Sunshine is the best disinfectant
The Consumer Financial Protection Bureau is proposing that it examine the business of large debt collectors and to closely watch over the major credit reporting bureaus. The regulatory focus would be on the larger firms. It's a good move.
I'm often wary of more regulation. There are unintended and underappreciated costs that accompany the benefits. But with these two industries, the oversight is long overdue.
The debt collection industry is a disgrace, adept at manipulating the rules in way too many cases. (Zombie debts anyone? Sheriffs acting as debt collectors? The list of abuses is long.) Business is booming, thanks to the combination of technological advances and troubled economic times. According to the Wall Street Journal story:
The number of Americans with debt under collection has surged over the past decade to about 30 million Americans, according to data from the New York Federal Reserve. The average amount under collection has also steadily grown over the years to $1,400, based on that data.
The major credit reporting bureaus wield enormous power over consumers, and to a large extent, the business is unaccountable. According to the New York Times story:
Credit agencies, which produce on-demand reports featuring a consumer's credit score and borrowing history, are inextricably linked to the consumer finance industry. Consumers clamor for favorable reports, a prerequisite for obtaining credit cards, a home mortgage or even a cellphone.
Of course, the move is controversial. The devil is in the details. I'd like to see the credit score come under similar scrutiny. Still, I'm glad the Consumer Financial Protection Bureau is taking the initiative and attempting to follow the famous reformist maxim of Justice Louis Brandeis: "Sunlight is said to be the best of disinfectants."