First Time Market Has Been Subject to Federal Supervision
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) adopted a rule today to begin supervising larger consumer reporting agencies, which include what are popularly called credit bureaus or credit reporting companies. This is the first time these companies will be supervised at the federal level.
“Credit reporting is at the heart of our lending systems and enables many of us to get credit, afford a home, or get an education,” said CFPB Director Richard Cordray who will be speaking at a field hearing on Monday in Detroit. “Supervising this market will help ensure that it works properly for consumers, lenders, and the wider economy. There is much at stake in making sure it is both fair and effective.”
Consumer reporting agencies are private businesses that track a consumer’s credit history and other consumer transactions. Such companies play a key role in the consumer financial services marketplace and in the financial lives of consumers. For example, the reports that the three largest credit reporting companies sell are used in determining everything from consumer eligibility for credit to the rates consumers pay for credit.
Although a small number of large businesses dominate the credit reporting market, there are about 400 consumer reporting agencies in the U.S. The market includes: the largest credit reporting companies that sell comprehensive consumer reports; consumer report resellers that buy consumer information from the largest agencies then typically provide further input to the report by, for example, merging files from multiple agencies, to resell them; specialty consumer reporting companies that primarily collect and provide specific types of information like on payday loans or checking accounts; and companies that analyze consumer report data.
The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to supervise nonbanks in the specific markets of residential mortgage, payday, and private education lending. For other markets for consumer financial products or services, the CFPB has the authority to supervise nonbank “larger participants” as defined by rule.
Today’s rule states that the CFPB will for the first time supervise consumer reporting agencies that have more than $7 million in annual receipts. The CFPB’s supervisory authority extends to an estimated 30 companies that account for about 94 percent of the market’s annual receipts. Altogether, the three largest credit reporting companies issue more than 3 billion consumer reports a year and maintain files on more than 200 million Americans.
Previously, consumer reporting was subject, at the federal level, only to law enforcement authority. And authority to write rules under the federal law governing this system was shared among several agencies. No single federal government agency could adequately see the entire picture of what was happening in these companies. Now, the CFPB will be authorized to supervise the larger consumer reporting agencies as well as write rules and enforce the law as needed.
The CFPB’s approach to supervising credit reporting will be just like its approach to supervising banks and other nonbanks already subject to CFPB supervision. 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 rule outlining the CFPB’s supervision of this market will be effective Sept. 30, 2012. The CFPB will begin its first exams thereafter. Before it begins exams, the CFPB will publish exam procedures that will provide guidance on how it will be conducting its monitoring. The CFPB has issued similar procedures for other companies that it is currently supervising, including mortgage originators, mortgage servicers, and payday lenders.
In February, the CFPB issued a proposed rule to supervise the credit reporting and debt collection markets. The CFPB started with those two markets because of their widespread impact on consumers. The public weighed in on the CFPB’s proposals, and today’s rule is a result of that process. The CFPB plans to finalize its “larger participant” rule on debt collection this fall, and plans to propose additional “larger participant” rules in the future.
The CFPB is also releasing a Consumer Advisory about credit reports and a series of questions and answers about credit reporting in its ‘Ask CFPB’ database. The advisory highlights for consumers the importance of checking their credit reports, what to look for in their reports, and how to dispute mistakes. It also lays out easy steps consumers can take to monitor their credit, protect against identity theft, and request fraud alerts if they think they have or are about to become a victim of fraud or identity theft.
The questions and answers on credit reporting are available on Ask CFPB at: https://www.consumerfinance.gov/ask-cfpb/
The CFPB is holding a field hearing in Detroit today to gather information about the credit reporting market from industry and the public. To find out more information about the hearing, go to: www.consumerfinance.gov.