Debt collector calling ... and e-mailing ... and texting?

For decades, the debt collection industry has relied on telephone calls and letters to reach out to consumers with past-due debts. They rarely come knocking on your door. The reason: the rise in automated, computer dialing systems has made it more cost-effective to contact the greatest number of consumers using the fewest amount of collection staffers.

Cell phone only
In today's mobile society, an estimated 12 percent to 18 percent of the population have no landlines and rely solely on cell phones as their primary communication method. The U.S. Centers for Disease Control and Prevention (CDC) talks about the growing problem of reaching representative samples of Americans given the no-landline, cell-phone only crowd. The CDC relies on monthly health surveys conducted via telephone to gage health care needs in the country.

The growth of the Internet, e-mail and other electronic and wireless communications has meant that more people are accessible via electronic means. Now, the debt collection industry is trying to figure out the best way to reach out to debtors in the mobile world while adhering to the principles of the Fair Debt Collection Practices Act, the federal law that protects consumers from debt collection abuses.

Updating the law?
The problem: The act protects debtors' privacy and prohibits disclosing the existence of debts to unauthorized third parties (such as your spouse, children, neighbors and co-workers). The law also bans postcards, which can be read by anyone, and makes clear that written communications such as envelopes must not reveal the name of the debt collection agency if the company name any way discloses that the letter involves debt collection. What isn't clear in the 31-year-old law is how some more recent communication methods should be treated.

"That has created a challenge for the industry," says Rozanne Andersen, executive vice president of ACA International, the largest trade group of credit and debt collection industry professionals.  Another example: Since the fair debt collection practices law prohibits calls to consumers before 8 a.m. and after 9 p.m. or to a person's workplace, it may be difficult when making collection calls to determine which time zone a cell phone user is in when the debt collector calls or if the consumer is at work.

As more consumers file credit card applications online and cardholders sign up for e-mail and mobile alerts, credit card issuers are adding e-mail addresses and cell phone numbers to their databases of client information. When accounts go in arrears and are referred for debt collection or sold outright to debt buyers, that contact information may follow the account.

E-mail privacy?
Collectors must be certain that e-mail notices of debts are not intercepted by others (such as your spouse or anyone with whom you share e-mail accounts). Prior consent of the consumer is needed before electronic debt collection communications can be sent, and many debt collectors have so far shied away from using e-mails.
Adds Andersen: "The law needs to be clarified to permit those kinds of communications before that becomes a common method of communication."

Avoiding confrontation
In a paper, filed with the U.S. Federal Trade Commission in October 2007, James Burchetta argues that electronic communication between debtors and debt collectors will be less confrontational.

Writes Burchetta, CEO of Debt Resolve Inc., a White Plains, N.Y., debt collection agency: "Using e-mail is a win-win situation for everyone (debt collectors, creditors and debtors) because creditors are readily able to communicate with its debtor and debtors are empowered with the choice of where and when to read the e-mail."

Still, other questions persist: Does the name of the debt collection agency have to appear on cell phone caller ID when they call? If so, does that violate the disclosure provision of the fair debt law? Since cell phone owners pay for incoming calls, are debt collectors barred from using cell phone numbers unless they disclose the nature of the calls? The fair debt law currently has a provision that consumers must not be charged to receive collect landline calls and telegrams if collectors fail to disclose the communications are for debt collection purposes.

No doubt, we'll hear more about this issue in the near future. Electronic communication standards are just one of the reasons cited by those who say the fair debt collection law needs a major upgrade.

What do you think of having debt collectors contact debtors by e-mail or cell phone?

Update: A year after I wrote this blog, the FTC came out with recommendations for amending the Fair Debt Collection Practices Act to ban cell phone calls and texting to debtors without first getting their consent. See FTC urges changes to debt collection law.   

See related: Consumer credit woes mean boom in debt collection, Know your rights: Fair Debt Collection Practices Act, 11 tips for dealing with debt collection, Q&A: Credit counselor urges consumer education, Debt collection samples letters, Debt collectors' codes of ethics, FTC urges changes to debt collection law

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