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Warren joins complaints against debt collection practices

Senator Elizabeth Warren said students defrauded by a for-profit school were pressured to repay their loans.SAUL LOEB/AFP/Getty Images

Senator Elizabeth Warren on Wednesday blasted the US Department of Education for sending its debt collectors to pursue students who were defrauded by a for-profit school and were supposed to qualify for relief from their student loans.

Instead of relief, these former students of Corinthian Colleges Inc. are being “hounded” by the agency’s private debt collectors, Warren said.

“That is exactly backwards,” Warren, a Democrat, wrote in a letter to US Education Secretary John B. King Jr. “Instead of focusing on getting these students the relief they are entitled to under federal law, the department’s student loan bank — working with its loan servicers and debt collectors — is instead intentionally collecting on debt that it knows may be eligible for discharge.”

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Warren’s letter is the latest salvo against the debt collection industry, which has come under increased fire in recent months at the state and federal level.

Consumer advocates in Massachusetts are calling for tighter regulations on debt collectors. And the federal Consumer Financial Protection Bureau is drafting the first changes in 40 years to the debt collection process.

Warren in particular took issue with data from the education department that 80,000 former Corinthian students are in some form of debt collection, despite promises from the agency that it would fast-track the discharge of their federal loans because they had been defrauded by the for-profit school. Instead, borrowers have been subjected to the agency’s aggressive and “draconian” debt collection actions.

Corinthian Colleges operated as Everest Institute in Massachusetts with campuses in Brighton and Chelsea before regulators alleged that the company charged high tuition, misled students about their job prospects after graduation, and encouraged them to lie to get more federal student loan aid.

Federal education officials say they are making more targeted efforts to reach out to eligible borrowers and those in collections.

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The debt collection process, which can include wage garnishments, ruined credit, and legal problems, can derail a borrower’s life, Attorney General Maura Healey said.

Earlier this week, Healey announced that a Florida mortgage company, Ditech Financial LLC, agreed to pay the state $1.4 million to settle allegations it violated Massachusetts debt collection laws, including calling overdue borrowers as many as 12 times a day.

Healey also has an ongoing case against Lustig, Glaser & Wilson PC, a Waltham law firm it accused of unfair and deceptive practices to collect debts from hundreds of thousands of Massachusetts consumers.

“Debt collection is a serious issue for people; it has ramification[s] on their lives,” Healey said. “As more and more people [are] facing debt, due to failed mortgages, student debt, credit-card debt, it’s important that our regulations are followed.”

Ditech, which used to be known as Green Tree Servicing LLC, said in a statement it was “pleased” to resolve the complaints.

“The company has previously taken action to address the concerns expressed by the attorney general. Ditech values its relationship with the attorney general’s office and remains committed to providing excellent service to its Massachusetts customers,” Ditech said.

Still, such cases have consumer advocates urging for changes to the state’s debt collection rules.

Healey’s office and officials with the Division of Banks are debating whether to further regulate the industry and held their first hearing on the issue earlier this month.

Meanwhile, Massachusetts lawmakers are expected to consider new rules that would prohibit debt collectors from seeking civil arrest warrants, cap the collections of debt more than three years old, and place further limits on the garnishment of wages in next year’s legislative session, industry and consumer groups say.

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“It is big-volume business right now,” said Margaret Miley, an adviser for the Midas Collaborative, an Allston-based network of community groups. “There needs to be more done to regulate this growing industry.”

Trade groups for the debt collection industry say they are open to regulations that make their responsibilities to consumers clearer and also address technology, such as whether calling borrowers on their cellphones is permissible. But debt collection companies are also concerned that as state and federal officials consider changes to regulations, the industry will have to adapt to a whole slew of new rules, some of which may overlap.

“As with any industry, there are bad actors,” said David Reid, the government affairs director for DBA International, a California-based trade group for debt buyers. “We’re all interested in preventing bad actors from operating, for the benefit of the consumer.”


Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.