The Consumer Financial Protection Bureau and the New York attorney general filed a lawsuit Wednesday against two New York debt collectors for deceiving and harassing millions of consumers to pay inflated debts.

The debt collectors employed various illegal tactics to collect debts including impersonating law enforcement and court officers, threatening consumers with arrest or legal action, and inflating the amounts owed by as much as 600%.

The lawsuit alleges that Douglas MacKinnon, a managing member of Enhanced Acquisitions, a debt collection firm in Amherst, N.Y., and Mark Gray, owner of Delray Capital, a Cincinnati company operating out of Tonawanda, N.Y., created a "massive, illegal debt collection scheme," to enrich themselves.

The CFPB is seeking to shut down the operations of Gray and MacKinnon, who created as many as 60 debt collection firms to purchase defaulted debts "for pennies on the dollar" and then illegally collect on them, according to the lawsuit, filed in U.S. District Court for the Western District of New York.

"We are taking action against the ringleaders of this operation so they can no longer prey upon vulnerable consumers," CFPB Director Richard Cordray said in a press release.

New York Attorney General Eric Schneiderman said consumers were harassed and threatened by the debt collectors.

"This suit sends the message that debt collectors that employ abusive tactics will be held accountable," he said in a press release.

MacKinnon did not return phone calls or emails seeking comment. Gray could not be reached for comment. The CFPB alleges that MacKinnon and Gray violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits unfair and deceptive acts or practices.

The complaint also alleges repeated fraudulent acts and deceptive acts or practices in violation of New York law, and New York state debt-collection law.

The suit alleges that since 2009, the various debt collection firms routinely added $200 to each debt the companies acquired regardless of whether the underlying contract or state law permitted the fees. In 2014, MacKinnon changed the name of his former company, Northern Resolution Group in North Tonawanda, N.Y., to Enhanced.

The companies often threatened consumers with legal action but never referred a single case for prosecution, the suit alleges. In one case an employee at Enhanced told a consumer that she had no time to hire a lawyer because she would be arrested the next day.

The companies allegedly created fake emails to make it appear they were collecting debts from government agencies or court officials, and barraged consumers and relatives with harassing phone calls.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.