Do you know SMS has a 98% open rate? It’s no surprise that consumers prefer quick, personalized updates through text messages. With these estimates, SMS can significantly boost response rates and improve debt recovery success. However, debt collectors should ensure that their SMS complies with the FDCPA and other relevant laws.

In this guide, we’ll explore the strategic use of SMS for debt collection, uncovering how to maximize its potential while ensuring compliance with legal standards.

Regulatory Compliance in SMS Debt Collection

The Consumer Financial Protection Bureau (CFPB) brought Regulation F to enforce the Fair Debt Collection Practices Act (FDCPA) amendments. It outlines specific rules and guidelines for debt collection, including SMS communication. Under Regulation F, you must comply with the following guidelines when communicating via SMS.

Get Customer’s Consent

Debt collectors must get the consumer’s permission to communicate via SMS. You can obtain consent orally or in writing without pressure.

Prohibited Information

According to the FDCPA Annual Report 2023, threats were reported as the third most common issue under debt collection. SMS messages must not be misleading or deceptive. You cannot use threats or profanity or engage in any behavior considered harassment.

Time Restrictions

Debt collectors should only send SMS messages between 8 a.m. and 9 p.m. in the consumer's local time zone. If the consumer has agreed to receive messages at other times, you can send them at their preferred time.

Limited Communication

You must limit the number of SMS messages you send to the customer. Regulation F specifies that debt collectors shouldn’t send more than seven text messages within 7 days to the same customer regarding a particular debt.

Identify Information

According to the FDCPA Annual Report 2023, many consumers complained that they didn't receive enough information to verify the debt. In addition, few complained that the information didn’t disclose that it was an attempt to collect a debt.

Debt collectors must introduce themselves in SMS messages, stating they are debt collectors, the original creditor’s name, and how much is owed.

Opt-out Method

Consumers must always be allowed to opt out of receiving SMS messages. You must provide an easy way for consumers to unsubscribe, such as replying with a keyword or contacting you directly.

Reconfirm Consent

Renew consent every 60 days. Even if a consumer hasn’t opted out, the consent you originally received may only remain valid for 60 days. To continue sending texts, you should ask the consumer to confirm their consent again. Check a trusted database to verify their phone number hasn’t been reassigned.

Debt collectors may also be subject to more stringent state or local laws. For example, in Washington State, laws limit debt collectors from sending more than two daily text messages. Meanwhile, in Washington, D.C., debt collectors are prohibited from initiating written or electronic communications. It also prohibits sending text messages during a public health emergency and at least 60 days afterward.

Common Pitfalls While Evaluating Vendors

A successful SMS strategy begins with selecting the right tools and reliable partners to support your goals. This involves choosing an SMS platform with automation, scalability, and user-friendly features to streamline communication. The right strategy simplifies operations and helps deliver personalized, timely messages that enhance customer relationships and drive better outcomes. You can ensure seamless customer engagement by avoiding these common pitfalls.

Prolonged Implementation Timelines

Long delays in implementing new systems can significantly disrupt business operations, especially when you're eager to roll out a digital strategy. Prolonged timelines can lead to lost opportunities, frustrated teams, and delayed returns on investment. To avoid this, establish clear milestones and deadlines with your vendor from the outset. Regularly monitor progress and address potential bottlenecks early to keep the project on track.

Integration Challenges

Many vendors claim seamless CRM integration but fail to deliver on their promises, leading to compatibility issues, functionality gaps, and wasted resources. Poorly scoped integrations can disrupt workflows, cause data inaccuracies, and require additional time to fix. To minimize risks, thoroughly assess your current systems and ensure vendors provide detailed integration plans, including compatibility testing, data migration strategies, and ongoing support.

Hidden Costs

Vendors often promote competitive pricing, but hidden fees for additional metrics, scalability, or premium features can arise later. These unexpected costs can strain budgets and derail long-term plans. To avoid surprises, request a transparent breakdown of costs upfront, including licensing, upgrades, usage limits, and support fees. Always ask for real-world examples or references from existing clients to verify cost claims.

Key Essentials While Choosing an SMS Vendor

When selecting an SMS solution, it’s crucial to choose a vendor that supports long codes, short codes, SMS, and MMS to accommodate a range of communication needs, from one-to-one messaging to high-volume campaigns.

Short Codes

Short codes are valuable for large-scale messaging as they offer higher throughput and faster delivery speeds than long codes. However, the approval process can be lengthy and requires careful planning. To use shortcodes, you must register with the US Common Short Code Administration, and the approval process can take several weeks if not months.

Additionally, you must seek carrier approvals, including submitting documentation and undergoing carrier-specific testing. This process, while time-consuming, ensures you can effectively scale communications and maintain high deliverability rates for campaigns.

Industry-Specific Vendors

Vendors like TCN, Pronto, and SBT are tailored to the debt collection industry, providing specialized features designed for compliance and efficiency in this highly regulated space.

These vendors offer custom solutions for managing large volumes of messages while ensuring that the content adheres to industry standards and regulations. Choosing a vendor with industry experience ensures a better understanding of your unique needs and smoother integrations.

Essential Features

When selecting an SMS platform, it must offer seamless CRM integration to ensure your communication system synchronises with your customer management tools. In addition, personalization features allow you to customize messages for better engagement. As your business grows, the ability to easily scale your messaging platform will ensure continued efficiency without disruption.

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SMS Campaign Metrics: Measuring & Scaling Up

Tracking the right metrics is key to understanding the effectiveness of your SMS campaigns and optimizing them for better results.

Click-Through Rates (CTR)

Incorporate smart links within your messages to measure click-through rates accurately. These metrics give insight into how borrowers interact with your content and help you determine the relevance of your messaging. By analyzing CTR, you can identify which campaigns are driving engagement and refine your approach for better outcomes.

Delivery Success Rates

Monitoring delivery success rates is critical to ensuring your messages reach the intended recipients. Low delivery rates could indicate issues like invalid phone numbers, carrier blocks, or compliance problems. Addressing these issues early ensures the maximum reach and effectiveness of your campaigns.

Response Rates

Response rates clearly show how actively borrowers engage with your messages. By analyzing these rates, you can understand how well your communication resonates with the audience and tailor future campaigns to encourage more interaction.

Opt-Out Rates

Tracking opt-out rates is essential for maintaining audience satisfaction and compliance. A high opt-out rate could signal that your messaging frequency, tone, or content isn’t aligning with borrower expectations. Regularly reviewing this metric helps you fine-tune your messaging strategy to retain engagement while respecting customer preferences.

Furthermore, you can enhance your messaging strategy by incorporating MMS and chatbots to expand SMS capabilities. MMS allows you to share visually rich content, making communicating complex information easier or capturing attention more effectively. Meanwhile, chatbots streamline interactions and offer a self-service option that improves user convenience and reduces response times.

Omnichannel Smart Techniques

If you want to maximize the impact of your SMS strategy, integrate it seamlessly with other communication channels like email and payment portals. Strategic coordination can significantly improve engagement and drive resolutions:

• SMS sends payment reminders to customers who click on payment links in emails but don’t complete the transaction.
• Leverage SMS as part of follow-up workflows, targeting customers who started setting up payment plans on the portal but abandoned them midway.
• For accounts showing high engagement, such as frequent email opens or SMS replies without resolution, increase SMS frequency to keep them engaged and prompt action.
• Complement SMS with voicemail drops for customers who open emails during the evening but don’t engage further, adding a human touch to drive interaction.

By integrating SMS into an omnichannel approach, you can create personalized, timely touchpoints encouraging action and enhancing the overall customer experience.

5 Powerful Ways to Increase Your Debt Collection from SMS

Description	Impact
Boost Your Open Rate Research shows that 95% of consumers respond to a text within 3 minutes of being sent. Add a personal touch to your message, with some amount of empathy. Include your customers' first name and the amount of funds owed. It will increase your chances of getting responses.	Normal Response Rate Doubled by personalizing the message according to the customer
Reduce Your Spam by One-Fourth Research shows that including short, branded URLs in text messages reduces spam rates. Spam reports can significantly impact the success of your messaging campaigns. Include short, branded URLs in your text messages to reduce the risk.	Spam Reports Reduced by 1/4th by using short URLs
Increase Engagement Rates by 150% Your message needs engagement; once the customer starts engaging, there's a higher probability of receiving payments. Add phrases like 'payment plans', 'lower payments', and 'settlements' to increase engagement rates.
Boost Click-Through Rates (CTR) Send SMS messages when recipients are most likely to see and act on them, such as during business hours or early evenings. Catch borrowers when they have funds and are more inclined to act. This will increase your CTR rate.
Enhance Your Campaign by Understanding Your Audience Prodigal insights reveal that borrowers with a median annual income below $60K have an unsubscribe rate three times higher than average. This highlights the importance of adopting a more focused and thoughtful strategy to effectively engage this demographic, minimize churn, and boost interaction rates.

11 Effective Templates for SMS Debt Collection

SMS is a powerful tool for sending payment reminders or updating clients about compliance laws. We’ve created SMS debt collection templates that you can easily copy and use!

1. Automated Payment Reminder

Dear Adam,

Your next payment for <Amount> is due on <Date>. Please make sure you pay on time and avoid further costs. Thank you.

2. Informing on Payment Compliance

Dear Adam,

As per legal regulations, debt collectors can only contact you between 8 am & 9 pm. We at XYZ Company take pride in following text compliance laws.

3. Payment Confirmation

Dear Adam,

This is to acknowledge the receipt of the <Amount> towards your car loan. Thank you for being a valued customer.

4. Sending Payment Reminder One Week Before the Due Date

Dear Adam,

This is a reminder that your <Due Amount> debt payment is due next week. Click for payment methods.

5. Second Reminder On the Due Date

Dear Adam,

This is a reminder that your <Due Amount> debt payment is due today. Click here to pay now.

6. Sharing Links for Quick Payments

Dear Adam,

Payment is now easier than ever. Follow the link <Link> to clear dues for this month.

7. Third Reminder, One Week After the Due Date

Dear Adam,

Based on our records, your payment for the <Due Amount> debt is overdue by one week. Click here to pay now.

8. Two Weeks After the Due Date, Reminder with Feedback Options

Dear Adam,

This is another reminder that your payment is two weeks behind. We want to help you. Click here if you've encountered difficulties paying or settling your balance.

9. Fifth Reminder, Four Weeks After Due Date

Dear Adam,

This is a reminder that your <Due Amount> payment is overdue by one month. To prevent further issues, please click here to explain the delay or provide an update.

10. Sixth and Final Payment Plan Reminder, Five Weeks After Due Date

Dear Adam,

This is your final notice that your <Due Amount> debt payment is 35 days past due. Do you need a payment plan?

11. Overdue Reminder

Dear Adam,

Despite previous warnings, the payment of <Due Amount> remains outstanding. As a result, further action will be initiated, and our attorneys will inform you of the next steps.

Major Challenges in SMS Debt Collection

SMS debt collection is efficient but has unique challenges that debt collectors must navigate carefully. Here are the solutions:

• Compliance Burden - Debt collectors should use compliance-focused software to track and monitor SMS communications effectively. In addition, you can use tools to manage opt-out requests in real time to comply with legal requirements.

• Communication Efficiency - Prioritize sending texts when customers are most likely to respond, such as mid-morning or early afternoon. SMS should also be incorporated with other channels like email and phone calls to ensure prompt responses while maintaining compliance.

• Timely Reminders - If you send an SMS on the customer’s payment due date, it will encourage prompt payments. Also, schedule follow-up reminders a week before and a couple of days before the due date, with a final reminder after the due date.

• Concise Communication - Include the amount owed with clear payment instructions in the SMS to motivate customers to settle their debt. You can add a call-to-action like “Click here to pay now” or “Contact us for more options” and direct them to an online payment portal.

• Integrated Systems - Automate the payment reminders and integrate the SMS system with your existing CRM to simplify the process. Also, AI-powered tools can be used to analyze consumer behavior, track payments, and prioritize high-value accounts for better results.

Best Practices to Enhance SMS Debt Collection

Research from McKinsey shows consumers prefer digital outreach, even in the later stages of delinquency. 73% of customers in late delinquency made a payment when contacted through digital channels.

So, if you want to gain an edge in SMS debt collection, use advanced strategies to optimize communication, improve recovery rates, and build debtor trust. Here are some insider techniques to maximize the success of SMS debt collection:

1. Use Behavioral Insights

Sage Journals found a positive impact of message personalization on debt collection efforts. They saw a 1% point increase in payment rates when the debtor's name was included in the message. So, use behavioral data to create SMS messages tailored to a debtor’s payment history and preferences.

Send polite, informative reminders to frequent responders and encourage them to make the payment. On the other hand, use a firmer and urgent message to emphasize the consequences of continued non-payment for late payers.

For instance, if a debtor responds well to reminders, they might get a friendly message like: 'We’ve noticed you’re usually on top of your payments. Just a quick reminder—your balance is due. Let’s take care of it today.' However, the message might be more direct for someone who often pays late: 'Your payment is overdue. Act now to avoid late fees and interest. Click here to pay.

2. Optimize Payment Links

Textline states that click-through rates for links in text messages are between 10 percent and 15 percent higher than links sent via email. Embed smart payment links in SMS messages to increase debt recovery rates.

In addition, track and use the data to identify the best times and messaging styles for engagement. Moreover, follow-up messages should be sent based on interactions, like a reminder 24 hours after a debtor clicks the link but doesn’t complete the payment. 

A message like: “We noticed you clicked the payment link but didn’t complete the transaction. Don’t wait – pay today and avoid further charges!” can be highly effective.

3. Incorporate Emotional Triggers

According to Forbes, businesses that navigate crises with empathy are more likely to maintain consumer trust. So, create messages that connect emotionally to encourage action.

Use empathetic language like, “We understand unexpected expenses happen. Let’s work together to resolve this balance.” In addition, highlight payment as a step toward financial freedom, such as, “Pay today and take one step closer to living debt-free. It’s easier than you think.”

4. Provide Rewards

Offer small rewards or incentives to encourage timely payments. Send SMS messages with discounts for quick payments, like “Settle your balance today and save 10%!” Create urgency with countdown messages like “Your 10% discount ends in 48 hours.

In addition, you can offer partial debt forgiveness for early repayment, such as waiving late fees or reducing principal amounts.

Conclusion

SMS debt collection is an effective tool for improving communication with debtors while remaining cost-efficient. However, debt collectors must ensure compliance with the FDCPA and Regulation F, which set clear guidelines on the frequency, timing, and content of SMS messages.

You should obtain consumer consent before sending an SMS, offer opt-out options, and avoid misleading or harassing language. Use personalized messages and incentivize timely payments with rewards or discounts to enhance debtor engagement.

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FAQs (Frequently Asked Questions)

1. Do debt collectors send text messages?

Yes, debt collectors can send text messages to debtors. However, you can opt out of receiving them. In addition, the frequency of messages can't be abusive or harassing.

2. How to verify debt collector?

To verify a debt collector, ask them for their name, company name and address, telephone number, and professional license number, if applicable.

3. How to ask for payment via text message?

Dear [First Name]. Your [Due Amount] payment for [Service] is past due. Please review your outstanding bill and submit payment: [Link]. Thanks, [Business Name].

4. How do I convince my debtors to pay?

Here are the ways to convince your debtors to pay:

• Create strong relationships with debtors.
• Send invoices quickly.
• Set clear payment terms.
• Make it easy for the clients to pay.
• Offer them incentives for early payments.
• Send them friendly reminders and do follow-ups.