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Compliance Conundrum: 11th Cir. Holds Disclosing Consumer Information to Third Party Letter Vendors Violates FDCPA

 

fdcpaOn April 21, the U.S. Court of Appeals for the Eleventh Circuit issued a decision holding that the transmittal of consumer information to a letter vendor constitutes a communication with an unauthorized third party in connection with the collection of a debt in violation of 15 U.S.C. § 1692c(b). The court’s decision in Hunstein v. Preferred Collection and Management Services, Inc. is available here.

The facts are relatively straight-forward. The collector electronically transmitted information about the consumer and his debt to its letter vendor, which then used that information to create and send a letter to the consumer.

Standing to Bring the 1692c(b) Claim

Before addressing the merits of the consumer’s claim, the court determined whether the consumer had standing to pursue that claim. The court noted that the consumer could not establish standing based upon a tangible harm, as he failed to allege one. The consumer was also unable to establish standing based on an impending risk of significant harm. Therefore, the court looked to whether the consumer was able to identify a statutory violation that gave rise to an intangible, yet still concrete, injury.

When determining whether a statuary violation confers Article III standing, courts consider history and the judgment of Congress. After reviewing the history of American and English common law, the court found that the alleged injury was sufficiently analogous to the tort of invasion of privacy. The court also found that the judgment of Congress supported standing because “invasions of individual privacy” were among the harms that Congress explicitly targeted in enacting the FDCPA. 

You might recall that the Eleventh Circuit recently addressed whether a consumer had standing to assert claims under § 1692e and § 1692f regarding the absence of a statute-of-limitations revival warning in a collection letter. Trichell v. Midland Credit Mgmt., Inc., 964 F.3d 990 (11th Cir. 2020). The court in Trichell held that the consumer did not have standing to pursue those claims because, among other things, he was not actually misled by the letter.

The court distinguished its decision in Trichell by explaining that the § 1692e claim asserted in that case bore an insufficiently close relationship to the most analogous common-law tort (fraudulent or negligent misrepresentation). Also, there is no evidence that Congress intended to address, as the court put it in Trichell, “misleading communication[s] that fail to mislead.” However, Congress specifically identified invasions of privacy as one of the harms against which the FDCPA was directed. Accordingly, the court held that the consumer had standing to pursue his § 1692c(b) claim.

Providing Information to a Letter Vendor States a Claim Under 1692c(b)

Moving to the merits of the consumer’s claim, the court noted that the collector did not dispute that its transmittal of information to the letter vendor was a “communication” as that term is defined at 15 U.S.C. § 1692a(2). This concession meant that the court only needed to decide whether that communication was made “in connection with the collection of any debt” in violation of 15 U.S.C. § 1692c(b). The court first determined that the phrase “in connection with” and the word “connection” are both broadly defined and require only a relationship or association. From there, the court arrived at the “inescapable” conclusion that the collector’s transmittal of data (including consumer name, creditor name, and account balance) to the letter vendor was related to or associated with the consumer’s debt and, therefore, was “in connection with the collection” of that debt.

The collector asserted three arguments in support of its position that the transmittal to its letter vendor was not “in connection with the collection of any debt.” The court rejected all three. The collector first argued, citing prior Eleventh Circuit decisions, that a communication is not in connection with the collection of a debt unless it includes a demand for payment. The court rejected this argument and explained that its prior cases implying such a requirement addressed alleged violations of § 1692e, not § 1692c(b). The court also noted that § 1692c(b) contains exceptions for communications with certain third parties, such as credit reporting agencies, to which no demand for payment would be directed. Those exceptions would be redundant if a communication had to include a demand for payment to be “in connection with the collection of any debt” under § 1692c(b).

The collector next argued that the Eleventh Circuit should apply a multi-factor balancing test used by the Sixth Circuit in evaluating whether a communication was “in connection with the collection of any debt” under § 1692e. The court again noted the linguistic and operational differences between § 1692e and § 1692c(b) in rejecting this argument.

Compliance Conundrum

At the risk of oversimplifying the third argument, the collector essentially argued that numerous debt collectors use letter vendors yet there were no court decisions holding that the use of letter vendors violates the FDCPA. In rejecting this argument, the court observed that this case might be the first to decide whether a collector violates § 1692c(b) by transmitting information to a letter vendor.

The court understood that its interpretation of § 1692c(b) “runs the risk of upsetting the status quo in the debt-collection industry,” that it could be extended beyond the use of letter vendors, and that it “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.” However, the court believed that the plain language of the statute compelled its holding.

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Brent Yarborough practices in Maurice Wutscher's Birmingham office in its Appellate, Commercial Litigation, Consumer Credit Litigation and Regulatory Compliance groups. He has substantial experience representing financial institutions, debt buyers and law firms. He has defended cases involving the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Truth In Lending Act, and various state law claims asserted against lenders and their assignees. He has also provided compliance advice on matters related to the FDCPA, UDAAP, and state debt collection laws. He is a frequent speaker to national audiences and publishes on topics related to consumer financial services regulation and litigation. For many years Yarborough has served on the Executive Board of the Birmingham Bar Association’s Bankruptcy and Commercial Law Section. He also serves on the Legislative Task Force of the Creditor Attorney Association of Alabama and is the immediate past president of the Birmingham-Southern College National Alumni Association. In October 2015, he was elected Secretary of NARCA – The National Creditors Bar Association, after serving on its Board of Directors for the previous eight years. In addition, he chairs NARCA’s Government and Regulatory Affairs Committee. Yarborough earned his B.A., cum laude, from Birmingham-Southern College and his J.D. from Cornell University, where he was Secretary/Treasurer of the Cornell Law School Moot Court Board. For more information, see https://mauricewutscher.com/attorneys/brent-yarborough/

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