It sounds like science fiction. A lender sitting in an office who wants a payment clicks a button on a screen, and suddenly, the borrower’s car is disabled on the side of the road. “Pay now or you’ll never drive again,” is the clear message.
It’s not a movie script. Car “ignition interrupt devices” are just the latest high-tech tool that debt collectors have deployed in their information war against borrowers.
The gadget toolbox for collectors is growing as fast as Silicon Valley. They use Facebook to connect with debtors through friends, or find borrowers using location hints. Collectors remotely wipe or disable rented laptop computers. They text at all hours of the day and night. They use social media to see if debtors have more assets — more ability to pay — than they claim. They use “machine learning” — that is, big data — to figure out the best time and techniques to contact debtors.
The expansion of collectors’ tech power has the Consumer Financial Protection Bureau concerned enough that it’s engaged in a major rulemaking procedure on the subject right now. The Fair Debt Collections Practices Act, which governs what collectors can and can’t do, was last amended in 1996, before many Americans even had an email address, let alone a Facebook account.
Stalking debtors on Facebook is probably illegal, and most debt collectors have shied away from it after a Florida judge ruled it violated state law in 2011. In that case, a collector contacted consumer Melanie Beacham’s friend, and then directly friended Beacham, looking for a payment. Judge Douglas Baird ruled it was harassment; it may have also violated federal law forbidding collectors from misrepresenting themselves.
Social media posts that consumers leave public for anyone’s perusal might be fair game, however. It’s well known that collectors look at public-facing social media sites to “asset background” a debtor, and see if they have homes, cars or other personal items that might help pay debts. Sometimes collectors go farther, too. In June, the Pittsburgh Post-Gazettereported that a consumer who posted a picture of himself in a coffee shop with a local celebrity on Facebook was hassled by debt collectors soon after. The collector called the coffee shop and left a message for him, the consumer said.
Remotely “repossessing” items bought on credit takes collection tech to a new level, however. Car kill switches were highlighted by the New York Times recently, which said that some 2 million cars on the road today can be remotely shut down by lenders who believe drivers have missed a payment. The concept of remote control isn’t new, however. In 2012, a rent-to-own company was sued by the Federal Trade Commission and the state of Illinois for putting spyware on laptops it gave to consumers. The firm’s “Detective Mode” allowed it to shut off the computer from across the Internet, but it went much further, giving debt collectors the ability to take screen grabs of borrowers as they browsed their online bank accounts and take secret webcam photos in their homes. While Detective Mode clearly violated consumers’ privacy, it’s unclear if the firm would have been sued for simply turning off the borrowed computers.
Big data is, of course, a big boon for debt collectors. Data brokers who are not subject to Fair Credit Reporting Act laws gather information from thousands of sources, all of it for sale, and much of it like catnip for an investigator trying to find a borrower who has dropped out of sight. Furthermore, Equifax offers a product it calls The Work Number to collectors. The Work Number database has weekly payroll information for millions of workers at U.S. corporations, giving collectors a way to find debtors.
It’s understandable that debt collectors would be tempted to use the latest technology to find debtors. It’s a lot easier to kill an ignition switch than repo a car under cover of darkness. For their part, many collectors say their hands have been unfairly tied to prevent obvious uses of technology. In comments submitted to the CFPB as part of its ongoing rulemaking process, The Collections Marketing Center, Inc. offered a compelling example of the challenges it faces in complying with the 1996 law while dealing with new technologies.
“Some data: between 20 and 33 percent of consumers … who engage our clients’ web portals are doing so ‘outside approved hours’,” meaning during weekends of late at night. “Clearly, these are the times that are convenient for them.” The firm fears that an email response at those times might run afoul of federal law, however.
It’s easy to see how technology has helped tip the scales in collectors’ favor, and the impact of that can be seen in the marketplace. Spanish financial giant Banco Santander surprised everyone a few years ago when it began buying up massive portfolios of subprime car loans, right as the phrase “subprime loans” seemed the most toxic words a banker could utter. But eventually, observers realized it’s a lot easier to repossess a car than a home, and the bank’s plan was lucrative.
The kill switches are typically installed in cars purchased with subprime auto loans, which the borrowers must agree to in order to qualify for a loan.
There’s an inherent deal in the world of subprime loans made to at-risk populations. They pay high interest rates, and lenders assume high default rates to cover the non-payers. The equation has tilted in favor of lenders, however, thanks to a thriving — and often unsavory — business in third-party collections, which allows lenders to recover more of their losses. And it sets up the volatile situation with professional collectors who are willing to use any available tactic to recoup their investment in debt portfolios.
The CFPB wouldn’t comment on what it plans to do about various new technologies being adopted by collectors. It is right now sifting through 23,000 comments.
The North American Collection Agency Regulatory Association, a consortium of state and local debt collector watchdogs, said the most clear and present problem is posed by Facebook and other social media:
“Of all the newer technologies, social media appears to create the biggest threat of abuse for consumers,” it wrote in a comment to the CFPB. “While social media provides people with a means of easily sharing information with family members and friends, it also provides unscrupulous collectors with a powerful tool to harass and embarrass debtors. Unlike a text message, many communications shared on social media websites like Facebook can be viewed by many different people. It is our position that communication regarding collection should either not be permitted via social media or if allowed, very strict limitations should be imposed.”
One academic paper published in the California Law Review called “Debt Collection in the Information Age” suggested the FDCPA needed to be updated in three ways: in how it defines communication, to include technologies like text messages; to create disclosure rules and opt-out procedures for those technologies, to prevent deceptive friend requests and the like; and to consider requiring written consent for communications via mobile technologies. It was silent on more aggressive technologies like a kill switch or use of Big Data.
The North American Collection Agency Regulatory Association, a consortium of state and local debt collector watchdogs, said the most clear and present problem is posed by Facebook and other social media,
“Of all the newer technologies, social media appears to create the biggest threat of abuse for consumers,” it wrote in a comment to the CFPB. “While social media provides people with a means of easily sharing information with family members and friends, it also provides unscrupulous collectors with a powerful tool to harass and embarrass debtors. Unlike a text message, many communications shared on social media websites like Facebook can be viewed by many different people.”It is our position that communication regarding collection should either not be permitted via social media or if allowed, very strict limitations should be imposed.”