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Facebook and other social networks house some of the largest databases of consumer information and thus can help collectors both locate debtors and gauge their financial wherewithal.
But as more collectors use such these sites it has led to a debate over whether doing so is legal under the Fair Debt Collection Practices Act (FDCPA). If so, what boundaries exist for using them?
Facebook alone counts 500 million worldwide users, and many of them aren’t shy about listing personal information that unwittingly creates a trail of virtual crumbs that in some cases can lead to a gotcha moment.
Most of these moments occur when a company researches a prospective hire as part of the vetting process. More recently, they occur when collection agents use the sites as a skip tracing tool and a source of information about a debtor’s financial status.
One story often told is of a collector who researched a debtor on Facebook after the debtor claimed he had no money to cover his debt and was in the process of filing bankruptcy.
Once on the debtor’s Facebook page the collector saw the debtor standing in front of a brand new sports car. When the collector presented the information to the debtor, the debtor admitted he had the money to pay the outstanding balance.
“There is a plethora of information on Facebook that can help collectors locate debtors they are having trouble contacting or determining whether they have the assets to settle their debt,” says Gary Nitzkin, president of Nitzkin & Associates a Detroit-based credit and collections law firm. “It is an effective tool to flesh out information about a debtor.”
The depth of information on social networks is proving valuable to commercial collection agencies. Companies, retailers in particular, are scrambling to launch Facebook fan pages to deliver the latest news about their business to consumers and open a new communications channel with customers by soliciting product reviews and opinions about the shopping experience – all while gathering addresses to build e-mail lists.
Many company profiles on Linked-In, a social networking site for business professionals, list contact information for company officers the lender may not have on file, or show information about the opening of new offices or new hires. All of this is information that indicates the company has the money to pay its debts.
“Before we call a commercial debtor, we want to know as much as we can about their financial wherewithal to pay the debt and social networking sites are a good source of information,” says Marc Davenport, president of the Houston office at commercial collections firm RMI Consulting LLC. “Social networks are a medium that afford businesses and consumers a way to share information about themselves.”
How many collectors actively use social networks to research and locate debtors is unknown. Anecdotal evidence suggests that use is becoming quite common. The question confronting collection managers then is whether the information posted by the debtor on a social network is meant to be consumed by a collection agent?
The question has touched off a spirited debate. Consumer and privacy advocates claim use of social networks by collection agents violates the consumer’s privacy.
What’s worse, critics argue, is when collection agents ask to become a friend in a debtor’s social network without mentioning their job. The FDCPA states that collectors must disclose who they are when contacting a debtor.
“False representation or deceptive practices by a collector asking to friend a debtor on a social network is a violation of the FDCPA guidelines on disclosure,” says Dean Malone, a Dallas-based attorney who handles cases involving collection abuse. “There is nothing illegal, however, about viewing a debtor’s public profile on a social network and using that information to locate them or as part of the debt recovery strategy. A public profile that can be accessed by anyone is a billboard anyone can view.”
While the FDCPA expressly forbids collectors from misrepresenting themselves, a ruling by the U.S. 6th Circuit Court in 2007 in the case of Mabbitt v. Midwestern Audit Services, has temporarily given collectors some firm footing regarding disclosure on social networks.
The ruling by Judge Nancy G. Edmunds states that when a communication from a collector is not specifically related to the act of collecting the debt there is no violation of the FDCPA disclosure guidelines.
The case involved collection of an overdue utility bill. The debtor, Carolyn Mabbitt, lived with her sister. The bill was in Mabbitt’s name. The two then moved to a new address without paying off the overdue balance. After the sisters set up residence at their new address, Mabbitt’s sister, Sharon Perry, established a new account with the utility in her name. The utility later learned that Mabbitt and Perry lived together and sent Perry a notice stating “A recent review of your records indicates an outstanding balance for the account(s) in the name of Carolyn S. Mabbitt as shown below: . . .”
The letter further stated that the outstanding amount would be transferred to Perry’s new account beginning with the next monthly billing statement.
Mabbitt argued that the letter was an act of collecting a debt and that by sending it to her sister, the utility violated FDCPA disclosure and privacy guidelines.
Judge Edmunds, however, ruled the communication did not violate the FDCPA because the notice was not an act related to debt collection. Rather, it was a notification of charges to be posted to Perry’s account.
“It’s a narrow ruling but it does open a window for collectors in the 6th circuit’s geographic area to friend a debtor on Facebook without revealing their identity as long as the communication is not related to collecting the debt,” says Nitzkin, the president of collections law firm Nitzkin & Associates. “Once a collector is accepted by a friend they can look at the debtor’s profile for information that may help with recovery.”
The 6th Circuit court covers Michigan, Ohio, Kentucky and Tennessee.
In the three years since the ruling was made, it has yet to be overturned. “Because the FDCPA does not address social networks, rulings about its use in the near-term will have to come from the courts,” adds Nitzkin.
Nor does the FDCPA govern collection of commercial debt. That is governed by state law and in Texas the law does not prohibit the use of social networks as an information gathering tool, according to RMI’s Davenport.
Despite the slim opening Mabbitt v. Midwestern Audit provides consumer collection agencies to use social networking sites to gather information on debtors, collection experts advise against the practice.
Collection managers are concerned that by sanctioning the use of social networks, even on a limited basis, they are opening a Pandora’s Box that will lead to abuses.
“The agents using social networks grew up using them, but are managed by people that don’t have much experience, if any, with them and that can lead to problems if social networks are introduced as a collections tool,” says Leslie Bender, managing partner Bender & Radcliffe, a Timonium, Md.-based law firm. “The courts are starting to address privacy issues pertaining to social networks so any use of a social network as part of collections has got to be scrutinized for its legality.”
Bender, who is a compliance and transaction attorney, says that one gray area concerning consumer privacy on social networks is that consumers can unwittingly reset their privacy settings on Facebook to zero by playing an online game through the site, thus making their profile public.
Facebook, which declined to be interviewed for this story, said via e-mail that in May it simplified its privacy settings, including adding the ability to control the content people share with a single click. The company’s Publisher Privacy Control allows people to choose an audience for every post at the time that they make it.
“We devote significant resources to educating people about the control they have on Facebook. We provide robust privacy education materials, including a privacy guide, instructional videos posted to our blog and Facebook page, and numerous FAQs in our Help Center. We also link to the privacy guide extensively in the orientation flow for people who have just signed up for an account,” a Facebook spokesperson wrote in an e-mail.
An alternative use of social networks is to use them to set up professional discussion groups. Dan O’Neill, director of credit operations for Allied Building Products Corp., an East Rutherford, N.J.-based supplier of building products, says he participates in social networks for credit managers to discuss such issues as what metrics to use to determine a prospective account’s creditworthiness. The discussion threads are monitored to ensure no confidential information is revealed before a comment is posted.
“These are good forums to discuss industry issues and best practices,” says O’Neill, who adds that he is setting up internal social networks for Allied credit managers to discuss a potential customer’s credit worthiness.
“It’s a way to bring credit managers together when they physically can’t be in the same room,” he adds.
The creative uses collection and credit managers are finding for social networks indicates they will remain a part of the collection and credit risk landscape. What form they will ultimately take is anyone’s guess.
“Social networks are not going away and their use as an information gathering tool is appealing to collectors because a lot of people on Facebook choose to make their lives very public,” says attorney Bender. “The FDCPA is technology neutral and until there is change on that point, this issue will be a mixed bag of opinions.”
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