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Debt Collectors are Using AI

Dena Standley | April 25, 2024

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Debt collection agencies are adopting AI to track consumers, contact them, negotiate deals, and determine their ability to pay. However, many are worried that entrusting AI algorithms with collections could worsen bias and remove the human touch.

Considering tens of millions of American consumers have at least one account in collections, any development in the debt recovery process affects many people. Artificial intelligence (AI) impacts virtually all industries by attempting to improve performance and increase profits. While it's successful in some arenas, it’s not without problems. As debt collectors jump on the bandwagon of exploring what AI can do, consumers have a right to know how AI impacts debt collection practices.

The debt collection industry has often been characterized by large call centers with employees always on the phone. Agency owners are striving to change that. By feeding information into machines, they hope to employ fewer workers, shorten calls, save money, and recover the most debts. Consumers may encounter frustration when forced to communicate with a chatbot instead of a person while attempting to find information about a debt.

Let's examine the reasons debt collectors are turning to AI automation and how the move has changed the industry for consumers.

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Why are debt collection agencies moving to AI?

Artificial Intelligence enables machines to learn. AI algorithms perceive patterns in behavior and use that to recommend actions. For example, do you ever notice that while on social media, you often see ads for products you would buy? That is a direct result of AI algorithms. They have observed your behavior and know what interests you.

Debt collectors want to leverage those algorithms to improve the debt collection process. Examples include:

Reduce operational costs

Having machines call and communicate with consumers means fewer call center employees. Office space square feet would also decrease significantly, as would investment in phones and other office supplies.

Use data to predict consumer behavior.

Debt collection software developers pride themselves on providing automated debt collection programs that analyze consumers using the simple information fed to them. These machines can learn enough about you based on where you live, the gender you identify with, and the amount of debt you have, among other things, to determine whether contacting you is a good idea. Respond to debt collectors with our Debt Validation Letter.

Personalize customer service by studying their behavior

For a long time, debt collectors have communicated with and handled all consumers in the same way: calls, letters, and lawsuits. With AI, they can personalize their approach by contacting you in a way that AI algorithms determine is most likely to result in success. AI can recommend a suitable communication method and channel for every debtor, whether social media, letters, calls, or other forms of communication.

Digitize the debt collection system for seamless operations.

AI further digitizes the system. Companies can find everything they need in one place and access information at the touch of a button.

Analyze and learn from past mistakes.

Artificial intelligence can determine what works and what does not. For example, if it was taught in the past that people who live in a particular region are more likely to pay debts sooner, it can analyze tangible results to determine if that is a fact. Then, it can adjust collection practices to capitalize on the data collected.

So far, less than half of debt collectors have moved on to AI, but the number is steadily growing, according to research published by TransUnion in December 2023.

Despite all these benefits, AI for debt collectors still has a learning curve, and more needs to be done so that the industry can entirely rely on it.

Are your fears about debt collectors using AI valid?

The debt collection industry is heavily regulated. Whether an agency uses AI or not, it must stick to the rules. The Fair Debt Collection Practices Act (FDCPA) outlines what debt collectors cannot do. You can report them to the Consumer Financial Protection Bureau (CFPB) if they violate the rules.

Like you, many consumers worry about the following:

AI may exacerbate bias

Even without AI, the debt collection industry has always been biased. There is a clear trend regarding who is contacted about debt, who is sued, and who receives the most calls. Unintentional bias in the data used to train AI systems could worsen biases.

It takes away the human touch

AI developers aim to make communication with machines sound as intelligent and natural as possible. The goal is to get these tools to negotiate with debtors so they can pay off or settle accounts. However, some consumers may still be unsettled by the fact that they are conversing with computer software.

Some AI/ML tool developers create technology that requires prior express consent. Therefore, consumers must agree to speak to AI before it proceeds. Some AI technology developers recommend a hybrid approach, in which a human is on standby if the conversation does not go as planned.

The shift to AI seems inevitable as traditional debt collection has limited results in successful debt recovery. Fortunately, the federal government has enacted laws that protect you from harassment, and these extend to tools such as AI used by debt collectors.

To avoid dealing with debt collectors, use SoloSuit’s products to resolve debt. Our tools help you stop debt collection calls, respond to court Summons, settle lawsuits, and force debt collection cases out of court.

What is the concept of 'minimax' in debt collection with AI?

Minimax combines AI, decision theory, psychology, and statistics to minimize losses. It can also tailor content and timing and adjust the tone on the fly during communication.

What is 'smart SMS,' and how can it be used in automated debt collection?

Smart SMS refers to text messaging used in the debt collection process. From automated payment reminders to auto-responses to common queries, debt collection companies are utilizing smart SMS in innovative ways to improve the debt collection process.

Use technology to respond to debt collectors

The thought of debt collectors using AI may seem intimidating, but luckily there are tools and technologies that consumers can use to respond to collections notices and stand up for their rights against debt collectors. One such tool is SoloSuit.

If you’ve been contacted by a debt collector, SoloSuit can help your respond in minutes online. Whether it’s a request for debt validation or filing an Answer into a debt lawsuit court case, SoloSuit’s software can help you draft customized legal documents that can assist you in defending yourself in court and resolving your debt outside of court.

To learn more about how to respond to a debt collector, check out this video:

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