Debt relief and debt collection companies could be part of six non-banking areas subject to the supervision of the Consumer Financial Protection Bureau, the new federal consumer-finance agency, according to an announcement by the agency last week.
The announcement, and subsequent call for public comment, was the first step in the agencyâ€™s effort to police non-banking firms that have largely avoided scrutiny by the federal government. The agency was set up by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to improve accountability and transparency in the financial system and protect consumers from abusive financial services practices, among other protections.
The number of debt relief and debt collection companies have grown in recent years as financially troubled consumers look for debt help and firms buy up consumer debt for pennies on the dollar and then try to collect the debts at face value. Both debt relief and debt collection firms have come under fire for deceptive or fraudulent business practices that, in the case of debt relief firms, often leave consumers worse off financially.
Elizabeth Warren, a special adviser to President Barack Obama who is helping set up the agency, said that â€ścompanies providing consumer-financial services have grown significantly [in recent years] and they have not been subject to the same oversightâ€ť as banks. â€śConsumers deserve the peace of mind that financial companies, banks and nonbanks, are following the rulesâ€ť (â€śAgency Outlines Role,â€ť The Wall Street Journal, June 24, 2011).
Not surprisingly, support for the new agency is split down party lines. Pro-business Republicans are fighting the establishment and funding of the agency and vowing to block anyone that President Obama nominates to run it. Pro-consumer Democrats are fighting to help Warren get the agency up and running, declaring the call for public comment an example of the open and transparent process consumers can expect from the agency.
The Dodd-Frank law gives the agency the authority to regulate practically any company engaging in consumer finance, including large banks, nonbank financial firms, debt relief companies, debt collection companies, payday lenders, mortgage brokers, and companies that originate and service student loans.
According to Scott Talbot, senior vice president of government affairs at the Financial Services Roundtable, a business lobbying group, the consumer protection agency could actually help businesses. â€śIf done properly, these six areas could benefit from increased transparency and uniform standards,â€ť Talbot said.
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