WASHINGTON — The government is preparing restrictions on debt collectors, a loosely regulated industry under increasing scrutiny over complaints of abusive tactics.
The Consumer Financial Protection Bureau was slated to issue a notice of proposed rulemaking to modernize the legal framework governing debt collection. The government watchdog is seeking public comment before formally proposing the rules, which are expected to be finalized by next year.
The bureau is asking Americans whether creditors and collection agencies are providing accurate information about their debts. It also wants to know if people are receiving threatening calls at all hours of the night or being dragged into court for money they do not owe.
‘‘Collection of consumer debts serves an important role in the proper functioning of consumer credit markets,’’ Richard Cordray, the bureau’s director, told reporters. ‘‘But certain debt-collection practices have long been a source of frustration for many consumers.’’
Cordray noted that since the bureau began accepting debt collection complaints in July, it has received about 5,000. The most common complaints involve harassing phone calls, lack of verification of the debt, and people becoming aware of a collection account only through their credit report.
The $12.2 billion debt-collection industry has routinely been criticized for its tactics. Industry groups support the bureau’s effort to update the system but caution against rules that prohibit creditors or collection agencies from lawfully recovering debt.
‘‘Modernization can’t hinder the economic survival of public and private sector organizations, nor can it relinquish the personal responsibility of America’s consumers to pay what they rightfully owe,’’ said Pat Morris, chief executive of the Association of Credit and Collection Professionals.
The industry has become more sophisticated since the 1977 enactment of the Fair Debt Collection Practices Act, a law to protect consumers from abusive tactics. The statute, which has undergone few changes, does not account for the industry’s use of the Internet, auto-dialers, or social media.
The law also fails to fully address the emergence of companies that purchase past-due accounts for pennies on the dollar. These ‘‘debt buyers’’ often acquire just a spreadsheet with names of delinquent borrowers from banks and credit card companies after accounts become 180 days overdue.
Judges across the country have raised concerns about the number of cases involving debt buyers that contained generic testimony or lacked proof of outstanding debt.
In response, a group of 13 state attorneys general has been investigating.
The concerns about credit card debt collection echo complaints about shoddy foreclosures after the housing market crashed. In those cases, as homeowners defaulted on their loans in droves, mortgage servicers were accused of falsifying records and ‘‘robo-signing’’ hundreds of documents without actually reviewing them.
Similarly, debt buyers and banks have filed hundreds of thousands of lawsuits against delinquent credit card holders since the financial crisis. As millions of Americans fell behind on payments, the charge-off rate for credit cards soared to $85 billion by the end of 2009, according to the credit card comparison website Card Hub.
‘‘Debt collection also has more salience today than perhaps at any time in our country’s history,’’ Cordray said, noting that nearly one in 10 Americans has an average of $1,400 in debt subject to collection.
‘‘Consumers deserve to be treated with dignity and respect, and businesses should be able to operate fairly and reasonably to collect the debts they are legitimately owed.’’
The bureau’s authority extends to three types of debt collectors: companies that buy defaulted debt and collect the proceeds for themselves; firms that recover defaulted debt owned by another company in return for a fee; and lawyers who collect through litigation.