In a decision that could shake up the debt collection industry, on April 21, 2021, the Eleventh Circuit Court of Appeal issued its opinion in the case Hunstein v. Favorite collection and management. Serv., Inc., n ° 19-14434, 2021 WL 1556069 (11th Cir. April 21, 2021). The gist of the opinion is the court ruling that a debt collector incurs potential liability under the FDCPA for transmitting a consumer’s personal information to all third party not expressly designated by law. The potential implications of this decision are considerable.
The facts underlying Hunstein will be familiar to anyone familiar with the day-to-day operations of many debt collectors. A debt collector electronically transmitted information about the consumer (including the consumer’s name, debtor status, entity to which they owed the debt, and the outstanding balance) to their third-party dunning provider, Compumail. Compumail used this information to create, print and send a consumer follow-up letter. The consumer brought an action against the debt collector, alleging a violation of 15 USC § 1692c (b), which prohibits debt collectors from disclosing consumers’ personal information to third parties “in connection with the collection of any debt.” .
The court ultimately ruled that the transmission by the debt collector of the consumer’s information to its stimulus provider was a prohibited communication under § 1692c (b) because the communication was made “in connection with the collection of any debt. And that the recipient of the communication was not one of the six legal exceptions: the consumer, his lawyer, a consumer information agency, the creditor, the creditor’s lawyer or the collector’s lawyer. debts. The practical outcome of the decision seems clear: to transmit all consumer information to all a third party other than the six listed above potentially exposes a debt collector to liability under the FDCPA.
The implications could be huge and, frankly, the ruling raises more questions than it answers. While the underlying facts of Hunstein involve a follow-up letter from a third party, it is not difficult to extrapolate the reasoning behind the court’s opinion and potentially apply it to a number of scenarios. For example, can a mortgage owner contact the loan manager? What limits are there on communications between affiliates of debt collectors? Is there a responsibility for communicating consumer information to a processing server? In addition, many government debt collection laws are modeled on the FDCPA and give weight to decisions interpreting the provisions of the FDCPA. Debt collectors could potentially face additional liability under these state laws due to the interpretation given by the Eleventh Circuit in Hunstein.
An additional consideration with these state laws is the potential new liability of First party debt collectors. While the FDCPA generally only regulates third-party debt collectors, some state laws do not make this distinction. For example, the Florida Consumer Collection Practices Act (FCCPA) applies to all party trying to collect a debt; there is no distinction between owner and third party collectors. The FCCPA also has prohibitions regarding the disclosure of a consumer’s information to third parties. State courts may begin to interpret their debt collection laws in accordance with this notice and potentially find first-party collectors responsible for disclosing consumer information to third-party sellers.
At the end of the opinion, the Court recognized the box of verses it opened “We are aware that our interpretation of § 1692c (b) risks upsetting the status quo in the debt collection industry. We assume that, in the normal course of business, debt collectors share consumer information not only with stimulus providers like Compumail, but also with other third party entities. Our reading of § 1692c (b) may well force debt collectors (at least in the short term) to outsource many of the services they had previously outsourced, potentially at a high cost. We also recognize that these costs may not buy much in terms of “real” consumer privacy, as we doubt the Compumails of the world regularly read, care or abuse the information that debt collectors pass on to them. Nonetheless, our obligation is to interpret the law as it is written, whether or not we believe the resulting consequences are particularly reasonable or desirable. Needless to say, if Congress thinks we’ve misread 1692c (b) – or even read it correctly but should be changed – they can say so.
Any collection agent who discloses consumer information to third parties should assess their business practices in light of this decision.