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How Automated Debt Collection Can Harm Debtors With Unfair Practices

It’s no secret that artificial intelligence (AI) affects most areas of our lives. The financial services industry is no exception. Many collection agencies are embracing AI and using automated debt collection. But that raises plenty of questions or concerns. How fair and ethical is AI? What happens when we remove the human element for debt collection?

Let’s explore the use of AI automation in debt collection and the unfair debt collection practices that debtors should be aware of.

AI Automation in Debt Collection

Organizations use AI for efficiency and productivity gains. For example, AI can minimize repetitive tasks for employees. It can reduce human error. And high-level data analysis can improve operations for better profit margins. Debt collection companies (that rely on speed and accuracy) are no different and hope to use AI to better collect money.

How Automated Debt Collection Helps Debt Collectors

Most debt collectors use ready-made AI software packages. They simply choose a service package based on the needed task and what they’re willing to pay. Most collection companies use AI in four primary areas:

1. Data compilation

AI can compile all the data into an easily accessible file. That helps debt collection companies who often store vast amounts of data for each customer. Going through each item can take a long time. In addition, some information might get misplaced or be overlooked.

Instead, AI can use data from the customer’s file to create a financial profile of the debtor. The customer file includes information from the debtor’s records and any communication the debt collection agency has had with the debtor. With AI it is far easier to store and retrieve that info.

2. Historical data insights

AI can offer insights based on previous data and customer behaviour. For example, the information in the debtor file can predict the possibility of default. If the system predicts a high probability, it can flag that account and move it to the top of the priority list.

3. Collection process automation

Collection agencies use AI to set up automated emails, text messages, and phone calls. The debt collector can set up these communications on an automatic schedule to contact you regularly. That means they are not limited to human agent services. Automatic responses are usually built into these methods of communication.

AI can also analyse communication for emotions, tone, and keyword use. The analysis provides insights on how debt collectors can be more effective. It may create scripts that will get a more positive response from the customer.

4. Debtor tracking

AI can search for borrowers that debtors cannot reach. Debtors may move, change phone numbers, or ignore the debt collection agency. AI can search on file data and public databases to find the missing debtor. It can sometimes accomplish this in minutes, while it may take a human hours or days.

Unfair Practices Stemming From AI in Debt Collection

For debt collection companies, AI automation has incredible value. It can compile data, reduce errors, streamline the collection process, and talk to customers. Companies anticipate the benefits will lead to faster collections and increased profits.

While a helpful tool for agencies, there are some disadvantages AI presents for debtors.

Bias

AI has limited empathy. That can lead to ethical issues. For example, Intelligent machines sometimes categorise borrowers based on demographic factors alone (where you live, your credit rating, and job history. Such bias disregards individual circumstances—you are treated as a number rather than a person with thoughts and feelings.

Lack of human interaction

Computer interactions can’t replace person-to-person conversations. And that can harm debt negotiations. Your situation may require a live agent who can understand your specific circumstances. A considerate person can offer a better arrangement if one is available. AI may not be flexible enough to work out a mutually agreeable solution.

Limited contextual capacity

AI may analyse an impressive amount of information but often fails to grasp context. For example, a chatbot can misunderstand what you’re trying to say. That can lead to mistakes or unresolved issues that hurt your debt negotiations.

Regulatory compliance and privacy

AI collects your data, which raises a host of privacy and consumer rights issues. A company that does not have sufficient security measures can fall victim to a breach. Yes, AI-powered financial services must keep their systems compliant with federal and provincial regulations. However, errors do occur which leave you vulnerable to fraudsters and criminals.

How to Protect Yourself Unfair Debt Collection Practices

We can’t stop AI. But there are things you can do to reduce the impacts of automated debt collection. Here are three action steps you can do today to protect yourself:

1. Be aware of your rights: Collection companies must comply with Canadian regulations and consumer protections. All provinces have Acts to outline exactly how these companies can interact with you. If an organization violates your rights, report them. That can put you in control when dealing with automated debt collection issues.

2. Authenticate each debt collection company: Technology enables fraudsters to engage in many scams in Canada, so verify each collection agency as a first defense.

3. Seek professional help: You don’t need to put up with non-stop phone calls, text messages, or emails. Licensed Insolvency Trustees (LITs) offer legally binding debt solutions such as Consumer Proposals or Bankruptcy. These options will stop creditor phone calls, legal action, and wage garnishment.

Conclusion

Automated debt collection can lead to unfair practices. But you have rights and can take steps to protect yourself. If you’re having issues with debt collectors, our Licensed Insolvency Trustees at Allan Marshall and Associates can help. We have over 40 years of experience assisting people in finding the best solutions to get rid of their debt.

Call us today at 1-888-371-8900 or fill out our online form for a free consultation. We’ll work with you to eliminate your debt and get your finances back on track.

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Scott Marshall BBA, C.I.R.P, L.I.T

Scott is serving as Vice President and managing partner of Allan Marshall & Associates Inc. since obtaining his License as a Trustee (LIT) in 2003. Scott graduated with a Bachelor of Business Administration (BBA) from the University of New Brunswick and is an active member of the New Brunswick business community. In past years, Scott has been a valued member of the Wallace McCain institute.