Debt Collectors and Credit Bureaus Face New Hard-Hitting Rules

credit bureaus and debt collectors face financial regulation

credit bureaus and debt collectors face financial regulationIn February 2012, the Consumer Financial Protection Bureau proposed a sweeping set of rules aimed at regulating debt collectors and credit reporting agencies — it’s about time.

While debt collectors are regulated by the Federal Trade Commission complaints continue to rise concerning unfair, deceptive and illegal practices.

And, while credit reporting agencies play a vital role in consumers’ everyday lives; determining everything from a job offer, where you live to your ability to obtain a personal, auto or mortgage loan, they remain practically unregulated.

Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB) said “debt collectors and credit reporting agencies have gone unsupervised by the federal government for too long.” The CFPB is proposing hard-hitting new oversight for the most vital, yet mysterious financial industry groups, to which most consumers are affected by in some way.

The three major credit reporting agencies, Experian, Equifax and TransUnion collect and store credit data on millions of consumers yet have little regulation. The CFPB will not only regulate the three major credit bureaus but also cover about 30 other consumer reporting agencies that earn more than $7 million in annual revenue. This will include companies such as Chexsytems and Telecheck, both of which are considered consumer reporting agencies because they collect, store and sell consumer data.

CFPB Director, Richard Cordray, said “Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks. 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.”

Ed Mierzwinski of the U.S. Public Interest Research Group said “Their practices have been mysterious to consumer advocates for years, and the new federal oversight should help reduce the number of mistakes on credit reports…We should look inside the credit bureaus because they are gatekeepers to financial success, and we should see if their algorithms are fair to consumers.”

The CFPB will send examiners to review the operations of debt collectors and credit reporting agencies on a regular basis in an effort to identify problems before they arise. This may prove especially beneficial to consumers dealing with debt collectors.

The debt collection industry is second only to identity theft in consumer complaints. It is estimated by the CFPB that a 30 million consumers have debts in collection. The need for more regulation is far overdue.

The CFPB will target debt collectors with more than $10 million in annual revenue from collection activities. That would cover about 175 debt collection firms which account for about 63% of the market.

In the past year debt collectors and debt buyers have settled complaints with the Federal Trade Commission stemming from consumer complaints. Two very large settlements came from Asset Acceptance, LLC and West Asset Management, Inc.

In January 2012, one of the nation’s largest consumer debt buyers, Asset Acceptance, LLC, agreed to pay a $2.5 million civil penalty for deceptive practices and misrepresentations when trying to collect old debts.

In March 2011, West Asset Management, Inc. agreed to pay a civil penalty of $2.8 million to settle FTC charges that its aggressive collection techniques violated federal law.

Because consumers do not have the ability to choose who they deal with or shop around for better providers when it comes to the credit reporting agencies and debt collectors, these financial industry groups wield major power to determine consumer quality of life.

The Consumer Financial Protection Bureau will ensure existing consumer protection laws such as the Fair Credit Reporting Act which governs consumer reporting agencies and the Fair Debt Collection Practices Act which governs debt collectors are being adhered to.

 

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