Why an Opinion from the Eleventh Circuit is Keeping Creditors Up at Night

A recent federal appeals decision is sending shockwaves throughout the financial services sector. In Hunstein v. Preferred Collection & Mgmt. Services, Inc., the Court of Appeals for the Eleventh Circuit held that, under the federal Fair Debt Collection Practices Act (FDCPA), businesses and individuals operating as “debt collectors” are prohibited from communicating debtor information to third-party service providers and vendors (such as mail processors) hired to send dunning correspondence or other communications “in connection with the collection of any debt.”

In Hunstein, “[a] debt collector electronically transmitted data concerning a consumer’s debt—including his name, his outstanding balance, the fact that his debt resulted from his son’s medical treatment, and his son’s name—to a third-party vendor. The third-party vendor then used the data to create, print, and mail a [collection] letter to the consumer. The consumer filed suit alleging that, in sending his personal information to the vendor, the debt collector had violated 15 U.S.C. § 1692c(b), which, with certain exceptions, prohibits debt collectors from communicating consumers’ personal information to third parties ‘in connection with the collection of any debt.’”

The Eleventh Circuit held that, under the FDCPA’s plain meaning, the debt collector’s communication of the debtor’s information to the mail vendor was clearly done “in connection with the collection of [the] debt,” and, therefore, violated the law. The court was candid about the prospective impacts of its decision:

It’s not lost on us that our interpretation…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 [mail] vendors…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.

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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.

You may be wondering, “Why should I care about an unfavorable opinion from the Eleventh Circuit if I do business only in the Mid-Atlantic?” Fair point. Eleventh Circuit precedent is binding only on federal courts located in Alabama, Florida and Georgia. However, the legal issue considered is one of first impression, meaning no other courts have directly addressed it. A well-reasoned, on-point opinion by a federal appeals court provides significant persuasive authority; another court addressing the same issue and reaching a different conclusion, even in another circuit or in the state court system, will need to explain why the reasoning from the Hunstein opinion should not be followed. Notably, the court also published its opinion, making it properly citable under most local rules.

The Eleventh Circuit’s decision in Hunstein not only impacts “debt collectors” as defined by the FDCPA, but also could have broader ramifications on creditors in jurisdictions like Maryland, where state law expands the definition of “debt collector” to include anyone collecting a consumer debt, and makes a violation of the FDCPA a violation of the state’s debt collection law. In other words, with the issuance of the Hunstein opinion, there is now a significant argument that a creditor collecting its own debt from a Maryland consumer may be prohibited from providing the consumer’s information to a mail services vendor to prepare and send a routine letter in connection with the collection of that debt.

One issue that the Eleventh Circuit did not address was whether transmitting consumer debtor information to a vendor would still be considered “communication to a third party” if the vendor is the debt collector’s legal agent. This open question will likely spur further litigation in the future, but, until such time as there is greater clarity on the issue, all businesses—debt collectors and creditors—that collect consumer debt should immediately review their collections practices in light of the noteworthy potential expansion of FDCPA and state debt collection law liability represented by the Hunstein opinion.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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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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