CFPB to begin examining credit reporting companies

Credit bureaus will come under the regulatory supervision of the Consumer Financial Protection Bureau beginning Sept. 30.

Credit bureaus will come under the regulatory supervision of the Consumer Financial Protection Bureau beginning Sept. 30. The CFPB issued a final rule July 16 that will affect about 30 of the nation’s 400-some credit reporting companies. It is the first time such companies will come under federal regulatory supervision.

The Dodd-Frank Act gives the CFPB jurisdiction over larger, non-bank players in the financial services industry; it is initially focusing on credit bureaus. CFPB solicited comments last year about its plans for supervising the bureaus and on Feb. 17, 2012 it proposed a final rule. CFPB says it received 82 comments on the proposal.

Credit reporting companies or bureaus make up a significant business, generating about $4 billion in annual revenues. Although there are about 400 companies in the industry, CFPB jurisdiction will apply only to the largest ones, that is, companies with annual revenue in excess of $7 million. The 30 companies that fit that criteria account for 94 percent of the industry’s total receipts.

The three largest credit reporting agencies alone maintain files on more than 200 million Americans. Lenders use the reports to make credit decisions. For example, the CFPB says the vast majority of the 113 million credit card accounts, auto loans, personal loans, mortgages and home equity lines originated in 2011 were subject to information provided by three leading credit agencies, Experian, Equifax and TransUnion. Every year, some 3 billion credit reports are issued by the reporting companies, and more than 36 billion updates are made to the records.

CFPB says the 10 largest banks provide more than half the information about credit card accounts to the companies; those same banks use the information to make credit allocation decision.

The CFPB said its 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 appropriate personnel, and they will be required to provide appropriate reports. The first exams will take place after the Sept. 30 implementing date. CFPB has yet to publish examination guidelines that will help the affected companies prepare.

Here is a link to the CFPB announcement.

Credit reporting companies are the first non-bank companies to come under the supervision of the CFPB. The Bureau says it plans next to focus on debt collection companies.

Fredrikson & Byron Law