Credit reporting firms to face more scrutiny
WASHINGTON (MarketWatch) -- The nation's consumer financial regulator on Monday approved new oversight rules for the companies that compile consumer credit reports and scores.
The Consumer Financial Protection Bureau adopted a rule to supervise consumer reporting agencies for the first time at the federal level.
About 30 large firms, including the big three consumer credit-reporting companies
These companies compile data that banks and lenders use to identify borrowers' creditworthiness for major purchases, such as a home or car. The credit scores generated by the reports they issue -- which help determine interest rate levels -- are calculated based on information such as an individual's car-payment history and whether a home loan is paid on time.
"Supervising this market will help ensure that it works properly for consumers, lenders, and the wider economy," said CFPB chief Richard Cordray in remarks at a field hearing in Detroit.
Consumer groups have long said these and other companies that compile consumer credit scores are black boxes. The new supervision authority represents a major expansion of oversight beyond that imposed by the Federal Trade Commission, the firms' primary regulator until now. The FTC acts more as a law-enforcement regulator for the credit-reporting firms, not a supervisor.
The firms have also come under criticism for making too many errors either by mismatching files of different people or allowing a fraudulently created identity to get mingled with a real person's records.
Critics also complain that the firms' procedures for resolving disputes raised by consumers are broken.
Currently, the three largest credit-reporting companies issue more than 3 billion consumer reports a year and maintain files on more than 200 million Americans, according to the CFPB.
The first examinations of credit reporting firms will begin after Sept. 30, when the rule becomes effective, according to the agency.
The new rule comes as a Texas community bank and two advocacy organizations filed a lawsuit earlier this month challenging the constitutionality of the CFPB, which has been opposed by both Republicans on Capitol Hill and many in the business community.