“A may not share information about B with C.” In response to this simple yet dramatic holding at the heart of an Eleventh Circuit case of first impression regarding the Fair Debt Collections Practices Act (FDCPA), appellant Preferred Collection & Management Services, Inc. (Preferred) petitioned for rehearing and en banc review yesterday. Interested parties have seven days to submit supporting amicus briefs urging reconsideration of the panel’s decision, which has already opened the floodgates of litigation against consumer debt collectors around the country over the well known and long accepted practice of outsourcing the preparation and mailing of collection letters.
Preferred Engages in a Routine Practice
The background of the underlying complaint is entirely unremarkable. Hunstein owed a medical debt in connection with the treatment of his minor son, which was assigned to Preferred to collect. As part of its process, Preferred transmitted certain personal information about Hunstein, including the name of his son, to Compumail, a commercial mail service, which then used that information to generate and mail a collection letter.
In response, Hunstein sued Preferred alleging, among other things, a violation of § 1692c(b) of the FDCPA. That section, with certain exceptions, prohibits debt collectors like Preferred from communicating consumers’ personal information to third parties “in connection with the collection of any debt.” The district court dismissed Hunstein’s complaint, holding that Preferred’s communication with Compumail was not an attempt to collect a debt.
The Eleventh Circuit Reverses
An Eleventh Circuit panel reversed, making two significant holdings: First, a violation of the procedural rights granted by the FDCPA constituted an injury-in-fact for purposes of Article III standing. In doing so, the panel analogized Hunstein’s alleged harm to a common law tort founded on invasion of privacy, and concluded that an invasion of privacy was one of the harms the FDCPA protected against.
Second, the phrase “in connection with the collection of any debt” did not have to entail a demand for payment. Any other reading of § 1692c(b), the panel held, would render portions of the section superfluous and would improperly rely on an interpretation of other sections of the FDCPA, not § 1692c(b)’s plain language.
The panel specifically noted that “the parties agree that Preferred’s transmittal of Hunstein’s personal information to Compumail constitutes a ‘communication’ within the meaning of the statute,” defined in the FDCPA as “the conveying of information regarding a debt directly or indirectly to any person through any medium.” Thus, Preferred did not argue that the transmission of information to its own agent was not a “communication.”
The panel recognized the potential upset its decision would cause: “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,” a status quo recognized by the Consumer Financial Protection Bureau’s (CFPB’s) forthcoming amendments to the regulations implementing the FDCPA.
The Rehearing Petition
In petitioning for rehearing, Preferred argued that the panel erred in holding that Hunstein suffered an injury in fact because he was not personally harmed by any FDCPA violation. Hunstein did not allege any real injury befell him as a result of Preferred’s “ministerial, electronic transmission of information to its own agent for the singular purpose of facilizing the mailing of a letter from Preferred to Plaintiff,” Preferred argues.
Relying on a Colorado Supreme Court case and the CFPB’s forthcoming regulation amendments, Preferred also argued that electronic transmissions of minimal information to a letter vendor is not within the scope of harms Congress identified as abusive debt collection practice.
In Flood v. Mercantile Adjustment Bureau, the Colorado Supreme Court sanctioned a creditor’s use of an automated mailing service under the equivalent Colorado statute. There, the Court concluded that the use of an automated mailing service—like Compumail—was a “de minimis communication with a third party that cannot reasonably be perceived as a threat to the consumer’s privacy or reputation.”
While the granting of en banc review is exceptionally rare, industry groups appear lined up to file amicus briefs in support of the petition as the best avenue for relief from the impact of this decision, as the chances of the Supreme Court granting review of it would, statistically speaking, be very unlikely.
In the meantime, consumer debt collectors (including loan servicers who may be considered debt collectors under the FDCPA when they take assignment of loans already in default) may want to consider options to mitigate their FDCPA exposure, which may include bringing mailing operations back in-house, limiting what information is shared with vendors, and securing information-sharing consents from customers.