Digital Debt Collection: A Quick Guide

Digital debt collection is the process of gathering payments for overdue accounts through online channels. As the collections industry continues to evolve, it becomes even more important to understand modern collections strategies.

The state of the collections industry

When a debt goes unpaid, and the creditor that is owed seeks to recoup their losses, the debt may go into collections. The collections stage is handled by collection agencies; collection agencies can either be first-party (a subsidiary or branch of the creditor’s company) or third-party (an outside agency hired specifically to handle the creditor’s collections process). These businesses function as a financial service for collectors and for decades operated with little to no oversight.

The Fair Debt Collection Practices Act (FDCPA) was passed into law in 1977 to define abusive collections behavior and limit them. Abusive behaviors include excessive calling, misrepresenting the amount owed, claiming legal actions will be taken (if it is untrue), or threatening to take property (unless it can be done legally). The protections outlined in the FDCPA were intended to protect consumer rights, and the behaviors limited by this law have remained largely unchanged in the decades since.

There is a reason that the CFPB’s new rules are designed to ensure that new communications channels are properly regulated: communication is easier now than ever before.

In 2010, the Dodd-Frank Act updated and revised existing legislation and created the Consumer Financial Protection Bureau (CFPB) in order to provide additional oversight to the financial sector. These sweeping federal laws have shaped the collections industry and defined the strategies that collections companies use to engage with consumers.

Typically, this engagement comes in the form of collection calls, but more recently the industry embraced digital tactics to meet customers where they are—online. In 2018, the American Bankers Association conducted a survey that found 72% of Americans prefer to access their bank accounts online or on a mobile device. Debt collection is another type of financial service that’s embracing the digital age, but what makes debt collection unique when using new digital channels?

What is digital debt collection?

Digital debt collection is the process of gathering payments for overdue debts through channels such as email, text messaging, and online tools. As of February 2019, consumer credit debts alone exceed four trillion dollars, and as that number—and other kinds of debts (medical, personal loans, etc.)—continues to grow, so too does the need for better collections methods.

According to the CFPB’s 2019 Consumer Response Annual Report, debt collection was the second most complained about financial product or service in 2018, second only to credit reporting. Among collections related complaints, the most common issues were collectors attempting to collect invalid debts, a lack of communication concerning debt validation, and incessant calls (current law does not place any limitations on call volume and collectors may call as frequently as they’d like).

Digital debt collection aims to overcome these issues by creating a system for consumers to remain aware of their debts and provide easier access to managing them.

Why digital debt collection is the future of collections

Future-proofing legal compliance

The Consumer Financial Protection Bureau is developing a series of regulations to broaden consumer protections. This Notice of Proposed Rulemaking includes a number of provisions to further interpret the FDCPA of 1977. These changes are predicated on the fact that new forms of communication technology have left gaps in the FDCPA’s protections and the fact that “consumers may prefer communicating with debt collectors using newer technologies.” These provisions include:
The proposed rule aims to limit collectors to no more than seven call attempts per week regarding a specific debt. This would also extend to successful calls; if a debt collector reaches a consumer, they must wait a full week before calling them again.
This clarification would require debt collectors to send consumers disclosures containing specific information about their debt. A disclosure may include details such as the amount owed, a validation that the communication is an attempt to collect a debt, and a direct way for the customer to respond to the attempt, including a way to dispute the debt.
    1. Communication technologies continue to evolve, and the NPRM seeks to establish guidelines for using new technologies in the collections space. Just as there is a national Do Not Call list, so too would consumers be able to opt out of emails or text messages from collectors. 
    2. Because these channels are absent from current regulations, the NPRM will also structure the process for providing electronic disclosures.
      1. One possible solution to regulating e-disclosures was explored in a public case, Lavallee v. Med-1 Solutions. 
        1. Med-1 sent the Plaintiff an email, but the email did not contain the text of the validation notice. Instead, the email contained a hyperlink to a page where the Plaintiff would have had to enter personal information, and then take four additional steps in order to open a PDF containing the full initial demand letter with the required validation notice language. 
        2. Due to these extra steps, the court ruled that the hyperlink that was provided did not constitute a legitimate electronic disclosure or even a debt collection communication. This case helps to share a more clear picture of what is and is not a legitimate disclosure.
    1. The rule would define “time-barred debt to mean a debt for which the applicable statute of limitations has expired.”
    2. Following this, it would also prevent collectors from suits and threats of suits regarding those debts.
    3. Lastly, the rule would prohibit collectors from providing information to consumer reporting agencies if the customer was not previously notified of the debt.
Updated rules and regulations will have a sweeping impact on the collections industry, and digital collections strategies offer the flexibility to consistently adopt new approaches that continue to operate in line with new laws as they are introduced.

Providing a positive customer experience through digital debt collection

Digital debt collection gives consumers the opportunity to engage with their debts the way that works best for them. There is a reason that the CFPB’s new rules are designed to ensure that new communications channels are properly regulated: communication is easier now than ever before. 

Customers preferences are rapidly changing as new channels become more commonplace. 75% of millennials find phone calls to be time-consuming, 50% of the workforce, and older millennials have the largest average debt among American customers. This all means that addressing changing customer needs is an essential piece of remaining successful in the collections space.

Automating outreach processes

Countless companies are dedicated to solving problems through automation. Platforms like ZenDesk work to make processes as painless as possible and remove some margin of human error from a variety of workflows. Digital collections encourages the same type of development. Building databases of content for customers helps to limit risk by making sure the content is consistent and legally compliant. 

The most apparent advantage to automating outreach in debt collection is an increase in service volume. Automated services help small teams reach significantly larger populations because they have the tools to do so. Going a step further, automation also provides teams the ability to test and develop new strategies quickly.

Digital debt collection strategies are more reliable, more effective, and less risky than traditional models that have remained the norm for decades.

When flows are automated, it is easier to make changes to copy and test the effects of those changes more frequently. Minor changes to subject lines, body text, or send times can be regularly compared and tested to determine best practices. Incremental change over time based on these tests can lead to better deliverability, higher engagement, and ultimately, better recovery rates. TrueAccord’s decision engine uses machine learning to create a personalized, digital first, consumer experiences that are uniquely tailored for each consumer.

Creating a full automation strategy stems directly from conducting these tests which become nearly impossible to conduct accurately when analyzing traditional collections phone calls. The exponential increase in human variability when two people are on the phone means there is less consistency and fewer opportunities to change strategies based on consistent data. Accurate testing is a key part of what separates digital debt collection from traditional models, and more advanced machine learning technologies allow more advanced digital strategies to further customize messaging and adapt to customer needs.

Machine learning and digital debt collection

Machine learning is a field of computer science dedicated to giving computers the ability to make decisions that they have not been explicitly programmed to do. By integrating machine learning into digital debt collection strategies, collection agencies are able to automatically adapt to customer behaviors like opening emails or clicking links as well as determining how those behaviors are related to how likely they will resolve their debts. 

TrueAccord’s artificial intelligence, Heartbeat, can select from hundreds of internally generated, legally approved messages that drive consumer engagement via omni-channel delivery; this includes email and push notifications to their mobile device. Once content is delivered, Heartbeat is able to track real-time events such as opening emails, clicking links, and browsing the TrueAccord website to best determine the next step in our communications process. 

Machine learning systems allow customers to inform digital debt collection agencies how they prefer to be communicated with, and the computer program is able to provide that customer with a tailored experience they cannot find anywhere else.

What does this mean for the industry?

Customers want to feel like the businesses they work with care. Debt collection is as much a financial service for collectors as it is for the millions of consumers in debt, and creating a positive, efficient, and empathetic experience for those struggling with their finances benefits everyone. 

Digital debt collection strategies are more reliable, more effective, and less risky than traditional models that have remained the norm for decades. No matter where you turn, the future is digital, and debt collection shouldn’t be any different.

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