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Dealing with Landslide of Litigation After 11th Cir. Rules FDCPA Restricts 3rd Party Communication with Vendor

  • Written by Steel Rose

"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.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," states Stefanie Jackman and Glen Trudel with with Ballard Spahr, LLP.

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."

According to a post by Bradley Arant Boult Cummings LLP, "the ramifications of the court’s decision could be huge. While conventional independent debt collection firms are governed by the FDCPA, so, too, are loan servicers when they acquire servicing rights to debts already in default. Those debt collectors and loan servicers use a wide array of third parties to assist them with various collection and servicing activities, including mailing vendors, data-hosting services, insurance providers, and property appraisers. Communications with those third parties about anything even touching on a consumer’s debt may now be an FDCPA violation under the Eleventh Circuit’s reasoning.

Jackman and Trudel explain further on the Consumer Finance Monitor:

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. To read more click here