AI set to transform debt collection in US, bias worries remain

AI Set to Transform Debt Collection in the US, Bias Worries Remain

Artificial intelligence (AI) is poised to revolutionize the debt collection industry in the United States, but concerns about bias and potential negative consequences linger.  The use of AI in debt collection has the potential to increase efficiency and accuracy, but it also raises ethical concerns about the potential for biased decision-making and exacerbating existing racial disparities in debt collection.

The Current State of Debt Collection

Debt collection is a significant issue in the United States, with over 73 million Americans having a bill in collections, according to the Consumer Financial Protection Bureau (CFPB) . The majority of these debts are medical-related, followed by phone and utility arrears. The debt collection industry is currently seeing an "explosion of technology," with 60% of collections companies considering or working towards using AI-driven tools.

The Potential of AI in Debt Collection

AI has the potential to transform the debt collection industry in several ways, including:

- Predicting who is willing or able to pay: AI algorithms can analyze a range of factors to predict which debtors are most likely to pay their debts.
- Virtually negotiating payments: AI-driven chatbots can negotiate payment plans with debtors, potentially reducing the need for human collectors.
- Segmenting and profiling customers: AI can help companies segment and profile their customers, allowing for more targeted and effective debt collection strategies.

Concerns About Bias

While AI has the potential to revolutionize the debt collection industry, there are concerns about the potential for bias in AI decision-making.   Researchers have long found racial disparities in who faces debt collection, including who is sued or even who gets contacted in the first place.

AI tools could exacerbate these concerns, potentially leading to biased decision-making and further abuse and unfairness in the debt collection justice system.

The Need for Regulation

There is currently no federal regulation specifically addressing the use of AI in debt collection ². The CFPB has issued a report on chatbots in consumer finance, emphasizing that companies using AI must comply with consumer finance laws. However, more comprehensive regulation is needed to ensure that AI is used in a fair and transparent manner.

Conclusion

AI has the potential to transform the debt collection industry in the United States, but concerns about bias and potential negative consequences must be addressed.As the industry continues to adopt AI-driven tools, it is essential that regulation keeps pace to ensure that AI is used in a fair and transparent manner.