Business Insider Australia reported yesterday that a debt collection startup called InDebted has received $1 million in funding. The company provides small to mid-sized businesses with technology-enabled collection services.

According to the article, InDebted’s investors say that the industry remains “archaic,” and is dominated by outdated work processes including snail mail and phone calls.

According to the company’s website, “We will leverage all of the contact methods you can provide. This could be phone, email, postal, and even social media. In addition, we leverage the information you provide to search for other potential contact methods.”

Under the “Legal” link in the footer is a brief Compliance tab, which states that the company “complies with all relevant legislation as appropriate and where applicable.”

Investors in InDebted say that the new cash infusion would be used to expand to international markets, though the article doesn’t list which markets specifically. 

insideARM Perspective

It is true that the majority of the debt collection industry – at least in the United States – remains tied to “archaic” work processes. However in many cases, that is not due to industry choice.

Many savvy and compliance-minded collection agencies say they would love to use modern technology, including email, text, chat –- or whatever means is most comfortable to consumers today. When it comes to adhering to outdated, but still in-force, collection regulations, they generally do not have good options. The risk of lawsuits and the constraints enforced by creditor clients have severely curtailed progress.

My guess is that InDebted and other firms like it primarily sell their services directly to creditors for use in their own collection efforts. So it may be a little misleading to say that a company is going to revolutionize the way debt is collected... at least to those on the inside who understand these distinctions.

At least for now, “first party” collections – collections performed by the creditor that owns the account, in their own name -- have greater flexibility than third party collections (those performed post-charge off by companies hired by the creditor to collect on contingency fee). 

Here are a few examples:

One, creditors' collectors can use a consumer’s email address (if they have it) or cell phone number (but be careful before putting it on an ATDS), and do not have to worry about whether the consumer’s consent passes to them. In the case of 3rd party collectors, some courts have said it does; some have said it doesn’t. Third party collection agencies – those firms typically referred to when one says “the debt collection industry” – do not have such flexibility.

Two, there are much more specific -- and extensive -- disclosures required of 3rd parties by both state and federal regulators which do not fit into 140 characters. This becomes a non-starter when it comes to texting.

Three, anytime a collector moves so much as a comma in a letter to a consumer, it creates the potential for a lawsuit because of possible confusion that may be caused. So the concept floated by some FinTechs that tout the use of extremely personalized (and friendly) copy is -- while considered best practice in the rest of society -- an extremely risky prospect in the world of third party collections.

How to move forward?

One act that would help to alleviate the threat of lawsuits would be for creditors to include broader language in their consumer contracts that clearly gives them the ability to pass consent to their agents. For example,

Consent to Communications. You consent to us contacting you using all channels of communication and for all purposes. We will use the contact information you provide to us. You also consent to us and any other owner or servicer of your account contacting you using any communication channel. This may include text messages, email, automatic telephone dialing systems, and/or an artificial or prerecorded voice. This consent applies even if you are charged for the call under your phone plan. You are responsible for any charges that may be billed to you by your communications carriers when we contact you.

As part of their debt collection rulemaking process, the Consumer Financial Protection Bureau is contemplating whether the same rules and restrictions that currently apply to third parties should also apply to first parties. While this may make sense as it relates to some specific rules, in the case of communications, it will simply turn back the clocks for more companies and more consumers.

The answer isn’t to cut off innovative FinTechs. The answer is to bring the regulatory scheme up to date so that all legitimate firms can operate on a level playing field, and communicate with consumers in the way they prefer, without having to jump through crazy hoops like using snail mail to gain consent to send an email.

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