FAIR DEBT COLLECTION PRACTICES ACT AND SOCIAL NETWORKS

As social media use has become ubiquitous, industries have been hard at work determining how to best take advantage of the often-frequented social network communities. With Facebook at over 500 million active users, Twitter processing over 155 million tweets per day and LinkedIn with over 100 million registered professionals, it is no wonder organizations are looking for ways to leverage what social networks bring - people.

One industry that believes it has found a great use for social media is the debt collection industry. Many debt collectors find social networks extremely helpful for obtaining crucial information such as debtor’s home and work locations, lifestyle expenditures, lists of friends and family, determining whether a debtor has the financial wherewithal to make payments on a defaulted debt, and as a result, whether a debtor is worth the expense of suing in court. Debt collectors also find social networks useful in communicating with debtors in a manner that may be more effective than mail or telephone. Unfortunately for collectors, social networks have their drawbacks - drawbacks that can lead to legal action, regulatory criticism and reputational harm.

Nearly 35 years ago Congress passed the Fair Debt Collection Practices Act of 1977 (“FDCPA”) (15 U.S.C. §§ 1692-1692p). The FDCPA was passed by Congress in response to certain questionable and unethical tactics used by debt collectors. Prior to the passing of the FDCPA it was not uncommon to have debt collectors disclose to the friends and family of delinquent borrowers, the delinquent status of a loan. Other unethical tactics included making threatening, misleading and other statements to debtors with the intent of forcing repayment. The FDCPA was essentially enacted to protect consumers from the harassment, both verbal and psychological, that frequently accompanied collection efforts. While the FDCPA generally defines debt collectors as agents/contractors engaged to collect debts on behalf of others, this article assumes debt collectors to be agents/contractors as well as the owners of the debt such as banks, finance companies and investors because, while the federal FDCPA narrowly defines debt collectors, many state collection laws that mirror the federal FDCPA define debt collectors as anyone that collects a debt.

The FDCPA was passed by Congress seven years before Facebook founder Mark Zuckerberg was born. Twitter founder Jack Dorsey was one year old and MySpace co-founder Tom Anderson was seven years old when the FDCPA was put into place. As such, today’s social media explosion could not have been anticipated by the framers of the FDCPA. Many experts in the debt collection field believe that due to the FDCPA’s age the law requires a revision to specifically address social media. According to these experts, debt collectors are operating in a “no man’s land” - the equivalent of the Wild West. These experts believe that without social media-specific guidance, the debt collection industry is at risk of extensive litigation brought by private parties and class action plaintiffs’ attorneys.

The Federal Trade Commission (“FTC”), the federal agency with authority to enforce the FDCPA, has not indicated that it will revise the FDCPA any time soon. Instead, the FTC has stated that the consumer protections included in the FDCPA are sufficient to protect consumers and that the FDCPA addresses all forms of communications, including communications initiated through social networks and other social media. According the the FTC, the FDCPA includes sufficient guidance to prevent harassment of debtors and improper communication.

As such, the FTC disagrees with debt collection experts that are calling for an amendment to the FDCPA relative to social media. As demonstrated below, it appears that debt collector’s challenges relative to social media appear to be due to a lack of understanding of the FDCPA or blatant disregard for the Act.

In August 2010, Florida resident Melanie Beacham sued debt collection agency MarkOne Financial LLC after the debt collector used Facebook to allegedly harass the consumer who was delinquent on an auto loan. According to the lawsuit, in addition to aggressively using traditional collection methods, the debt collector also used Facebook’s messaging function to contact the delinquent borrower as well as to contact her relatives to ask that they have her contact the collection agency. According to the lawsuit, MarkOne Financial LLC used Facebook to intentionally harass the debtor in an “outrageous format.”

The debtor, who fell behind on her loan payment during a medical leave from her job, stated that she was shocked when she learned that the debt collectors used Facebook to track down her whereabouts and contact her family. The debtor claimed significant embarrassment related to the disclosure of her bad debt to her family.

In April 2011, while the lawsuit remained pending, W. Douglas Baird, the Judge hearing the complaint, ordered MarkOne Financial LLC to cease the use of social networks for the purpose of contacting the debtor and the debtor’s family and friends. The order, considered groundbreaking by many in the field of debt collection, shows how social media is increasingly becoming the basis for lawsuits. The challenge to debt collectors that use social networks is not so much federal and state collections laws do not address the use of social media. Instead, the challenge is one of compliance and training.

While social media is widely used, many users, including debt collectors, do not fully understand the functionality and impact of many social media features. As in the example above, debt collectors may locate a debtor on Facebook (or any other social network) and may make use of the “Send Message” function provided. This feature allows the sender to send a confidential message to the recipient similar to an email. As this feature requires little effort on the part of the debt collector, it is possible to abuse this feature by repeatedly sending messages to the debtor - an act that may violate § 1692d of the FDCPA, which defines harassment or abuse as “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” As such, in order to avoid a violation of § 1692d, debt collectors should observe their firm’s FDCPA policy relative to phone calls and treat social network messages as a similar communication when using the messaging feature on a social network.

In addition to sending messages to the debtor, it is possible for debt collectors to send messages to the friends and family members of the debtor that are part of the debtor’s social circle. This functionality allows debt collectors to contact third parties for assistance in obtaining information about the debtor, a permissible act according to § 1692b of the FDCPA. However, debt collectors using the messaging function to contact friends and family of the debtor must comply with the FDCPA. As such, any communication with friends and family through a social network requires the following of the debt collector:

(1) Identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;

(2) Not state that such consumer owes any debt;

(3) Not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;

(4) Not communicate by post card. In the case of social media, this should also include not posting any messages on the “Wall” of the debtor or the debtor’s friends and family. A postcard has the effect of openly disclosing a debt. A “Wall” posting is a digital equivalent;

(5) Not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt. While a social network message is not physical mail, it is the equivalent of electronic mail. As such, the debt collector should ensure that any message fully complies with this requirement; and,

(6) After the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney’s name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to the communication from the debt collector.

Debt collectors must ensure that their use of social media and social networks conforms to the spirit and intent of the FDCPA. Based upon the general language of the FDCPA, acts of noncompliance are generally the result of inadequate training or blatant disregard for the FDCPA - not shortcomings in the FDCPA language.

Your Brand? Let's Try That Again.

Adam R. Jacobson quotes Lee Vann of Captura Group in his The 2010 U.S. Hispanic Social Media & Marketing Overview, "...the right approach is ultimately developing a social media strategy that drives value - and minimizes the fear of yielding some control to the consumer..."

Over the past two to three years most organizations have concluded that social media can provide a reasonable, if not, tremendous return on investment, despite the difficulty in coming to an agreement regarding how to best measure ROI.

More than anything else, these days it appears that the control of the brand and the associated reputational risks are what keep executives from fully diving in.  There exists a fear among many executives and other stakeholders that entering the world of social media means giving up control of the message and of the brand. But what these people have failed to realize is that they already lost control of their brand - regardless of their adoption of social media.

Web 2.0 developed a bond among peers.  This peer-to-peer phenomenon is what recently created historic change in Egypt.  The same peer-to-peer phenomenon that took messaging/influencing control away from Egypt and gave it to its citizens, has similarly affected EVERY organization's ability to control its brand.  As social networks, microblogs, blogs, peer review sites and other social media platforms continue to gain popularity, organizations continue to lose control.

Egyptian Citizens Take Control Through Peer-to-Peer Social Media Tools

Two easy social media and banking examples of the loss of control are the U.S. Bank Sucks and Bank of America Sucks Facebook pages.  In both cases the banks have lost the ability to completely control the messaging.  In these examples, peers are sharing with other peers their experiences for the collective benefit of the "community."  Once these experiences are documented, consumers can compare the collective experience of the community to the messaging being delivered by the organizations to determine next steps.

Organizations' biggest challenge is getting their heads around the fact that they no longer have total control of the brand.  In this environment, organizations are challenged to be the best they possibly can be in order to minimize harm to the reputation of the organization.

Fortunately for those that deserve it, the loss of brand does not always have to work against an organization.  In her blog post "SXSW: Rules Of Brand Fiction From Twittering Mad Men,"  Janneane Blevins demonstrates that loss of control over the brand can also provide positive outcomes.  In this case, some fans (not the producers) of the television hit "Mad Men" created social media personas for the Mad Men characters.  These individuals enhanced and created further demand for the Mad Men brand.  According to Ms. Blevins, the fans that created the social media personas of Mad Men characters "were able to use brand fiction to engage a whole new audience."

Therefore, organizations need to get over the issue of control - and quickly.  Organizations no longer hold the same control over the messaging and their brand.  Whether or not an organization is actively using social media, social media may be actively using the organization.  The best approach to getting over the fear of the unknown is for organizations to become familiar with the risks and then develop a strategy that fits the organization's risk appetite.

Doing nothing and ignoring the influence of social media is no longer an option and may be considered a form of negligence.

Your Neighbor Hates the Bank....You're Fired!

About once per year there occurs a social media-related event that gets the social media talking heads (myself included), well, talking.

This year's first nominee for the 2011 Social Media "Oh No You Didn't" Award goes to Commonwealth Bank in Australia.

The Australian newspaper titled its coverage of the story, "Bank Threatens Staff with Sack Over Social Media Comments."  The gist of the story is this...Commonwealth Bank published a social media policy that essentially "deputized" employees with the mission of reporting and eliminating any adverse social media comments - or possibly face the executioner (Human Resources Manager).

According to the published story, "bank employees have been told they must immediately notify their manager if they become aware of 'inappropriate or disparaging content and information stored or posted by others', including non-employees, in the 'social media environment'."


The policy holds employees accountable for the actions of third parties.  According to The Australian report, the policy state:  "For example, your friend could post an inappropriate comment about the group on your Facebook page or create a blog about the group."


As if holding employees accountable for the acts of others isn't bad enough, the policy then goes on to state that "failure to comply with this policy is a serious disciplinary matter and may result in disciplinary action being taken against you, which may include the termination of your employment."


Sounds to me like whoever drafted this policy did not have a good understanding of how social media works.  But even worse, this person did not know the advantages that comes with openly addressing criticism.


Back on December 17th I posted "Firing An Employee Bad Mouthing the Company on Social Media?  Better Think Twice."  While the December 17th post relates primarily to U.S. incidents, there is much that applies to any locale.  As such, it was no surprise when the Australian Finance Sector Union demanded  suspension of the bank's new social media policy, accusing it of trying to restrict freedom of expression.


Quite honestly, I was shocked when I heard about this incident.  At this stage in the game most corporations should at least know the basics of social media and employee relations - or at least ask someone that does before putting out such a draconian policy.  On the other hand, I suppose this need for education bodes well for me as just last month I released a new book, "Human Resources Guide to Social Media Risks" (shameless plug!).

I hate to break it to Commonwealth Bank but they just made it onto every social media consultant's  Powerpoint deck.  I'm sure the story does not end here.  Let me know what you think and hear.

From Professionals to Peers

Studies have found that social media significantly affects the manner in which people communicate with each other. Social media affects how users make decisions, socialize, learn, entertain themselves, and do their shopping. Research has led to the conclusion that social media has caused a shift in the influence of consumers at the expense of mass media such as television, radio, and newspapers. This democratization process has significantly reduced the effectiveness of mass marketing campaigns and has given the consumer more choice in selecting which messages to listen to and which messages to create.

On June 8, 2010, Performics (www.Performics.com) released a report, “S-Net (The Impact of Social Media),” based on a study that explored how social media permeates consumers’ lives and affects communication, shopping and other activities. According to Performics, the findings concluded that social networks continue to drive changes in consumer behavior online. Performics CEO Daina Middleton stated that “social networking has greatly contributed to the shift from strict consumerism to more lively, two-way participation between brands and everyday customers. It’s a groundswell of technology – enabled word of mouth, and many of the brands involved in these active discussions are effectively satisfying their fans.”

Rather than merely consume the messages, through social media the consumer is now becoming both consumer and creator of messages. For example, a consumer may decide to buy a book based on positive book reviews posted on Amazon.com. Upon reading the book, the same consumer may post his own positive review, further encouraging more consumers to purchase the book. This series of user-generated reviews is increasingly becoming more valuable than the most sophisticated marketing messages produced by professionals. The vast and exponentially growing knowledge base created by comments, product reviews, and other publicly shared information provides consumers with valued feedback that allows more informed decisions.

The shift from professionals to peers is forcing businesses to deal in a more honest and transparent manner or risk losing the business to a competitor that does. While social media presents challenges to businesses, it also provides opportunities to those that embrace the change and work within the new paradigm. The message that is penetrating the business community is that businesses that ignore social media do so at the risk of becoming irrelevant.

On Being Honest and Straightforward in Business

Social media is said to be successful primarily due to its communal characteristics that include sharing in an honest and transparent manner. The beauty of social media is that it is a self-regulating and self-correcting medium where the participants, or “community members,” call out other community members whose social media activities have been found to be questionable – particularly those that are trying to use the system to their advantage. According to Paul Gillin in his book, The New Influencers, “millions of writers of all ages, interests, languages and motivations are together forming a set of shared principles, operating standards and behaviors without any kind of central coordination.”

This phenomenon has created a system that places significant value on honest and straightforward communication over salesman-like puffery. As such, organizations with poorly trained or misguided employees that attempt to abuse or mislead the social media community for the benefit of the organization, stand to suffer reputational damage. It is for that reason that organizations must maintain a formal, written social media policy that establishes employee expectations and keeps employee activities consistent with the expectations of the social media community.

Any time an organization’s employees undertake social media activities intended to mislead the community, the organization risks that the social media community will respond in an adverse manner. The social media community may not distinguish between activities made as part of an official company response and those made by an employee on personal time. If the questionable activity appears to be sanctioned by the organization, there may be some form of inflammatory response from the social media community. The danger lies in the potential for the backlash to take on viral characteristics that spread the negative publicity to an extent that causes serious damage to the organization. As such, the policy should be very clear about the need for honest and transparent communication by employees.

Blogger Lisa Brauner describes the concept of honesty and transparency on the Workplace Privacy Counsel blog. Her article entitled “Caveat Employer: Let the Employer Beware of Employee Endorsements on Social Media Websites,” very clearly defines why honesty and transparency are not only a necessity from a public relations perspective, but also from a legal liability perspective.

According to Ms. Brauner, organizations must be aware of the risks posed by employees as a result of product and service endorsements made by employees on social media platforms. Ms. Brauner notes that organizations are subject to the October 2009 Federal Trade Commission guidance (Guides Concerning Use of Endorsements and Testimonials in Advertising), which protects consumers from misleading endorsements and advertising. The Federal Trade Commission guidance makes clear that employers whose employees use social media to make misleading comments regarding their employer’s products or services, face potential liability, even in cases where the employer has no knowledge of the employee’s social media activities.

The Federal Trade Commission guidance states that employees endorsing their employer’s products or services have a duty to disclose to their audience their relationship to an employer at the time they give the endorsement or testimonial. If employees make misleading statements about the employer’s products and services that result in injury to consumers, the Federal Trade Commission may bring an enforcement action against the employer. Ms. Brauner also states that postings on social media platforms can reach wide audiences and as such, employers may be vulnerable to large-scale liability such as class-action lawsuits by consumers and/or legal action by state attorney generals.

For publicly traded companies, honesty and transparency also has implications relative to Rule 10b-5. According to Investopedia.com, Rule 10b-5 is “a regulation formally known as the Employment of Manipulative and Deceptive Practices that was created under the Securities Exchange Act of 1934. This rule deems it to be illegal for anybody to directly or indirectly use any measure to defraud, make false statements, omit relevant information or otherwise conduct operations of business that would deceive another person; in relation to conducting transactions involving stock and other securities.”

The need for transparency and honesty, however, does not mean that employees should disclose confidential company and customer information or proprietary information (e.g., trade secrets, etc.) that can have an adverse effect on the organization. Being honest and transparent does not mean that all information should be shared.

Based upon the public relations and legal risks posed by misleading comments on social media platforms, it is very clear that organizations should develop a formal, written social media policy that ensures that employee interactions are conducted in an honest manner and consistent with the norms of the social media community.

Social Media Use in the Workplace

One of the most commonly discussed issues regarding social media and business is whether employees should be permitted to access social media platforms during the work day. The Internet is full of debate for and against employee use of social media. Critics state that employee use of social media at work will result in a waste of the organization’s valuable resources as well as potentially endanger the organization. Detractors state that employee use of social media can harm the organization as a result of thoughtless social media interactions that disclose trade secrets and other confidential information. Further, these opponents state that employees also create legal liability as a result of the potential for disparaging, harassing, and other comments that give rise to legal action by fellow employees and third parties.

Proponents of social media acknowledge that risks exist but that the potential benefits outweigh the risks so long as the risks are well managed. Supporters of employee use of social media point to social media’s ability to significantly increase brand awareness in an effective and economical manner. Also touted is the potential that social media has for increasing sales as a result of an effective social media marketing initiative that includes employees as brand ambassadors. Other benefits include increased goodwill for organizations that act in an honest and transparent manner as well as the benefit to the organization for developing a communal environment that listens to the outside world.

Employee use of social media is not right for all organizations. Some organizations may find it beneficial relative to business development, branding, and customer service. On the other hand, organizations may determine that the workforce has no business use for social media. Whether or not an organization embarks on a strategy that permits employee use of social media is dependent upon the organization’s mission, goals, and appetite for risk. To the extent that an organization decides to permit employee use of social media in the workplace, it must ensure that employee social media usage is managed properly.

Employee use of social media can be an extremely effective tool when properly used. Conversely, a poorly managed employee-based social media effort can create nothing but headaches for an organization. Regardless of an organization’s position regarding employee social media use, a formal, written social media policy is essential to protect the organization.

Social Media and Insurance

An area of importance that organizations seldom consider when creating a social media policy is insurance coverage. In the minds of most people, insurance policies are maintained for the purpose of protecting physical assets. For example, organizations will insure to protect against property losses incurred due to events such as fires, floods and earthquakes. Notwithstanding the common notion that insurance policies largely protect physical assets, many organizations will also insure to protect against improper acts and omissions through the purchase of policies such as director and officer (D & O) policies. Regardless of the types of policies in place, few organizations consider coverage to protect against outcomes related to social media usage. However, as social media-related lawsuits continue to rise, organizations should develop a formal written social media policy that requires an organization to consider the role that insurance should play in mitigating social media-related risks.

At the outset, it is noted that social media-related lawsuits are rare. These lawsuits, however, do appear to be on the rise. As such, organizations may find it prudent to consider insurance coverage related to social media activities.

For example, consider an organization that monitors employee Internet activity such as social media posts. If that organization determines that based upon an employee’s activity (e.g., derogatory comments targeted at the organization) a termination of employment is deemed appropriate, the organization may be subjected to an invasion of privacy lawsuit for viewing the information. It could also be subjected to an unlawful termination lawsuit based upon a violation of one of the many potentially applicable laws such as the National Labor Relations Act, the Fourth Amendment, or any other similar law that provides employees with protection against action by employers. While lawsuits brought in such instances may not have any merit, the organization must nonetheless spend human and financial resources to deal with the lawsuit. An insurance policy that includes such events may be helpful in offsetting some of the legal expense incurred by the organization.

Legal claims need not only involve employees. Claims may also be brought by third parties. An example is a defamation lawsuit brought forward by a third party based upon derogatory comments made by an employee on a social media platform. Such a lawsuit may assert that the employee was serving in an official capacity on behalf of the organization when the comments were made and as such, the organization is responsible for the damaging comments. Another example may include claims related to the violation of intellectual property rights related to the unauthorized posting of trademarked or copyrighted material on a social media site.

In order to adequately protect against unforeseen social media incidents it is necessary that every organization conduct a risk assessment in order to determine the potential risks related to the organization’s use of social media. It is noted that social media risk potentially exists within every organization regardless of the existence of a formal social media strategy. Risks will vary. Organizations with comprehensive strategies will generally have greater exposure than organizations that limit use of social media. Regardless, every employee that accesses a social media platform can create exposure for the organization. A well-developed formal written social media policy will require the completion of a risk assessment that will assist the organization in determining the types of risks that may arise from social media usage. This process will provide the necessary information regarding the need for social media-related insurance coverage.

Before engaging in the purchase of social media-specific insurance coverage, organizations should analyze existing policies in order to determine the extent to which existing policies cover social media-related risks noted in the social media risk assessment. Such an analysis requires careful scrutiny of each policy’s language to determine if the policy terms, conditions and exclusions may apply to social media-related activities. Since social media is a recent technological tool it is likely that policy terms will not specifically mention “social media.” Policies, however, may refer to the Internet or digital information or make use of other terms that would broadly include social media usage. Organizations should consult with their insurance agent or broker for assistance in determining coverage. Such consultation should include providing the agent or broker with a copy of the social media risk assessment in order to ensure that the organization’s risks are understood by the agent or broker. Lack of understanding by the agent or broker may result in insurance coverage that does not address all the significant risks.

Organizations that take the time to scrutinize their insurance policies will be in the best position to maximize their insurance dollars and ensure appropriate coverage is in place. The devil is in the details. In the case of insurance policies, the devil is in the definition section of the policies. How coverage may apply will depend on the language used. Organizations should keep in mind that such language is negotiable. Organizations should seek to incorporate language that is inclusive of social media activities, if possible during the term of the policy, but certainly at renewal.

According to the Social Media Task Force at Reed Smith LLP in the February 2010 issue of Practical Law: The Journal (PracticalLaw.com), “since claims can raise a variety of issues and take different guises – from common law fraud and misrepresentation claims to invasion of privacy and cyber extortion – looking at an inventory of existing policies with a ‘social media’ lens can assist in seeing and seeking potential coverage that may come into play.”

A formal written social media policy supplemented with a social media risk assessment, provides the tools to ensure that an insurance policy analysis is conducted to maximize return on investment as well as identify gaps that require protection through additional insurance coverage.