Overcoming the Cell-Phone Barriers

  Some 170 million consumers use cell phones, and many households now use them exclusively. But collectors face stringent restrictions if they want to contact delinquent cardholders on their cell phones.
  There is no question that cellular telephones have proven to be a huge benefit to the daily lives of consumers by providing them greater telecommunications mobility, and, in turn, productivity. Consumers can now do business or make personal calls almost anywhere. They can even have calls to their home and office phones forwarded to cell phones to ensure they do not miss important calls.
  Thanks to such benefits, the popularity of cellular-phone use has exploded. There are now about 170 million cell-phone users in the United States, up from 15 million subscribers a decade ago, and the number of users continues to grow steadily. Providing the spark for this explosion has been competition among cellular carriers, which now offer an array of packages for phones and monthly service at lower cost than a few years ago. The cell phone thus is another technological triumph, akin to the personal-computer boom of the 1990s.
  The downside for many businesses, however, is that consumers want their cell phones to be bastions of privacy. In other words, no unwanted calls. This desire has not escaped the attention of state legislators and federal regulators. The Federal Communications Commission and numerous states have imposed restrictions on telemarketers and collectors that want to contact consumers on their cell phones.
  Not surprisingly, the regulations have made it tougher for collectors to do their job at a time when an increasing number of households are making the cell phone their primary telecommunications service or dispensing with wired connections altogether. According to the Boston-based Yankee Group, an estimated 6% of the 170 million cell-phone users have canceled their conventional phone service and are using cell phones exclusively.
  The main influences behind such legislation are privacy and cost to the consumer. In the case of the former, many consumers view their cell phone as a private line that ought to be off-limits to businesses. There still is no national directory of cell-phone numbers. In the case of the latter, consumers do not want to be tied up with unwanted calls on their cell phones that can prove to be lengthy because they must pay for all mobile calls.
  Overall, there are about 30 states that have some form of legislation on the books that affects collectors' ability to contact debtors on their cell phones. At the federal level, the FCC has prohibited collectors from contacting consumers on cell phones via a power dialer. The restriction is part of the Telecommunications Consumer Protection Act (TCPA) passed in 2003.
  "From a business perspective, the legislation limiting the contact of consumers by cell phones is a tremendous barrier," says Rozanne Andersen, vice president and general counsel for Edina, Minn.-based ACA International, a trade group of collections agencies. "There is no technology that can accurately identify if a cell phone is being called."
  About the best a card issuer's collections department or third-party agency can hope for is to either screen its calling list and weed out suspected cell-phone numbers or manually place calls to such numbers, which is allowed under the TCPA. But this is a narrow loophole and only increases the cost of collections by reducing the effectiveness of power dialers that keep agents on the phone constantly by automatically dialing numbers and screening out answering machines or unanswered calls. Most collections departments and agencies rely heavily on power dialers to contact debtors more efficiently.
  "It's unrealistic from a collector's point of view to pull an agent off a dialer and have them manually call people," says Jay E. Gonsalves, president, Action Collection Agency of Boston. "Manual calls take longer. I understand the intent to protect the consumer, but some of the legislation is impeding efforts to contact consumers about legitimate debt."
  'Afterthought'
  The flaw in many of the regulations is that they were aimed at curbing unwanted sales calls by focusing on the technology telemarketers use to conduct their calling campaigns. Unfortunately, collectors use the same technology.
  "States and federal legislators have been more focused lately on controlling the use of technology, which means collections has been an afterthought," says Andersen. "Collectors have to be aware of the definitions pertaining to these laws and how those definitions pertain to the way they do business."
  To put it bluntly, collectors can't take anything for granted when it comes to regulations governing contact with delinquent cardholders via their cell phones. For example, when state laws are more stringent than federal regulations, the state law takes precedent. That can create difficulties for card issuers with national or multi-state portfolios.
  "Some states won't allow you to call a delinquent consumer on their cell phone because it costs them money," says Brian Callahan, vice president of financial reporting for Horsham, Pa.-based collections firm NCO Group Inc. "So the alternative is to try not to call them at all on their cell phone."
  Without a doubt, the maze of laws and regulations regarding contact by cell phone can be frustrating, but efforts are under way to provide collectors some relief. The ACA, for example, has launched a lobbying effort at both the state and federal levels.
  The association recently scored a success in Massachusetts where the state's Division of Banks lifted restrictions on contacting delinquent consumers by cell phone. State regulators originally put the prohibitions in place to ensure the consumer did not incur any cost for being contacted on a cell phone by a telemarketer or collector.
  "Our intent was to modernize the regulations, because we realized there is no way for a collector to truly know if they have called a cell phone," explains Dave Cotney, senior deputy commissioner in the division. "We still have consumer protections in place, but now the definitions of those protections are more consistent with the (federal) Fair Debt Collection Practices Act."
  Despite the progress, collectors operating in Massachusetts are still bound by the federal TCPA, which forbids the use of power dialers. "I understand that consumers don't want to be called on their cell or get on a protracted collections call on their cell phone, but power dialers are used to expedite calls," says Gonsalves. "You don't necessarily want a protracted call. In collections the strategy is to get to the point."
  Short of a groundbreaking new technology that can identify when a cell phone is contacted, the next best thing would be a national directory of cell-phone numbers. Although such a directory is still a pipedream, efforts are under way to lay the groundwork for one. S. 1963-introduced in the Senate as the Wireless 411 Privacy Act-would create an "opt-in" provision if a consumer wanted to be included in a so-called 411 directory of mobile-phone numbers.
  The bill, introduced by U.S. Sens. Barbara Boxer, D-Calif., and Arlen Specter, R-Pa., proposes that cellular carriers clearly give new customers the opportunity to approve or decline inclusion of their cell-phone numbers in a national directory. Existing cellular customers would have to provide authorization to their carrier to be included in the directory.
  "Creation of a national directory that consumers can opt in or opt out of might be helpful in loosening some of the restrictions on contacting delinquent consumers via cell phone," says Andersen.
  Introduced in November 2003, the bill is intended to satisfy cellular carriers' desire to provide directory assistance for cell-phone subscribers. At the same time, it tries to protect the privacy cell-phone users take for granted.
  According to the findings the sponsors submitted with S. 1963, "subscribers have come to expect that if their phone rings it's likely to be a call from someone to whom they have personally given their number." And later, "because wireless users are typically charged for incoming calls, consumers must be afforded the ability to maintain the maximum amount of control over how many calls they may expect to receive."
  Congress, however, has yet to resolve the competing interests of consumers and businesses. S. 1963 and its House of Representatives companion were still in committee as the 108th Congress neared adjournment in October, and a related bill in the Senate, S. 1973, also hadn't made much progress.
  Busy Lobbyists
  Legislators are concerned that telemarketers would use the directory, which would undermine the intent of the TCPA, though some industry experts find that difficult to fathom. "One of the ironies of the TCPA is that calls to cell phones can be made manually," says Andersen.
  In other words, regulations and laws do not always make sense, according to R. Fred Houston, president of The Intelitech Group, a Vancouver, Wash.-based consulting firm.
  "The challenge before legislators regarding contacting consumers by cell phones is so undefined right now that conclusions are hard to come by," says Houston.
  The hope among industry officials is that persistent lobbying will help clarify the inequities in the laws and regulations regarding cell-phone contact for collectors. If nothing else, the message they want to send is that many of the restrictions are so broad that they affect the use of other technologies, and in turn raise the cost of doing business.
  Not only does the TCPA prohibit collectors from using power dialers to call debtors on their cell phones, but it also requires that collectors identify themselves before leaving a message generated by an automated voice message system (VMS). This rule conflicts with some of the privacy provisions of the Fair Debt Collection Practices Act. That law frowns on collectors providing information about the nature of their call that could be heard by non-account holders in the debtor's home or at their place of business.
  This has raised skepticism among collections executives about using the new VMS technology (box). A recent survey by CCM sister publication Collections & Credit Risk revealed that 63% of respondents were either unhappy with VMS, concerned it might not be effective or worried it might inadvertently violate the FDCPA.
  "With regulations in place to prohibit the use of an automated dialing system to contact a debtor via their cell and to ensure that any debtor contact remains confidential and that there is no unauthorized disclosure, concerns are being raised in the industry about how protection issues impact communications methods," says the ACA's Andersen.
  The goal, then, is for the collections industry to work to modify legislation that does not apply to legitimate business issues, according to Action Collection's Gonsalves.
  "Changes need to be made in some of the telecommunications legislation, and that's why I testified before the Massachusetts Division of Banks about this," Gonsalves says. "Collectors are not telemarketers. We call for legitimate reasons."
  There is no disputing the legitimacy of a collections call to a delinquent cardholder. But until regulators begin to separate collections calls from telemarketing calls, collectors are going to have to learn to live with restrictions on calling debtors' cell phones.