By Yuka Hayashi

WASHINGTON -- Federal and state authorities sued the leaders of a debt-collection operation Wednesday, alleging the two men have made "tens of millions of dollars annually" by directing a nationwide business based in Buffalo, N.Y., that "harassed, threatened, and deceived" millions of consumers.

The two defendants, Douglas MacKinnon and Mark Gray, directed the network of debt-collectors to intimidate consumers to get them to pay inflated debts or amounts they may not owe, according to the federal Consumer Financial Protection Bureau and New York Attorney General Eric Schneiderman.

The lawsuit, filed in a federal district court, seeks to shut down the operation and obtain an unspecified amount of compensation for the victims as well as a civil penalty against the companies and partners.

The suit alleges that since at least 2009 Messrs. MacKinnon and Gray created and operated three interrelated collection companies -- Northern Resolution Group LLC, Enhanced Acquisitions LLC and Delray Capital LLC -- that bought "millions of dollars' worth" of consumer debts and collected some of the debts directly.

The regulators allege that the "massive" operation routinely inflates consumer debts and uses illegal tactics to obtain money from consumers, violating the Fair Debt Collection Practices Act and the Dodd-Frank financial overhaul law that prohibits unfair and deceptive acts and practices in the consumer financial industry.

Messrs. MacKinnon and Gray couldn't be immediately reached for comment.

The legal action comes as the CFPB and other regulators turn up the heat on debt collectors. In July, the CFPB unveiled an outline for new rules to rein in their aggressive practices, which would mark the first overhaul of federal oversight of the debt-collection market in four decades. The sector is huge: Some 70 million American consumers have debts in collection, and it encompasses nearly 9,000 debt-collection businesses with a total of $13.7 billion in annual revenue, according to an estimate by IBISWorld Inc.

"These collection shops inflated debts, threatened victims and deceived them out of millions," Mr. Schneiderman said in a statement. "The suit sends the message that debt collectors that employ abusive tactics will be held accountable."

As part of their practice, the suit alleges, the debt collectors routinely added $200 to each customer's debt account they acquired, and in some cases quoted to consumers balances exceeding 600% of the amounts they owed. The companies also falsely threatened consumers with legal action that they had nointention of taking and faked calls and emails to make it appear that the communications were coming from government or court officials, according to the regulators.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

(END) Dow Jones Newswires

November 02, 2016 15:54 ET (19:54 GMT)

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