11th Cir. rules FDCPA restriction on third-party communications applies to debt collector’s transmittal of debtor’s personal information to vendor that generated and sent collection letters

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In a very troubling decision of first impression, a unanimous panel of the U.S. Court of Appeals for the Eleventh Circuit has ruled that a debt collector’s transmittal of the plaintiff’s personal information to the vendor it used to generate and send collection letters “constituted a communication ‘in connection with the collection of any debt’ within the meaning of [FDCPA Section 1692c(b)]”.  That provision generally prohibits a debt collector from communicating with anyone other than the debtor and certain specified third-parties “in connection with the collection of any debt” without the debtor’s consent, court permission, or to effectuate a postjudgment judicial remedy.

In Hunstein v. Preferred Collection and Management Services, Inc., the debt collector transmitted certain information about the plaintiff, including his status as a debtor, the amount of the debt, and the entity to whom the debt was owed, to a vendor that used the information to generate and send a collection letter to the plaintiff.  The plaintiff filed a complaint alleging violations of the FDCPA and Florida law.  The district court dismissed the complaint for failing to state a claim, concluding that the plaintiff had not sufficiently alleged that the debt collector’s transmittal of information to the vendor violated Section 1692c(b) of the FDCPA because the transmittal did not qualify as a “communication in connection with the collection of any debt.”  (The district court did not accept supplemental jurisdiction of the state law claim.)

The plaintiff appealed to the Eleventh Circuit.  After concluding that the plaintiff had Article III standing, the Eleventh Circuit rejected the district court’s conclusion that the phrase “in connection with the collection of any debt” necessarily involves a demand for payment.  According to the Eleventh Circuit, such an interpretation would make redundant the exceptions in Section 1692c(b) of the FDCPA that allow a debt collector to communicate, in connection with the collection of any debt, with “the debtor’s attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.”  The Eleventh Circuit commented that “communications with four of the six excepted parties—a consumer reporting agency, the creditor, the attorney of the creditor, and the attorney of the debt collector—would never include a demand for payment.” (emphasis supplied).  With regard to Section 1692b(c)’s exception for communications with persons other than the debtor for the purpose of acquiring location information, the Eleventh Circuit commented that “a debt collector would presumably never make a demand for payment of a party matching that description.”

In addition, the Eleventh Circuit found that the district court essentially interpreted “in connection with the collection of any debt” to mean “to collect any debt.”  In the Eleventh Circuit’s view, the district court’s interpretation resulted in the phrase “in connection with” having no independent meaning.  The Eleventh Circuit also commented that the district court had been “led astray by its reliance on decisions interpreting Section 1692e,” which prohibits the use of false, deceptive or misleading representations “in connection with the collection of any debt.”  It observed that Section 1692c(b) targets a debt collector’s communications with third parties rather than with debtors and the typical section 1692c(b) case involves a communication with someone other than the debtor.  According to the Eleventh Circuit, because of this “practical operational difference” between Sections 1692e and 1692c(b), the phrase “in connection with the collection of any debt” does not necessarily need to have the same meaning in both sections.

The Eleventh Circuit also rejected what it termed the debt collector’s “industry practice” argument that there is widespread use of mail vendors by debt collectors and a dearth of FDCPA cases against them.  It commented that none of the cases cited by the debt collector involved Section 1692c(b) claims, the courts in those cases had no obligation to sua sponte determine whether there was a Section 1692c(b) violation, and the fact that this case “is (or may be) the first case in which a debtor has sued a debt collector for disclosing his personal information to a mail vendor hardly proves such disclosures are lawful.”

Having found that the plaintiff had stated a claim for a violation of Section 1692c(b), the Eleventh Circuit reversed the district court and remanded the case.  Anticipating the reaction its decision may engender, the Court concluded its opinion with the observation:

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 [the defendant’s vendor], 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 [letter vendors] 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.

In digesting this opinion, our initial reaction is that this decision has potentially far greater consequences.  First, there is no reason to believe it will be limited to letter vendors.  Rather, providing information that discloses a consumer owes a debt to any service provider – email and text communication providers, bankruptcy/SCRA/probate/other scrub providers, collection account scoring vendors – runs the risk of resulting in the collector having unlawfully disclosed the debt under this decision.  At a minimum, collectors should assess if there is a way to avoid providing information to such vendors, or to do so in an anonymized way or a way that does not link the fact of the debt to a specific consumer.  Under Zortman, omitting the name from the rest of the debt information may provide an option.  However, in some instances, this is likely to be unavoidable.

Additionally, a number of states prohibit unauthorized debt disclosures by creditors and their first-party service providers who are not subject to the FDCPA, such as the California Rosenthal Act.  Some of these state statutes and regulations wholesale incorporate the FDCPA itself, including Section 1692c(b).  Therefore, this decision may well affect how such statutes are interpreted going forward.

We believe this decision stands to reverberate throughout the receivables industry and is likely to result in a veritable landslide of litigation under the FDCPA and state analogues.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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