WASHINGTON — Large debt collection and credit reporting firms would face federal supervision for the first time under a proposal issued Thursday by the Consumer Financial Protection Bureau.
The two industries are the first to be identified by the bureau for inclusion in its nonbank supervision program, which launched Jan. 5. The bureau may already supervise mortgage, payday and student lenders of any size, but must establish parameters for identifying "larger participants" in other consumer markets.
"Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks," CFPB Director Richard Corday said in a press release. "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.
"This oversight would help restore confidence that the federal government is standing beside the American consumer," he added.
Under the proposal, debt collectors with more than $10 million in annual receipts from debt collection activities would be subject to supervision. Credit reporting firms with more than $7 million in annual receipts would also be supervised.
Using these criteria, the proposal would cover approximately 175 debt collection firms, only about 4% of all such firms, but representing approximately 63% of annual receipts from the entire market, according to CFPB’s estimates.
It would also cover approximately 7% of all credit reporting agencies, about 30 firms, which represent 94% of the annual receipts from that market.
The proposal is the first in a series that will define "larger participants" in other markets. In a request for comment issued last summer, the bureau said it was also considering money transmitters, prepaid-card issuers and debt-relief services for potential inclusion in the nonbank supervision program.
CFPB said it chose annual receipts as the criteria for debt collection and consumer reporting because it "approximates market participation" in those two industries, according to a press release. But it may use different criteria and different thresholds for other markets.
The debt collection market is dominated by three kinds of companies: firms that collect debt owned by another company in return for a fee; firms that buy debt and collect the proceeds for themselves; and debt collection attorneys and law firms that collect through litigation.
About 30 million Americans have an average of $1,400 in debt under collection, according to data provided by the agency.
CFPB also said there are 36 billion updates to consumer files each year, and three billion consumer reports issued, according to the Consumer Data Industry Association. The three largest consumer reporting agencies maintain information on 200 million American consumers, according to the press release.