The administration views the measure as a necessary tool to collect on personal debts as greater numbers of Americans eliminate their land lines. Technically, the provision would also apply to people who are behind on their taxes or on mortgages insured by the Federal Housing Administration. But the Internal Revenue Service doesn't contract with private firms to collect delinquent taxes, and mortgage lenders aren't likely to hound borrowers by cell phone when they have the threat of foreclosure to compel payment, experts say.
In practice, "the main target will probably be student-loan debtors," says Margot Saunders, at counsel with the National Consumer Law Center. "Right now, the country is facing tremendous unpaid debt, not because we have a lot of deadbeats, but because a lot of people are out of work and can't repay the debt."
An estimated $50 billion in federal education debt is in default, says Mark Kantrowitz, founder of finaid.org, a student loan informational website. "The fear is collection agencies will use this [provision] to harass students," he says. In 2010, consumers lodged more than 144,000 complaints about debt collection practices with the Federal Trade Commission, making it the top consumer complaint after identity theft.
Students who attended for-profit colleges had more than three times the rate of default -- 15% versus 4.6% of students attending nonprofit schools. One reason: Students at for-profit schools are more likely to borrow: 92% did so in the 2007-2008 school year, the most recent data available, versus 27% of students at public colleges and 60% of students at private, nonprofit colleges.
"There are a whole slew of problems with students loans to vocational schools," says Saunders. "They are known to provide very high-ratio loans. The student doesn't pay much up front, and then there are real problems with the product. The vocational schooling doesn't train students for what they need, they don't help them find jobs, and [the students] are left owing huge amounts."
Moreover, it's those younger, jobless or underemployed people who are most likely to rely solely on a cell phone, and chose a pay-as-you-go phone, which can cost up to 25 cents a minute for a basic plan, says Howard Dvorkin, CPA and founder of Consolidated Credit, a debt management firm. "Collectors may call three to five times a day to get someone on the phone, so the cell phone bills are going to go up," he says. "It's a money grab that the administration is going for -- the government needs the money and a tremendous amount is owed, certainly for student loans."
Even if the provision is adopted, borrowers will be able to use tactics in the Fair Debt Collection Practices Act to protect themselves. Debt collectors can't contact you before 8 a.m. or after 9 p.m. unless you agree to it. Most people carry their cell phones to work, and debt collectors can't contact you there if they are told, orally or in writing, that you are not allowed to receive calls. Finally, collectors must stop contacting you if you notify them in writing.
"Allowing an abusive debt collection mechanism is not going to increase payment of debt, it's just going to increase the suffering of debtor," argues Saunders. "It's quite different than calling a home phone."