WASHINGTON The U.S. consumer watchdog on Wednesday warned lenders it will crack down on unfair and misleading debt collection practices, part of growing scrutiny of how financial firms treat consumers who owe them money.
Banks and third-party companies that try to get consumers to repay debt cannot lie about the amount of debt owed, falsely threaten lawsuits, or mislead consumers about how repaying debt will affect their credit scores, the Consumer Financial Protection Bureau said in notices published on Wednesday.
The bureau also said it would add consumers' comments about their experience with debt collectors to its database of complaints about financial products.
"While many debt collectors play by the rules and treat customers fairly and respectfully, others try to get ahead by flouting the rules," bureau Director Richard Cordray said in prepared remarks for a hearing on debt collection in Portland, Maine.
"Our job is to root out bad actors and protect consumers against unfair, deceptive or abusive practices and other legal violations," he said.
The consumer bureau, created by the 2010 Dodd-Frank law and charged with protecting Americans from financial scams, began supervising debt collectors in January. The bureau said it oversees about 60 percent of the industry as measured by annual receipts.
Scrutiny of debt collectors has grown in the years following the 2007-2009 financial crisis, when many Americans lost jobs or ran into other hardships and fell behind on payments.
The U.S. Federal Trade Commission on Tuesday levied a record penalty of $3.2 million against Expert Global Solutions, the world's largest debt collection agency. The FTC said the company harassed debtors by calling them multiple times a day, sometimes after being told they had reached the wrong person.
In May, California's attorney general sued JPMorgan Chase, saying it "robo-signed" legal documents to collect credit card debt from thousands of customers.
The consumer bureau said on Wednesday that it would go after banks and third-party collectors for other unfair, deceptive or abusive practices.
For example, the bureau said companies sometimes tell a borrower that repaying a debt will improve his or her credit score. In reality, the debt may be too old to be included in a credit report, and repaying it would not improve that score.
The bureau also published letters to help consumers dispute debts they do not believe they owe, restrict when and how debt collectors may contact them, and force collectors to stop contacting them.
(Reporting by Emily Stephenson; Editing by Karey Van Hall and David Gregorio)