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Debt collectors to get scrutiny

Credit reporting agencies also eyed

WASHINGTON – The government’s newest regulator is ready to crack down on the nation’s large credit reporting and debt collection companies, proposing tough new oversight on two arcane financial groups that affect nearly all consumers.

The Consumer Financial Protection Bureau proposed to subject the companies to federal oversight for the first time as part of its broad authority to regulate firms outside the banking system.

By sending examiners to review their operations on a regular basis, the bureau hopes to spot problems before they arise at companies that book-end the consumer financial experience – firms that help determine who gets credit in the first place and those that pursue people unable to pay their bills.

“Debt collectors and credit reporting agencies have gone unsupervised by the federal government for too long,” Richard Cordray, the bureau’s director, said Thursday in announcing the effort.

The proposed rule, which is expected to be enacted in the next few months, was Cordray’s first major move since being installed by President Barack Obama last month in a controversial recess appointment.

Debt collection has been second only to identity theft in consumer complaints to the Federal Trade Commission in recent years. The bureau estimated that 30 million Americans have debts in the collection process.

The three large credit reporting companies, Experian Information Solutions Inc., Equifax Inc. and TransUnion, have records on 200 million Americans and hold the key to getting a credit card or mortgage – and increasingly even a job.

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, said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

“The CFPB is saying they should no longer be operating as a black box,” Mierzwinski said.

Credit reporting companies and debt collectors already fall under the bureau’s power to enforce consumer protection laws and enact new regulations. Cordray proposed to subject the largest of those companies to additional oversight because of their key role in consumer finance.

Bureau examiners would make sure consumer protection laws were being followed in the same way that other regulators examine banks regularly to check their financial condition. Congress directed the consumer bureau to examine large banks, mortgage companies, payday lenders and private student lenders.

In other areas of the financial industry, the bureau must designate which firms are large participants and then create rules to supervise them more closely.