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Debt shaming: Cruel and unusual or creative and effective?

PeopleImages/DigitalVision/Getty Images

PeopleImages/DigitalVision/Getty Images

Children denied a hot meal when their parents are behind on lunch payments can be so traumatizing to students that a cafeteria worker recently quit in protest. Some homeowner associations distribute lists of members who owe dues, and collectors frequently employ psychological techniques, including making debtors feel like deadbeats. A few even take the matter public on social media websites.

The practice is called debt shaming. Its purpose is to control financial behavior by humiliating a person who borrows or owes money. Is it successful or even legal? Depending on the circumstances, it can be.

The primal power of shame
Dr. Kate Levinson is a marriage and family therapist specializing in the intersection of money and psychology. Shame, she says, is hardwired into every human.

“It's a primitive feeling that there's something wrong with us and we feel vulnerable to being found unworthy,” says Levinson. “Shame's power is rooted in the elemental fear of being ostracized and not having a place at the table, of being rejected. Our survival depends on our being included and receiving a share not only of the food and the bounty of the hunt, but of our needs for connection with others.”

Consequently, capitalizing on such an intense, innate drive can be a potent way to influence a person or group. Its impact was not lost on Rachel Haas, a mother of two from rural Illinois, who was raised in a Quiverfull community. This Christian sect views children as a divine blessing, so family units are typically large. Money must be carefully spent and making ends meet with a loan is not an option. The very act of borrowing money, no matter what it’s for, is considered shameful.

Beware if you break that rule, says Haas. Ridicule will follow. “Debt is considered evil,” she says. “Anyone foolish enough to ‘take up surety’ for another man was also shamed. You never co-signed for a loan, even for your kids. Debt is so embarrassing because it means you aren’t trusting in God. You're not living in the circle of faith; you had to get a handout.”

After Haas married, she and her husband wanted to buy a house. Not the tiny, ramshackle home they could afford to pay for in cash, but one that would require a mortgage. Her parents and the community went on a shaming attack.

“There were weeks of fighting,” says Haas. “They said we were getting ourselves into trouble, we’d be stuck somewhere. What about the kids, what happens if you end up on the streets? The fear mongering was terrible. They preached about it from the pulpit and look at you.”

Although Haas has left the group, residual emotions remain. When they finally bought their home with the help of a loan, she had severe anxiety attacks because they were going into debt. “It felt wrong,” she says. “Shame is very effective. It leaves massive, massive issues.”

Debt is failure, and failure is disgraceful
“It’s very common to be embarrassed or have shame reactions around money because money signifies self-worth, as well as many other meanings, in our society,” says Levinson.

Several year ago, Tony Russo, a retired handyman now living in the Los Angeles area, was injured on the job. After many treatments, he owed more than $15,000 in medical expenses. He tried to keep up and depleted his small savings, but most of the bills went into collections.

“I never didn’t pay my bills before, and then I couldn’t,” says Russo. “Let me tell you, it was more than embarrassing. The letters, my wife and kids saw them. My phone never stopped, and it was terrible. One said, ‘You should be ashamed, a grown man like you, what kind of man are you?’ It got to me.”

Russo says he began to hate himself, and he fell into a deep depression, avoiding even close friends and family members. “I didn’t want them to know, you know? I used to be the guy everyone looked up to. Then I’m what, a dirtbag?”

In fact, just a few punitive words from a collection agency can make people cringe, then react. “Shame is so uncomfortable that we will generally do whatever we can to get away from feeling it,” says Levinson.

The method can backfire, though, says consumer law attorney John O’Neal, from Greensboro, North Carolina. “Honestly, debt shaming can be effective, but I think the cons outweigh the pros,” says O’Neal. “Sometimes when the debtor learns the collector has engaged in debt shaming, it only further emboldens him to not pay and, in some situations, may persuade the debtor to contact an attorney.”

Debt shaming and the law
The legality of debt shaming depends on many factors. According to O’Neal, third-party collection agencies are among the biggest offenders when it comes to embarrassing people about their debts. Though employees must abide by the provisions in the Fair Debt Collection Practices Act (FDCPA), collectors can speak in a demanding and demeaning tone of voice, but they can’t use profanity or call the person names, since that is considered harassment.

Making a person’s debt public also is forbidden by law. “Under the FDCPA, it is illegal for a creditor to reveal the existence and amount of the debt to a third party except for a debtor's attorney, parent (if the person is a minor), co-debtor, original creditor and credit reporting agencies,” says O’Neal.

Other types of creditors have more latitude, and debt shaming might be allowed. For example:

  • Child support evaders may be subject to having their photographs and profiles posted in public and private locations.

  • Homeowners who are behind on association dues may find their names listed on shame sheets, which are then distributed to other members.

  • People who owe tax debt may be “outed,” as many states (including California, Massachusetts, Washington, Montana and New York) publish online lists that reveal their identities.

And if the balance owed is between individuals? Verbally vilifying a delinquent borrower to other people is legal, but if the assertions are false and the person’s reputation is damaged, it is considered defamation, says O’Neal. Publishing damning messages on social media sites may not just be against the company’s terms of use agreement, but also prohibited by state law.

Regarding religious groups, they have the right to establish guidelines for behavior – just as the members have the right to flaunt those rules or leave the organization.

As for public schools, there are no federal guidelines for what they should do when a parent owes lunch money. For this reason, schools can substitute a Sloppy Joe with a sandwich. Whether or not punitive actions are taken is up to the employees, student, family and community, but it’s not illegal.

Responding to debt shamers
For those dealing with collection agencies that are overstepping their legal boundaries with shaming methods not permitted by the FDCPA, O’Neal recommends taking action by writing the company a letter, telling them to “neither publicize the debt nor contact any third parties whatsoever regarding the debt or anything associated therewith.” Send it certified mail, return receipt requested.

“If the collector disobeys the directive, it is potentially setting the stage for legal claims against the collector,” says O’Neal. The person should also submit a complaint with the Consumer Financial Protection Bureau and consult with an attorney if he or she wishes to file a lawsuit against the offender.

Recourse is different for those having trouble with businesses and individuals that are collecting on their own debts. “One must look to state law to see if there are any rules of the road that apply to said collection acts and practices,” says O’Neal. In most cases, state law closely mimics federal provisions. Consumers should contact their state attorney general's office to learn what their rights are on this matter.

Victims of social media harassment should block debt shamers, and immediately contact the company’s administrators. Facebook, Instagram, Twitter and Snapchat all have processes in place for users to report abusive conduct.

The psychological response to being shamed must also be addressed, yet this may be the most difficult to manage. Try to accept that “how much we have has nothing to do with our value and everything to do with the circumstances we were born into. If we were taught financial literacy, our luck, the economic times, how good we are at managing our financial affairs and lots of factors are out of our control,” says Levinson.

Today, Russo says he wishes he didn’t let the collector affect him to such a degree: “I was doing what I could. I gave everything I had. It hit me bad, but I should have let that guy’s words go.”

See related: 8 things debt collectors can't do, How and when you can sue a debt collector