WASHINGTON — The federal government's consumer financial watchdog plans to crack down on the nation's 4,500 debt collectors with new regulations to ensure that collectors are going after the right people for the right amounts and aren't badgering the debtors.
The Consumer Financial Protection Bureau said Tuesday that it was seeking public comment on new rules because the 1977 law regulating debt collection practices hasn't kept up with advances in technology.
As millions of Americans have fallen behind on their bills because of the Great Recession, debt collectors have employed text messages and social media to bombard debtors. Sometimes, people have been harassed for bills they already paid — or never owed in the first place.
About 30 million people face debt collection for unpaid bills that average about $1,400, said Richard Cordray, the bureau's director.
"While we can put a number on debt, we cannot quantify the emotional toll that it takes on consumers who live under the shadow of indebtedness and then have to cope with mistreatment by debt collectors," he said.
Debt collection is becoming the topic with the most complaints to the bureau since it began gathering them in July, Cordray said.
The 2010 Dodd-Frank financial reform law created the bureau and gave it oversight over the debt collection industry. This year, the nation's largest debt collection companies began undergoing federal regulatory exams for the first time to ensure they were complying with consumer protection laws.
Now, the bureau is considering adopting rules under the Fair Debt Collection Practices Act to rein in activity that consumer advocates have been complaining about in recent years.
Cordray did not announce specific regulations. He said the bureau is seeking comment from the public and industry over the next three months about whether new rules are needed to address three areas of concern — harassing behavior by collectors, inaccurate debt collection information and consumer understanding about rights.
Debt collectors are prohibited from practices that "annoy, abuse or harass consumers," Cordray said. The law states that collectors should try to contact people between 8 a.m. and 9 p.m. local time.
But the Fair Debt Collection Practices Act was put in place in 1977, before cellphones and email. So the bureau wants to know whether it should change the rules to reflect the use of cellphones, text messages and email and place limits on how many times a person can be contacted about a debt.
Massachusetts, for example, allows only two debt collection phone communications — calls, texts or voice mails — a week, the bureau said.
Companies often hire third-party companies to collect unpaid bills or sell old debt for pennies on the dollar to firms that make a profit by collecting whatever they can from the customers.
The bureau is concerned that the records and other information about those debts can be inaccurate, leading collectors to pursue debt that already has been paid or even to go after the wrong person.
Consumer advocates said some people pay debt they don't owe just to end the harassment.
"When debt collectors get it wrong — when they have the wrong person, the wrong amount or other wrong information — consumers can suffer substantial harm," Cordray said.
"Consumers can be harassed over a debt that is not theirs or that they do not recognize because the information is wrong. Credit reports may be marred by misinformation," he pointed out.
The bureau is seeking comment on how debt records and other documents are transferred between companies and whether it should enact rules, such as requiring specific ways of verifying a person's identity.
Consumers already have rights under the law to dispute debts, and the bureau also is considering whether new rules could improve the required disclosure of those rights.