Financial regulator to target debt collectors

The Consumer Financial Protection Bureau (CFPB) launched an effort Wednesday to crack down on bill collectors in response to a flood of complaints alleging harassment and excessive threats.

The two-year-old agency, created by the Dodd-Frank financial reform law, was granted authority to regulate the debt collection industry, which has ballooned in recent years to include more than 4,500 firms.

The CFPB said it has received thousands of consumer debt collection complaints since mid-July.

An advance notice of proposed rulemaking issued Wednesday would create regulations centering on the accuracy of information used by debt collectors, the tactics they use and measures to make consumers better aware of their rights.

“For decades, many consumers have reported various unacceptable practices in the debt collection industry,” CFPB Director Richard Cordray said. “We want to ensure that all players in the industry are working with correct information, that consumers are fully informed, and that consumers are treated fairly and with dignity.”

Wednesday’s action reflects the preliminary phase of the rulemaking process. The agency is soliciting feedback on an array of subjects, as it crafts regulations.

In particular, the agency said it is concerned about the transfer of information from original creditors to third-party debt collection companies, which may try to recover debts from the wrong people, in the wrong amounts or without the proper documentation.

A final rule is likely to include provisions intended to ensure that people who owe money to creditors have a clear understanding about the nature of their debt and their legal rights – including their right to dispute a debt.

The regulations could also restrict communications from debt collectors to consumers. Ultimately, the agency could limit the frequency of calls, the methods by which collectors are allowed to contact consumers and the threats they are allowed to make.

“The CFPB is concerned about some debt collectors falsely threatening to initiate a lawsuit or criminal prosecution, garnish wages, damage or ruin a consumer’s credit rating, seize property, get the consumer fired from their job, or have a consumer jailed,” the agency said.

Interested parties and members of the public will have 90 days to comment once the notice is published in the Federal Register.