WASHINGTON – To the dismay of consumer groups and the discomfort of Democrats, President Barack Obama wants Congress to make it easier for private debt collectors to call the cellphones of consumers delinquent on student loans and other billions owed the federal government.
The change “is expected to provide substantial increases in collections, particularly as an increasing share of households no longer have landlines and rely instead on cellphones,” the administration wrote recently. The little-noticed recommendation would apply only to cases in which money is owed the government, and is tucked into the mammoth $3 trillion deficit-reduction plan the president submitted to Congress.
Despite the claim, the administration has not yet developed an estimate of how much the government would collect, and critics reject the logic behind the recommendation.
“Enabling robo-calls (to cellphones) is just going to lead to more harassment and abuse, and it’s not going to help the government collect more money,” said Lauren Saunders of the Boston-based National Consumer Law Center. “People aren’t paying their student loans because they can’t find a job.”
Whatever the impact on the budget deficit, the proposal has aligned the White House with the private debt collection industry — frequently the subject of consumer complaints — at a time when the economy is weak, unemployment is high and Obama is embarking on his campaign for re-election.
White House press secretary Jay Carney told reporters the proposal is “just an acknowledgement of the fact that a lot of people have abandoned landlines and only have cell phones. As a matter of practicality, if they need to be contacted with regard to their debt, there has to be a way to contact them.”
While Carney didn’t say so, debt collection agencies are already permitted to call cell phones. The administration wants the law changed so the firms can use robo-calling.
Democrats in Congress who frequently support the president, including Senate Majority Leader Harry Reid of Nevada and House Democratic leader Nancy Pelosi of California, declined through aides to say whether they favor or oppose the plan.
Nor was there any reaction from two other members of the party’s leadership in the Senate, Sens. Dick Durbin of Illinois and Chuck Schumer of New York. Both men frequently take the side of consumers in legislative struggles.
Several aides, speaking on condition of anonymity so they could talk freely, said Democrats do not want to oppose the president but are unable to support the request.
Mark Schiffman, a spokesman for ACA International, an industry trade association, said the administration “basically has come to the same solution we have” at a time when an increasing number of Americans have no landline phone to receive calls.
The change “is something we have been advocating for,” he said, although he added his organization did not have direct discussions with administration officials in advance.
Schiffman noted that debt collectors have long been allowed to make robo-calls to landline phones. He said automatic dialing is a more efficient way to contact consumers who are overdue in their payments, and the industry wants it allowed in all cases, not solely those involving debts owed to the government, as Obama has proposed. Legislation along those lines was introduced in the House last week.
Federal law currently permits private debt collectors to use automatic dialing in trying to contact consumers on their landline phones. They also are permitted to make individually dialed calls to some cellphones.
The request comes at a time when the government is looking for ways to collect tens of billions of dollars.
According to a report by the Treasury Department’s Financial Management Service, the Education and the Health and Human Services departments as well as FMS itself referred debts totaling $35.9 billion to private debt collectors in the 2010 fiscal year.
The Education Department accounted for the largest share by far — $28.8 billion referred to 22 private debt collection companies. The firms collected $685 million outright, and another $1.7 billion was recast into agreements that are designed to be paid monthly, according to the report.
Justin Hamilton, a spokesman for Education Secretary Arne Duncan, defended the proposal as an attempt to help individuals who fall behind on loans from the government. “It’s a reality of the 21st century that a growing number of those who are delinquent “are using only a cell phone. If we can’t reach them, we can’t help them. And that’s not good for students or for taxpayers,” he said in an email.
According to written responses the department provided to questions, it hires private collection agencies in part so the government can gain “the benefits of greater collections” through the use of new technology that is developed by private industry.
Collection agencies can receive a fee of as much as 17.5 percent of the amount they recover.
A different federal agency, the Federal Trade Commission, collects extensive records about the private debt collection industry in general.
“The FTC receives more complaints about the debt collection industry than any other specific industry,” according to an annual report to Congress, more than 100,000 in 2010.
The complaints fall into several categories, citing alleged harassment, demands for impermissibly large payments, failure to provide required consumer notice and threatening dire consequences such as jail time.