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U.S. regulator prepares crackdown on debt collectors

Vehicles travel near new houses which are under construction and for sale in San Marcos, California October 25, 2013. REUTERS/Mike Blake

By Emily Stephenson

WASHINGTON (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 considers 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 contact consumers.

Among questions it is asking consumers, banks and the collection industry is whether there could be privacy concerns or other harm from communicating with debt collectors via text message, social media or other Internet-based tools.

In recent months, regulators have warned debt collectors against misleading borrowers. "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," said Richard Cordray, the bureau's director.

"We are seeking to hear from the public...about what works and what does not in the current debt collection market," he said.

The 2010 Dodd-Frank law created consumer bureau and charged it with overseeing credit cards, mortgages and other consumer credit products.

Consumer groups have pressed the bureau to crack down on collectors to ensure they do not harass people and to require more documentation so collectors call the right borrowers.

Mark Schiffman, a spokesman for ACA International, a trade group for third-party collectors, said his members want clarity on whether and how they should use new communication methods.

For instance, debt collectors cannot disclose debts except, in some cases, to a borrower's spouse or attorney. But it might be difficult to confirm that only the intended borrower hears a cell phone voicemail or sees an email or Facebook message.

"The world communicates a whole lot differently today," Schiffman said. He said his group tells members that using public sources such as LinkedIn or Facebook to find information is fair game.

"You're going at your own risk if you go any further," he said.

About one in 10 Americans came out of the 2007-2009 financial crisis with some debt in collection, the bureau said.

Besides banks seeking repayment, debt collectors include third-party collectors. Some of these charge lenders a fee to recover money from delinquent borrowers, while others buy the debt and keep whatever they can recover.

The consumer bureau began supervising larger debt collectors this year. It has 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.

The database also includes complaints about mortgages, credit cards and student loans. On Wednesday, the bureau announced that it would begin taking complaints about payday lenders as well.

Cordray said regulators also want 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.

Jack Tracey, executive director of the National Automotive Finance Association, said that while it is too soon to tell what the rules will say, consumers could see higher borrowing costs if the changes mean higher administrative costs for debt collection.

"The industry is in a holding pattern" until the rules come out, Tracey said.

Consumers, creditors, debt collectors and others will have 90 days to submit information about the industry.

(Reporting by Emily Stephenson; editing by Andrew Hay and David Gregorio)