The new Consumer Financial Protection Bureau has recently added debt collectors and credit bureaus to its list of consumer financial services “targets.” The agency hopes it can further support and stand by the American consumer in this way. There has been a dramatic increase the amount of debt being pursued by debt collections agencies over the past decade: currently, 30 million Americans have debt under collection, and the average amount under collection is $1,400. This is a clear indication of the pain being felt by both lenders and their customers alike.
We believe that transparency is a crucial ingredient in the debt and credit industries. We recently wrote a related article for Fast Company - On Creating a More Transparent Financial Services Industry - in which we highlighted why regulation and legal scrutiny must be coupled with better designed financial products in general. If financial products targeting consumers were less complex and easier to understand and manage, there would be fewer defaults among customers and more profits for financial services companies. This requires a longer-term view as opposed to a short-sighted view on the financial services industry as a whole.
Largest debt collection and credit reporting firms are affected
In the announcement about the proposed new rule today, the director of the CFPB said:
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.
The new rule would apply only to the largest debt collection companies – ones that make more than $10 million a year. That includes only 4% percent of all debt collection firms, but those firms alone account for 63% of the annual debt recovered by the industry.
With regard to the credit reporting agencies, the rule would apply to firms with more than $7 million per year in receipts. That covers about 30 of the largest companies that do credit reporting.
What you can do
The new rule is currently in proposal form, meaning the CFPB is accepting comments on it for the next 60 days. What are your thoughts? Submit your ideas and insights to the CFPB on their comment page. And if you’re curious, read the full text of the proposed rule.
We’ll keep you updated on these actions and their effect on consumers. It’s important to stay informed of the actions of the government and the companies in this industry in order to ensure that consumer’s best interests are being promoted.