Debt Collection and Credit Rating Firms Face Broad New Scrutiny

The new Consumer Financial Protection Bureau (CFPB) is beginning to aggressively set its agenda. After long-delayed implementation and attempts to block the seating of a Director of the new agency, this watchdog’s newest focus will be on debt collection and credit reporting companies. Because these industries’ have a reputation for being abusive and unscrupulous, the CFPB recently announced that it will begin examination into debt collectors who profit more than $10 million a year and credit agencies that profit more than $7 million a year. Thus, the CFPB will set its sights on 175 debt collectors, who make up two-thirds of the debt collection market, and thirty companies in the consumer credit reporting spectrum.

According to the New York Times: “Debt collectors and credit reporting companies are bracing for intense scrutiny after the government’s consumer finance watchdog unveiled a broad plan to regulate financial firms that have largely evaded federal oversight.”

For the debt collection and credit reporting industries, the CFPB’s oversight will initiate a new era for both groups. According to Travis Plunkett, the legislative director for the Consumer Federation of America, these industries have been able to skirt federal regulations because the regulators lacked enforcement power, and the regulators only “reacted” to abusive industry practices. Now, the CFPB has the authority to be proactive. Says Plunkett: “You’re looking at problems on the front end rather than going in after the fact. You can actually prevent problems.”

As the CFPB continues to set its agenda, it appears that check cashing services will be the next industry that it seeks to regulate. As many believe that the 2008 mortgage meltdown exposed numerous financial companies that abused consumers “[t]his oversight [will] help restore confidence that the federal government is standing beside the American consumer,” said Mr. Richard Cordray, the new director of the CFPB. “Debt collectors and credit reporting agencies have gone unsupervised by the federal government for too long,” says Cordray. “It is time to provide the kind of oversight of these markets that will help ensure that federal laws protecting consumers in these financial markets are being followed.”

Consumers vs. The Banks

The Consumer Financial Protection Bureau has begun its operations, tackling abusive practices in the financial sector. As the financial market crisis has its roots in the deceptive and negligent practices of this sector, the new bureau is working to shield Americans from any future predatory bank behavior. As the Consumer Financial Protection Bureau ramps up its activities, it is clear that the banking industry strongly contests this new governmental agency (indeed the sector lobbied intensely against it formation under the Dodd-Frank Act in the first place). Thus, it is important for the Obama administration to remain committed to its purpose.

However, the bureau’s start has been inauspicious. The Consumer Financial Protection Bureau currently lacks a director, and thus cannot regulate at its full capacity. Richard Cordray has been nominated by President Obama to lead the new agency, but his nomination has been met with disdain by Senate Republicans who are working to defeat Cordray’s nomination unless Senate Democrats are willing to diminish the bureau’s power. Cordray’s confirmation hearing was rescheduled recently from early August to September. While Obama may have signaled capitulation already when he passed over Elizabeth Warren as bureau chief, the creative mind behind the bureau, Richard Cordray needs the administration’s full support to not only win the nomination, but to also take on the banks in the future and protect consumers from abusive practices.

Republicans Aim to Water Down Consumer Financial Protection Bureau

The GOP has shown once again what side it is on. Not the side of middle class and working people. The Consumer Financial Protection Bureau ("CFPB"), one of the hallmarks of the Dodd-Frank Wall Street Financial Reform Act, is being threatened even before it emerges to life. On Wednesday, House Republicans unveiled a number of measures designed to dilute, and emasculate the CFPB. Beginning July 21, 2011, the CFPB is set to regulate credit cards, mortgages, and financial products like payday loans. The CFPB, an independent federal agency, is funded by fees charged to banks by the Federal Reserve. Aside from vowing to underfund the CFPB, House Republicans unveiled plans to do the following:

• Replace the director of the CFPB with a five-member committee;


• Make it easier for Congress to overrule and veto CFPB rules and regulations;


• Prevent the CFPB from exercising any newly mandated powers until the Senate confirms the putative director of the CFPB; and


• Curtail the ability of CFPB financial examiners from riding shotgun on banking examinations with other regulatory agency officials until the bureau is officially up and running.

Wise men and women have remarked that we never learn from history. When we look back over the continuing Great Recession that began in 2006-2007, what have we truly learned and observed? Not much. We have bailed out Wall Street and failed to adequately protect middle class and working class Americans. If this concerns you like it concerns me, get active and call your Congressional representative.