectors, as sectors it will monitor under its Dodd-Frank authority to supervise “larger participants” in nonbank industries that play indirect roles in the exchange of consumer credit.
“Credit reporting plays a critical role in consumers’ financial lives, a role that most people do not recognize because it is usually not very visible to them,” Cordray said in the prepared remarks. “Credit reports on a consumer’s financial behavior can determine a consumer’s eligibility for credit cards, car loans, and home mortgage loans – and they often affect how much a consumer is going to pay for that loan.
“If you have a credit record that appears to show a greater risk that you will fail to repay a loan, then you may be denied credit and you likely will be charged higher interest rates on any loan offered to you.”
Last summer, the bureau indicated the larger-participant authority could also eventually extend to companies such as money transmitters, prepaid-card issuers, debt-relief services and other kinds of consumer lenders, meaning they too could be part of the supervision program.
The CFPB said it also plans to release a “consumer advisory” regarding credit reports and a series of frequently asked questions and answers about the sector as part of its “Ask CFPB” database.