CFPB Publishes Larger Participant Rule for Credit Reporting Agencies
On July 16, 2012, the Consumer Financial Protection Bureau (CFPB) adopted a regulatory rule to begin supervising larger consumer reporting agencies, which include credit bureaus, e.g. CRAs. Until now, several federal and state regulators with jurisdiction over consumer reporting practices only had the ability to bring enforcement actions under the Fair Credit Reporting Act and did not have the power to conduct regulatory examinations.
CFPB Director Richard Cordray stated that “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. 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.”
This rule provides for CFPB supervision for CRAs that have more than $7 million in annual receipts. According to the CFPB, its supervisory authority extends to an estimated 30 companies that account for about 94% 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.
Along with the CRAs that provide reports, the CFPB will examine companies that compile consumer credit reports from the major CRAs and resell them to banks and other interested parties, as well as specialty CRAs that collect and report information on payday loans or checking accounts. Companies that analyze consumer reports also will come under CFPB scrutiny.
Nuts and Bolts
With the creation of the larger participant rule for CRAs, credit reporting companies now will have a regulator that can come in at a moment’s notice to review a company’s compliance. There will be a regular review of how companies compile the consumer reports and a real assessment of their accuracy. Specifically, the CFPB will be focusing on the “riskiness” of a company, based almost exclusively on complaints it receives through its portal.
While there is still much uncertainty about what exactly the CFPB is looking for, a prime example of enforcement is the recent $210 million penalty imposed by the CFPB against a large credit card provider because it allegedly tricked credit card customers into buying costly add-on services, such as payment protection and credit monitoring. Over $25 million will go directly to the CFPB. Cordray noted that the problems are not isolated, and he expects announcements about financial services of other companies in the future.
The number of consumer complaints received will directly correlate to the amount of attention a company receives. Thus, as with other businesses within the examination authority of the CFPB, how a CRA handles these complaints is vital.
The rule outlining the CFPB’s supervision of this market will go into effect on September 30, 2012.
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation Group has successfully litigated a wide range of individual and class action claims involving the FCRA, FDCPA, and other federal and state consumer protection laws.
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