By Emily Stephenson
WASHINGTON, Nov 6 (Reuters) - Debt collectors using text messages and social media to pursue delinquent borrowers could come under new scrutiny as the U.S. consumer financial watchdog warns of new rules as part of a crackdown on the collection industry.
The Consumer Financial Protection Bureau said on Wednesday that before it formally proposes any rules, it wants to hear how collectors verify borrowers' information and communicate with consumers.
Among questions it is asking consumers, banks and the collection industry is whether there could be privacy concerns or other harm from being contacted by and responding to debt collectors via text message, social media or other Internet-based tools.
Regulators have already warned debt collectors in recent months against misleading borrowers in their efforts to collect payments. Wednesday's announcement showed the consumer bureau, which was created in 2010, gradually moving to ramp up scrutiny.
"Now it is time to look closely at how we can improve and modernize existing measures that were written before the Internet, before social media, and before many other new communication technologies," Cordray said.
"We are seeking to hear from the public...about what works and what does not in the current debt collection market," he said.
The consumer bureau was created by the 2010 Dodd-Frank law and charged with overseeing credit cards, mortgages and other products. After it opened in 2011, the bureau dove into mortgage rules and other Dodd-Frank requirements. With those rules out of the way, consumer officials have been broadening their focus.
About one in 10 Americans came out of the 2007-2009 financial crisis with some debt in collection, the bureau said.
Debt collectors include banks that try to get borrowers to pay them back, as well as outside firms that collect debts on behalf of creditors.
Some third-party collectors charge lenders a fee to recover money from delinquent borrowers. Others buy the debt and keep whatever they can recover or collect money through litigation.
The consumer bureau began supervising larger debt collectors earlier this year. It has already warned that it will crack down on collectors who mislead consumers, which is illegal under the Fair Debt Collection Practices Act.
Regulators levied a record fine in July on Expert Global Solutions, the world's largest debt collection agency, for harassing people who owed money.
Other big collectors include Encore Capital Group Inc and Asset Acceptance Capital Corp.
Consumer bureau staff members did not give a timeline for when they might propose rules. They said they would probably convene a small business panel to discuss potential rules first.
They said parts of the debt collection law have only been applied to third-party collectors so far. New rules could expand borrower protections to cover banks that try to collect debts themselves, the officials said.
The bureau began this summer accepting complaints from borrowers about their treatment by debt collectors and will add those comments to a database on its website, Cordray said.
He said regulators want to know more about whether rules governing how and when collectors can contact borrowers are adequate. Collection firms reach out to consumers using email, social media sites such as Facebook, and other new technologies.
The bureau also wants to make sure borrowers get clear information about debts that are being collected and to hear how outside collectors ensure they pursue the right consumer for the correct amount of money, Cordray said.
Consumers, creditors, debt collectors and others will have 90 days to submit information about the industry.