REQUIRED READING: There are a number of people who assert that field calls cannot be performed by third parties because it is illegal for a financial institution to share a consumer's personal information. Some claim that the debt must be assigned to the third party. Others claim the consumer must provide contemporary written permission for his or her information to be shared.
Judges, when confronted with having to evaluate conflicting claims, often apply the "smell test." Is it reasonable or rational that a debtor could avoid professional debt-collection activities by simply refusing to allow personal information to be shared? Clearly not. This assertion would lead to the absurdity of putting almost all debt-collection companies out of business and severely limiting a lender's ability to collect bad debts or even to engage a servicer for the debt.
In question is nonpublic financial information of consumers and customers as such terms are defined in the Gramm-Leach-Bliley Act of 1999. According to the U.S. Code (USC), the term "nonpublic personal information" means personally identifiable financial information that is "provided by a consumer to a financial institution, resulting from any transaction with the consumer or any service performed for the consumer or otherwise obtained by the financial institution."
The operative phrase is "financial" information. This, of course, would include account numbers, account balances and other nonpublic financial information regarding the consumer, including the fact that the consumer is in default. It does not, however, include property and other public records or information widely available through published telephone books, Internet social sites, etc. Nor does it apply to identifying information – such as a name, address or phone number – so long as the identifying information is not linked to the nonpublic information.
The question then arises as to whether the protected information can be shared, and if so, if the consumer should have to provide written permission to share the data. The quick answer is that the information can be shared with and by persons and entities seeking to assist in enforcing the transaction. Nothing in the codes calls for consent, written or otherwise, by the consumer. This is clearly not an oversight by Congress, as the Fair Debt Collection Practices Act (FDCPA) makes specific provisions for some requirements to be in writing, but not for others.
The issue of financial institutions sharing consumer nonpublic information is generally covered under Section 313.1 of the Code of Federal Regulations (CFR). That code provides that when a financial institution enters into a customer relationship, it is required, pursuant to sections of the CFR and USC, to provide notice of its policies and practices with regard to the disclosure of the consumer's nonpublic personal information to affiliates and non-affiliated third parties. The financial institution must also provide the customer with an opt-out notice, which allows the customer to bar the disclosure of any nonpublic personal information to any unaffiliated third party. Typically, these provisions relate to using the information for marketing purposes or selling the information.
Although the foregoing provides a framework for evaluating the applicable law, the privacy notice and opt-out requirements do not apply to debt collection, which, for the purpose of this article, includes field calls, as the financial institution may disclose information necessary to effect, administer or enforce a transaction the consumer requested or authorized. A necessary disclosure is one that is required, lawful or appropriate to enforce the rights of the creditor.
According to the Federal Trade Commission's explanation, disclosures to many different professionals or entities would be permitted under this exception. Institutions may, under appropriate circumstances, disclose information to attorneys, appraisers, financial planners and debt collectors. Field calls unquestionably fall well within the provision of enforcing a transaction the consumer requested or authorized.
However, this information may only be disclosed to a non-affiliated third party that has contracted with the financial institution and is thereby prohibited from disclosing or using said information for purposes other than to carry out the services for which it was disclosed. Thus, there must be a confidentiality agreement between the field call company and the financial institution, as well as between the field call company and any field representative actually carrying out the contact by use of the protected information.
Some have claimed that the FDCPA sub-section labeled "Communication with Third Parties" is the basis for claiming that the nonpublic consumer financial information may not be shared by the creditor with a debt collector unless the consumer has given express permission to the debt collector. However, a simple reading of the code reveals that by its express terms, this is a limitation on the debt collector sharing information with third parties. It is not a limitation on a creditor providing information to the debt collector in the context of enforcing the obligation.
R.G. Bellows is vice president of corporate counsel for Lake Forest, Calif.-based National Creditors Connection Inc. He can be reached at (800) 300-0743, ext. 7597 or rbellows@nationalcreditors.com.
