Mon, Mar 27, 2000 2:20 PM
Subject: Ref: 16 CFR Part 313 (Comments in response to Notice of proposed rulemaking)
The following comments are submitted in response to the Federal Trade Commission's Notice of proposed rulemaking re 16 CFR Part 313.
These comments are focused primarily on and submitted in support of the position that third party contractors who provide collection scoring services to "financial institutions" (as defined in 16 CFR Part 313), as well as third party contractors who provide credit scoring services:
A scoring company can accomplish the above-noted objective in various ways. For example, the scoring company could permanently delete the name and social security number (if present) of each individual from its file copy of nonpublic personal information, before using that information in any way, including using the information to improve the performance of its scoring models for clients other than the client that provided the information. And, this can be done without materially reducing the model improvement benefits.
It is submitted that it is clearly in the public interest to permit third party scoring vendors, and especially collection scoring vendors, to use nonpublic personal information to improve their scoring models, determine market trends, and otherwise use that information, provided that they "do not maintain...[nonpublic personal] information in a way that would permit identification of a particular consumer [with his or her nonpublic personal information]." The ultimate beneficiaries of collection scoring, of course, are consumers who pay their debts, since by reducing the overall cost of collection, credit grantors are able to reduce their bad debt losses, and provide more competitive interest rates to performing customers and prospective customers. Bad debt in the United States is not a trivial issue. According to a Nilson Report estimate, the total value of charged-off and early-out receivables placed with collection agencies in 1997 was $240 billion, of which approximately 20% was ultimately collected. To put this number in prospective, in 1997, there was approximately $700 in unpaid consumer debt for every man, woman and child in the United States. But, that still does not tell the whole story. These numbers do not include unpaid consumer debt that credit grantors fail to collect with their in-house collectors and never sent out to collection agencies, nor do the numbers take into account the fact that bad debt has been growing at between 5 and 10% a year.
It is submitted that any legitimate means that helps reduce the size of the bad debt pool, such as collection scoring, should be encouraged, not discouraged. Preventing scoring companies, and especially collection scoring companies, from using nonpublic personal information in a way that it is not personally identifiable would ultimately injure the public, without really helping to safeguard consumer privacy rights. Though well-intentioned people may argue that no information about them should be available to anyone, the logical basis for their concern disappears, and their position becomes wholly emotional, when that information is maintained in a way that does not permit identification of the particular consumer.
Based on a quick reading of the comments published to date on the FTC's website in support of the proposed rules, it appears that people are frustrated and upset because they are subjected to unsolicited, unwanted offers, which they assume (rightly or wrongly) resulted from the sale of "their" information by one company to another. Although there is a strong case to be made that this is not an unreasonable price to pay for the added opportunities and greater good that it generates for businesses and consumers generally, it is a concern that does not really fit in the context of collections (i.e., it is unlikely that a defaulting debtor will be actively solicited for more debt). At this point I would like to note briefly the difference between collection scoring and credit scoring.
The primary purpose of credit scoring is to help a credit grantor determine whether or not to extend credit to a consumer who is a current or prospective customer/client of that credit grantor. By contrast, the primary goal of collection scoring and related services is to help a credit grantor or collection entity determine whether or not a consumer who is a current or former client/customer of the credit grantor is likely to repay his/her debt, and to provide information that increases the likelihood of collecting that debt. In the context of collections and collection scoring, there is always an established, pre-existing relationship between a consumer/debtor and a credit grantor.
In closing, I would like to mention that I agree with the general comments submitted to the FTC by Professor Cate, who makes a compelling case for his position.
Ned W. Manashil,