On July 16, the CFPB issued a final rule defining large credit reporting agencies as entities subject to its supervision. Under the Dodd-Frank Act, the CFPB was authorized to supervise both large banks and nonbanks for compliance with consumer rules. The nonbank supervision authority grants the Bureau express powers over certain types of institutions, and also allows the CFPB to identify other industries to subject to its examinations. The new regulation establishes credit reporting as the first industry that the Bureau will supervise under these special powers to examine larger nonbank firms that reside outside the direct lending sphere. CFPB Director Richard Cordray explained that the new regulation “affords an opportunity to gain a more thorough understanding of their business models and their business practices.”
Starting September 30, the date the rule goes into effect, credit reporting agencies with over $7 million in annual receipts will enter the CFPB’s nonbank supervision program. This accounts for 94 percent of the credit reporting industry, including the three biggest crediting reporting agencies, Experian, Equifax, and TransUnion. Each of the three major credit reporting agencies maintain files on more than 200 million Americans and issue more than three billion consumer reports a year. The CFPB said it plans to conduct examinations of these agencies, but will publish additional examination guidance before doing so. The CFPB is also planning 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.
The CFPB’s assertion of supervision authority over credit reporting agencies comes as no surprise. In February, the CFPB listed consumer reporting agencies, along with debt collectors, as sectors it would monitor under its Dodd-Frank authority. The integrity of the credit reporting industry is important because low credit scores or credit histories can mean higher interest rates or rejected applications, affecting consumers’ ability to get a credit card, home loan, apartment, or even a job. Further, there have been thousands of complaints about credit reports from consumers claiming difficulties in getting credit reporting agencies to correct inaccurate information.
This marks the first time that a single government agency will take an active role in policing credit reporting agencies, though the Fair Credit Reporting Act (FCRA) requires credit reporting agencies to maintain accurate information about consumers. Pamela Banks of Consumers Union, the policy arm of Consumer Reports, called the new rule “a wonderful thing for the American public.” Banks further remarked that she expects that credit bureaus will now act more quickly to address consumers’ problems regarding the accuracy of information on their credit reports. Jon Ulzheimer, president of consumer education at SmartCredit.com said that the rule may cause the CFPB to clarify what the FCRA requires of credit reporting agencies, especially with regard to what constitutes a “reasonable investigation,” a constant source of debate in the consumer credit world. Gerry Tschopp, a spokesman for Experian, said that he had “no concerns” about the CFPB’s oversight, noting that the government already oversees the industry under the FCRA. A statement from Experian said the company and the CFPB share the goals of helping consumers get “access to fair and affordable credit.”
The Bureau indicated that 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.