On April 21, 2021, the U.S. Court of Appeals for the Eleventh Circuit released a ruling that threatens serious consequences for various areas of the loan servicing and debt collection industries. The result of the court’s decision is that anyone falling within the FDCPA’s broad definition of a “debt collector” is violating the FDCPA when communicating with all third party – including a vendor or other party assisting in the collection or servicing of the loan – in respect of the loan or debt.
In Hunstein v. Preferred Collection and Management Services, Inc. the plaintiff made a claim under section 1692c of the FDCPA, claiming that the defendant had violated the law by making an “unauthorized communication relating to the collection of any debt” to a third party. The underlying facts of the claim will likely affect many debt collectors and loan officers closely. Specifically, the defendant – a debt collector – provided their commercial mail vendor with certain limited information about a consumer and consumer debt so that the vendor could fill out a dunning letter and then send it on behalf of the consumer. respondent. The district court allowed the defendant’s motion to dismiss, ruling that the mere act of providing information to a seller so that he could complete a standard letter was not a communication “relating to the collection of the debt” .
On appeal, the eleventh circuit overturned. The tribunal first considered the Respondent’s argument that the Federal Courts lacked Article III jurisdiction in this matter due to the lack of allegations that the Applicant suffered tangible harm. in fact. The court agreed that the plaintiff did not allege that he suffered any kind of “tangible harm” or a “risk of real harm” as a result of the defendant’s alleged conduct. But after careful review of the law, the court concluded that the plaintiff had claimed “prejudice to the law” – that is, the mere fact that the FDCPA was allegedly violated was enough. The court linked the alleged violation of Section 1692c to the long-standing principle against “invasion of privacy” and found that Congress had sought to remedy this type of harm by enacting Section 1692c of the FDCPA. Thus, even though the complainant had not alleged that he had suffered “actual harm” as most would understand it, the tribunal found that he had alleged sufficient harm to satisfy Article III.
On the merits, the court applied a textualist approach to determine that the FDCPA’s prohibition on communications with third parties “in connection with the collection of any debt” applied to the somewhat mundane communication of the defendant. with its own supplier. The court began by noting the broad literal meaning of “in connection with the collection of any debt”. The court distinguished case law applying a narrower interpretation of the same language in Article 1692e of the FDCPA, finding that the different statutory text and context called for a broader interpretation of the expression in Article 1692c. Applying this broad definition, the court concluded that even “communications” (the parties agreed that the information exchanges were “communications”) with the vendor of the debt collector to inform the contents of a follow-up letter. were prohibited.
The court appeared to recognize the drastic nature of its decision. He expressly addressed the Respondent’s assertion that the use of mail providers is a widespread practice, and even acknowledged that the use of other common providers may encounter the same problems under the interpretation of the law by the court. But according to the court, its obligation was “to interpret the law as it is written, whether or not we believe that the consequences which result from it are particularly reasonable or desirable”.
The ramifications of the court’s decision could be enormous. While conventional independent debt collection companies are governed by the FDCPA, so are loan managers when they acquire service rights on debts already in arrears. These collection agents and loan services employ a wide range of third parties to assist them with a variety of collection and management activities, including courier providers, data hosting services, insurers and real estate appraisers. Communications with these third parties about anything even touching on a consumer’s debt can now be a violation of the FDCPA under the Eleventh Circuit reasoning. Please stay tuned as Bradley will lead a cross-sector effort to deal with the consequences of the court ruling.