In a decision that could throw the debt-collection industry into turmoil, on April 21, 2021, the Eleventh Circuit Court of Appeals released its opinion in the case Hunstein v. Preferred Collection & Mgmt. Servs., Inc., No. 19-14434, 2021 WL 1556069 (11th Cir. Apr. 21, 2021). The crux of the opinion is the court’s holding that a debt collector faces potential liability under the FDCPA for transmitting a consumer’s personal information to any third-party not explicitly designated by the statute. The potential implications of this decision are far-reaching.
The underlying facts in Hunstein will be familiar to anyone acquainted with the everyday workings of many debt collectors. A debt collector electronically transmitted information about the consumer (including the consumer’s name, his status as a debtor, the entity to which he owed the debt, and the outstanding balance owed) to its third-party dunning vendor, Compumail. Compumail used this information to create, print, and mail a dunning letter to the consumer. The consumer brought suit against the debt collector, alleging violation of 15 U.S.C. § 1692c(b), which prohibits debt collectors from communicating consumers’ personal information to third parties “in connection with the collection of any debt.”
The court ultimately held that the debt collector’s transmission of the consumer’s information to its dunning vendor was a prohibited communication under § 1692c(b) because the communication was made “in connection with the collection of any debt” and the recipient of the communication was not one of the six statutory exceptions—the consumer, his attorney, a consumer reporting agency, the creditor, the attorney of the creditor, or the attorney of the debt collector. The practical result of the decision seems clear—transmitting any consumer information to any third party other than the six listed above potentially exposes a debt collector to liability under the FDCPA.
The implications could be enormous and, frankly, the decision raises more questions than it answers. While the underlying facts of Hunstein involve a third-party dunning letter, it isn’t hard to extrapolate the reasoning behind the court’s opinion to potentially apply to any number of scenarios. For instance, can an owner of a mortgage loan communicate with the servicer of the loan? What limitations are there on communications between affiliates of debt collectors? Is there liability for communication of consumer information to a process server? Additionally, many state debt collection statutes are modeled after the FDCPA and give weight to decisions interpreting provisions of the FDCPA. Debt collectors could potentially face additional liability under these state statutes as a result of the interpretation given by the Eleventh Circuit in Hunstein.
An additional consideration with these state statutes is the potential new liability of first-party debt collectors. While the FDCPA generally only regulates third-party debt collectors, some state statutes do not make that distinction. For instance, the Florida Consumer Collection Practices Act (FCCPA) applies to any party that is attempting to collect a debt; there is no distinction between first-party and third-party collectors. The FCCPA also has prohibitions regarding the disclosure of a consumer’s information to third parties. It is possible that state courts will begin to interpret their debt collection statutes in accordance with this opinion and potentially find first-party collectors liable for disclosing consumer information to third-party vendors.
At the end of the opinion, the Court recognized the can of worms it was opening “It’s not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, but also with other third-party entities. Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost. We recognize, as well, that those costs may not purchase much in the way of “real” consumer privacy, as we doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them. Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable. Needless to say, if Congress thinks that we’ve misread § 1692c(b)—or even that we’ve properly read it but that it should be amended—it can say so.”
Any debt collector that communicates consumer information to third parties should evaluate its business practices in light of this decision.