(CBS/AP) NEW YORK - For the first time, companies that issue credit scores for millions of consumers which determine their credit-worthiness will be under government oversight.
The federal Consumer Financial Protection Bureau will supervise roughly 30 firms that make up 94 percent of the industry. That includes the three big credit reporting firms: Equifax Inc. (EFX), Experian, and TransUnion.
CFBP Director Richard Cordray said Monday that given the huge impact on consumers' lives, it is important to ensure that the credit market is working properly.
"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," he said in a statement. "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."
There have been thousands of complaints about the ratings bureaus by consumers who say they can't correct what they say is inaccurate information contained within credit reports.
In remarks prepared for a speech Monday, Cordray said the agency's oversight will extend to niche companies that "focus on payday loans or checking accounts, as well as resellers of credit reports and those that analyze credit report information."
The announcement wasn't a total surprise, said Jon Ulzheimer, president of consumer education at SmartCredit.com and a former Equifax employee. He said the CFPB had hinted earlier this year that it was considering supervising the industry.
To Ulzheimer, the CFPB's move implies that it will soon clarify what the Fair Credit Reporting Act requires of credit bureaus, a constant source of debate in the consumer credit world. When a person challenges what's in their credit report, the Fair Credit Reporting Act requires the bureaus to investigate.
"But what exactly constitutes a reasonable investigation?" Ulzheimer asks. "The act doesn't say."
Each of the three biggest credit reporting agencies maintains files on more than 200 million Americans. These reports are filled with details on an individual's payment history with credit cards, mortgages, auto loans and other borrowing, applications for credit, medical account information and other financial details. Past behavior, like late payments or carrying high balances on credit cards, is used to determine credit scores.
Lenders, like banks or auto finance companies, use credit scores to measure eligibility for mortgages, credit cards and a wide variety of other consumer loans. Low scores based on missed or late payments, for instance, can mean higher interest rates or rejected applications.
There have been thousands of complaints about the bureaus by consumers who claim they are unsuccessful getting credit reporting agencies to correct inaccurate information contained within credit reports.
The protection bureau will start regulating the industry after the new rule takes effect on Sept. 30.