Two large consumer debt-buying firms have agreed to halt lawsuits against borrowers and to pay fines under separate settlements with New York Attorney General Eric Schneiderman.
Mr. Schneiderman alleged that Portfolio Recovery Associates Inc. PRAA +0.72% and Sherman Financial Group LLC violated New York law by seeking court judgments against consumers even when the statute of limitations on the claims had expired.
As part of the settlement agreements, expected to be announced Thursday, neither company admitted to wrongdoing. The companies agreed to ask courts to reverse judgments of more than $16 million against New York borrowers, stop collection efforts on those judgments and improve their collection practices.
In addition, Portfolio Recovery Associates agreed to pay $300,000 and Sherman Financial agreed to pay $175,000 in civil fines and other costs.
Tom Thurmond, division president of Resurgent Capital Services, a subsidiary of Sherman Financial, said the company is "committed to working proactively with all regulators in a manner that reflects our dedicated concern for consumer protection."
A spokesman for Portfolio Recovery Associates declined to comment.
The settlements are the latest development in a broader crackdown by federal and state authorities on debt-collection practices.
The U.S. Consumer Financial Protection Bureau last year sought comment on future rules for the debt-collection industry. The agency's rules are expected to address issues including intimidating collection tactics, errors in calculating how much money is owed and other mistakes, including collectors who try to recover money from the wrong people.
Agency officials also want to ensure that consumers being targeted for collections have enough information on how much they owe and who has the right to collect it.
Portfolio Recovery Associates and Sherman Financial specialize in buying portfolios of defaulted debt, such as soured credit-card loans, from lenders. The companies and their competitors typically buy the debt for pennies on the dollar, according to the Federal Trade Commission.
Under their agreements with the New York attorney general's office, Portfolio Recovery Associates and Sherman Financial agreed to take steps to enhance their collection procedures, including disclosing to consumers that they won't pursue collections suits when the statute of limitations has lapsed on the debt in question and providing the details about the debt in collections lawsuits.
Mr. Schneiderman alleged the companies' activities resulted in about 3,000 improper court judgments against New York consumers.
"Debt collectors must follow the same rules the rest of us do when bringing lawsuits, in this case suing for debts that were not enforceable in the first place," Mr. Schneiderman said.
Debt collectors are governed by a 1977 federal law known as the Fair Debt Collection Practices Act. Among other limitations, it restricts collection calls to after 8 a.m. and before 9 p.m. But the law is widely considered to be outdated, partly because it doesn't define how debt collectors can use email, cellphones and social media.
The CFPB began supervising debt collectors last year, focusing on the industry's 175 largest companies out of more 4,500 nationwide. Banks can collect on their own debts, hire outside debt collectors or sell the debts outright.
J.P. Morgan Chase JPM -0.64% & Co. in September reached a settlement with the Office of the Comptroller of the Currency over allegations that it made errors in hundreds of thousands of debt-collection lawsuits. The bank didn't admit or deny the allegations. J.P. Morgan still faces related probes by the CFPB and by state attorneys general.