Large debt collectors and credit-reporting agencies will face federal scrutiny for the first time under new rules being drafted by the Consumer Financial Protection Bureau (CFPB).
CFPB Director Richard Cordray told reporters Thursday that those two industries "have gone unsupervised for too long" and vowed to increase oversight to ensure they are not taking advantage of consumers.
"The supervision tool is a very powerful tool. It's a very powerful way for us to secure compliance with the law," he said. "It's an authority I wish I had had in previous positions."
The rules would subject large debt collection and credit agencies to the same level of CFPB scrutiny as banks.
While the CFPB has been up and running since July, the latest action is the first time the bureau has moved to regulate an industry that was not already tracked by a federal agency.
The decision also helps crystallize the mandate that was given to the CFPB by the Dodd-Frank financial reform law — a mandate that Republicans say is dangerously overbroad.
The CFPB gained authority over non-bank institutions after President Obama recess-appointed Cordray as its director. The legality of the appointment has been disputed by Republicans and business groups, and is certain to be challenged in court.
The new proposal is the first in a series of proposals aimed at determining what nonbank companies will be targeted by the CFPB for scrutiny.
Cordray said the bureau is beginning that effort with debt collectors and credit agencies, in part, because of their growing importance in the lives of average Americans.
Since the financial crisis hit, Cordray said, more consumers have been struggling financially and dealing with debt collectors. And consumers "have their life dictated as much as it can be" by the reporting agencies now that employers have begun to vet job seekers with the information, he said.
The CFPB is proposing a rule defining which businesses qualify as "larger participants" in their particular industries, and therefore merit heightened supervision. Under the proposal, debt collectors that bring in more than $10 million per year — about 175 nationwide — and reporting agencies with more than $7 million in receipts — about 30— would fall under the oversight requirements.
Those larger participants control roughly 63 percent and 94 percent of their respective industries, the bureau said.
The proposal now goes before the public for 60 days for comment, at which point the CFPB will take that input and finalize the rule.
Dodd-Frank stipulates that the rule must be finalized by July 21, one year after the agency opened its doors.