Debt Collecting by Text: Why This Practice Should Be Prohibited Absent Express Consumer Consent
Imagine being texted by a collection agency when you are late paying a bill, and imagine if, as well, your spouse, children, or other people who may share your phone, and who are contacted separately by the agency also see that text. You might find that very embarrassing and annoying. And,what’s more, the texts will cost you money. Now imagine that you have changed your cell phone number—as many people do, especially people living paycheck to paycheck, who may use a prepaid phone or a month-to-month subscription—and that someone else gets a message intended for you alleging that you are a deadbeat, because they have your old cell phone number.
This is what a California-based collection agency did to consumers. The agency was recently fined $1 million by the US Federal Trade Commission (FTC), for violating the Fair Debt Collection Practices Act (FDCPA).
In this column, I will discuss the FTC enforcement action, and why it was the right move. I will also discuss how that action has led to much-needed clarity as to what debt collectors may, and may not, do via text and SMS. I will also discuss why the FTC or the Consumer Financial Protection Bureau (CFPB) should perhaps go further in clarifying what practices are prohibited when it comes to collecting a debt using texts to, instead of making phone calls to, or sending letters to, a debtor.
Why Is Debt Collection Done via Text?
Many consumers no longer read mail—and those who still do may feel distressed by debt collection notices sent in the post. Moreover, many consumers no longer answer phone calls to their landlines. Thus, texts are a new frontier of communication that may cause consumers to pay more attention to debt collection attempts, as one website, Collect! (a credit and collection software company) notes.
According to Collect!’s website, “[t]ext Messaging (SMS) is the cutting edge in technology when sending payment reminders or debt collection notices to consumers.” The company also explains why texts work as a tool for debt collection: “Response rates for Direct Mail and Telemarketing are falling year by year. Why does the debtor avoid these forms of communication? Often, the reasons include fear, guilt or intimidation. Consumers being contacted by collection agencies are typically in financial difficulty, and under emotional stress about the general situation, so they may be confused and vulnerable. Customers receive your message in seconds and results are available in real time. Text records are automatically saved and archived for future review.”
Thus, there appears to be a growing market for debt collection via text—but until now, the way it can be done legally may not have been crystal clear.
The FTC Action: Prior Express Consent is Needed Before You Can Text About A Debt
The FTC recently announced that it had settled a case against two debt-collection firms alleging that they improperly sent text messages to communicate with possible debtors. The settlement marks the first such action that has been taken by the agency to challenge a debt collector’s use of text messages.
In late September 2013, the FTC reached a settlement and levied a $1 million fine against two related California-based firms: National Attorney Collection Services Inc., and National Attorney Services LLC. Both companies are controlled by the same individual, Archie Donovan. The companies collect debts on behalf of payday-loan companies that cater to Spanish-speaking customers.
Among other things, the initial FTC complaint alleged that both of Donovan’s companies sent about 1.8 million text messages over an 18-month period. These messages were sent not just to debtors, the FTC said, but also to purported debtors’ relatives, friends and co-workers, and even to people with no connection to the debtors.
What did these messages look like? Here’s a sample:
“It is URGENT for you to call National Attorney Service regarding a very sensitive matter,” some of the texts said. The messages also contained the debtor’s name, a phone number to call, and a number that was labeled with a case number.” Other versions included the same wording in Spanish, the FTC said.
Of course, it is hard to provide a lot of information in a short text message. But the FTC found the manner or transmission, and the wording of the texts, to violate federal debt-collection law. The FTC stated that the defendant collection firms did not disclose that their texts were from a debt collector, as is required and that they also falsely passed themselves off as law firms by using the names National Attorney, National Attorney Services and Abogados Nacionales in text messages.
Moreover, the defendants were alleged to have made unlawful contacts with third parties. In numerous instances, defendants sent text messages to the mobile phones of third parties, including friends, family members, or co-workers of an alleged debtor. In addition, they also sent texts to the mobile phones of individuals who had no connection to the debtor but that revealed the name of the debtor.
What if a collection agency mistakenly identified you as a debtor because you share the same name as someone else? It is possible that your friends and associates received texts identifying you as a person who was not making good on your debts.
The FDCPA sets forth ground rules for debt-collection action to protect consumers and preserve their privacy. According to the FTC’s complaint, the texts at issue failed to state that they were attempts to collect a debt, and that any information gained would be used for that purpose, as required by debt-collection law. But if a debt-collection message might be seen or sent to third parties, then the privacy of the alleged debtor needs to be protected. While debtor-protection law requires collectors to say what the call or message is about, it also penalizes collectors for revealing the debt to third parties such as roommates or family members of the debtor. So if someone other than the debtor sees the text, the collector is liable.
So the debt-collection agency goofed in both not saying enough to the debtor, and saying too much to third parties.
In addition to imposing a $1 million civil penalty, the FTC settlement requires the defendants to obtain a consumer’s prior express consent and to provide certain disclosures before sending text messages. the FTC Settlement requires the relevant collection firms to comply with the following description when they send texts:
Clearly and prominently disclosing that the consumer may receive collection text messages on a mobile phone number provided to the original creditor or the defendants in connection with the debt and The consumer has taken an additional affirmative step, such as providing a signature that indicates the consumer has agreed to receive such messages.
Are the Current Rules Sufficiently Clear on the Limits of Texting to Collect a Debt?
But can more reforms be made? The new Consumer Finance Protection Bureau (CFPB) does have regulatory oversight of debt-collection agencies, and might well consider new rules that explain the form and substance of the type of consent that is needed for debt- collection in particular.
At present, debt collectors cannot contact a person via SMS/Text unless they have prior explicit written consent. This means that you cannot have someone text you by surprise—and thus embarrass you, or cause others to learn of your unpaid debts, unless you have consented to this arrangement. But the FTC’s new requirement of a clear disclosure seems to go beyond what is required in existing federal law. Thus, there is an open question as to whether future regulations will require more disclosure by collection bureaus or creditors about the potential for debt collection via text.
The Federal Communications Commission implements a related statute—the Telephone Consumer Protection Act (TCPA). Beginning October 16, 2013, the TCPA is amended to require prior express written consent for all autodialed or pre-recorded calls and texts, including those to cell phones. Under the new amendments, consumer consent must be unambiguous, meaning that the consumer must receive a “clear and conspicuous disclosure” that she will receive future calls that deliver autodialed or pre-recorded marketing messages on behalf of a specific company; that her consent is not a condition of purchase; and that she must designate a phone number at which to be reached.
Recent court decisions make it unclear to what extent the TCPA disclosure requirements apply to debt collection calls and texts—even if done via autodial. In 2008, the FCC issued a declaratory ruling noting that the TCPA’s prohibition on calls made to mobile phones using automated dialers is subject to an exception for calls made with the “prior express consent” of the called party. A recent federal court in Pennsylvania, however, indicated that the TCPA does not apply to debt-collection calls.
Thus, it is still unclear what type of disclosures collection agencies and creditors need to give, when trying to get permission to text a consumer about an unpaid debt.
And what about the monetary costs of receiving texts from debt collectors? The FTC’s 2009 workshop report on debt collection concludes that the law should incorporate a presumption that consumers will incur a charge for a call or text message made to their mobile phones. Thus, the law might be amended to generally prohibit debt collectors from contacting consumers and passing on expenses to any debtor in the form of text fees or other related download and data-usage fees.
The FTC has provided a way forward in its recent settlement—to make it clear that explicit disclosure and consent are needed before consumers may be texted about debt collection. The FTC and the CFPB need to look further, however, to gauge the impact of multiple parties potentially receiving and reading a text that identifies someone by name as a possible deadbeat. The chance of stigma may outweigh the convenience of this new form of communication.