Home / Credit News / CFPB gains purview of credit reporting industry

The federal watchdog agency in charge of helping consumers avoid misleading lending practices is now taking a more prominent role in regulating the companies that create consumers' credit reports.

The credit reporting industry is one that has remained largely unregulated by the federal government, but that will soon change thanks to a new initiative from the Consumer Financial Protection Bureau, the agency recently announced. In the past, only federal law enforcement agencies had oversight of credit reporting companies, which are privately owned, and there was no single entity in charge of writing rules for the industry. That will all change on September 30, when the CFPB gains full regulatory power over it.

"Credit reporting is at the heart of our lending systems and enables many of us to get credit, afford a home, or get an education," said CFPB director Richard Cordray. "Supervising this market will help ensure that it works properly for consumers, lenders, and the wider economy. There is much at stake in making sure it is both fair and effective."

Though there are three major credit reporting companies that many consumers know about, there are actually about 400 such organizations in the U.S., the report said. However, as with many of the other industries it oversees, the CFPB will only have regulatory power over what it considers the "larger participants" in it. For credit reporting agencies, those are defined as companies with receipts in excess of $7 million annually.

In all, that means the agency will oversee roughly 30 of the 400 credit reporting firms nationwide, and those companies earn about 94 percent of all receipts in the industry, the report said. Just the three largest companies alone issue more than 3 billion credit reports annually, for more than 200 million consumers. Once the agency gains full regulatory power over these companies, it will go to work taking a closer look at them, by conducting on-site inspections and interviews, reviewing compliance and collecting reports relevant to its efforts.

The rule for the agency to oversee this industry was first proposed in February, along with a similar proposal for debt collection, the report said. And though the watchdog will gain purview over credit reporting in September, it has yet to finalize exactly what constitutes a larger participant in the collections industry. In both cases, it plans to release more rules for larger participants in the future.

The CFPB was proposed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and gave the agency regulatory power over a number of non-bank industries related to Americans' finances. Since Cordray took his office early this year, the CFPB has significantly expanded its regulatory efforts to beef up protections for Americans, and plans to continue broadening its oversight so that borrowers can be sure they are getting favorable loan terms on all types of consumer credit.