Circuit Court: Use Of Third-Party Mailing Vendors By Debt Collectors And Creditors Violates Federal Law

Fox Rothschild LLP

Fox Rothschild LLP

In a decision sending shockwaves through the debt-collection and mailing industries, the U.S. Court of Appeals for the 11th Circuit ruled last week that a debt collection company violated the Fair Debt Collection Practices Act (FDCPA) by disclosing a consumer’s debt-related information to a mailing vendor. Though currently binding only in the 11th Circuit, consumer-plaintiffs’ lawyers are wasting no time importing the court’s holding in other jurisdictions. Both debt collectors and mailing vendors should familiarize themselves with this opinion and determine what options, if any, are available to minimize litigation risks.

The Consumer’s Challenge

A debt collector that had been assigned a consumer’s hospital debt electronically transmitted certain data to its third-party mailing vendor to generate and mail a collection letter (also known as a “dunning letter”). The data included the consumer’s name, his outstanding balance, the fact that his debt resulted from his son’s medical treatment and his son’s name. The consumer filed suit against the debt collector in the U.S. District Court for the Middle District of Florida, alleging that it had violated 15 U.S.C. § 1692c(b) of the FDCPA which provides:

Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector. (emphasis added).

The district court dismissed the claim, reasoning that the “communication” at issue was not of the type anticipated by section 1692c(b) — specifically communications made “in connection with the collection of [a] debt.” The plaintiff appealed.

The Appellate Decision

On April 21, 2021, the 11th Circuit Court of Appeals reversed the district court’s decision. The Court of Appeals held that the transmission of a consumer’s name, address, outstanding balance and certain details of the debt — even if it is solely for the purpose of mailing a dunning letter — constitutes a violation of § 1692c(b) of the FDCPA. See Hunstein v. Preferred Collection and Management Services, Inc. Indeed, the violation existed even though there was no evidence any human at the mailing vendor ever saw the information.

Though the defendant will likely challenge the Court of Appeals decision by application for en banc review, it creates a new claim for consumer class action attorneys to attack creditors and debt collectors. Even if plaintiff consumers are unable to prove actual damages from the mere fact a mailing vendor received debt-related information, courts like the 11th Circuit may nevertheless find the plaintiffs have standing to make a claim.

Upshot of the Decision

While the Hunstein decision is not technically binding on jurisdictions outside the 11th Circuit Court of Appeals, lower courts in other jurisdictions are already being invited by class action lawyers to adopt Hunstein. The day after Hunstein was decided, the first class action lawsuit to adopt this approach was filed in the U.S. District Court for the Eastern District of New York. Similar to Hunstein, the New York class plaintiff alleges the defendant debt collector unlawfully conveyed certain debt-related information to its third-party mailing vendor in connection with an outstanding $50.00 medical bill. The mere prospect of new class actions based on the Hunstein case should encourage creditors, debt collectors and their attorneys in all jurisdictions to reexamine any business model that utilizes third-party mailing vendors. Workarounds may exist to reduce these risks.

Fox Rothschild continues to monitor these developments.

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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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