Debt Collectors and Loan Servicers’ Clear Message from Eleventh Circuit’s Hunstein Decision – Use of Third-Party Vendor Could Violate FDCPA

In a unanimous decision with potentially far-reaching implications for the loan servicing and debt collection industries, the United States Court of Appeals for the Eleventh Circuit held that a debt collector who shared debt-related personal information with a third-party vendor for collection letter printing and mailing violated the Fair Debt Collection Practices Act (“FDCPA”).¹ The Eleventh Circuit interpreted a communication “in connection with the collection of any debt” broadly to include anything concerning, referencing or in a relationship or association to the collection of debt—not only communications made in demand for payment.

In Hunstein, a debt collector transmitted information concerning a consumer's debt, including the debtor's name, outstanding balance and source of debt, to its third-party vendor to create and mail a dunning letter to the consumer. The consumer sued the collector, alleging that by providing his personal information to the vendor, the collector violated the FDCPA's prohibition against unauthorized communication of consumers' personal information to third parties in connection with the collection of any debt. The district court dismissed the plaintiff's action, holding that the plaintiff did not sufficiently allege that the debt collector's transmittal to its vendor qualified as communication in connection with the collection of debt. On appeal, the Eleventh Circuit rejected the district court’s interpretation that a communication under the FDCPA required a demand for payment. The Eleventh Circuit appears to be the first court to expand the FDCPA’s reach to communications between the debt collector and its vendor.²

The Hunstein Reasoning

The FDCPA prohibits a debt collector from communicating (without the consumer’s prior consent) “in connection with the collection of a debt” with any person other than the consumer, the consumer’s lawyer, a consumer reporting agency, the creditor, the creditor’s lawyer or the debt collector’s lawyer in the process of collecting a debt.³ The Eleventh Circuit rejected the district court’s reasoning and the defendant debt collector’s interpretation that the FDCPA’s communication prohibition regarding unauthorized communication with third parties is limited to communications making a demand for payment. It reasoned that communications with four of the six excepted parties (a consumer reporting agency, the creditor, the creditor's lawyer and the debt collector's lawyer) would never include a demand for payment, and thus factoring in a demand for payment would render the exceptions superfluous. The Eleventh Circuit also rejected the defendant’s argument that the court should use a multi-factor balancing test from an unpublished Sixth Circuit opinion in determining whether a communication was made in connection with the collection of debt. It indicated that the Sixth Circuit case concerned the FDCPA’s prohibition against false or misleading representations,⁴ which can be distinguished from the prohibition against unauthorized communications.

The Eleventh Circuit acknowledged that its ruling has the potential to substantially expand the scope of the FDCPA given that the debt collection industry commonly relies on mail and other vendors but discounted that concern, noting that the fact that Hunstein may be the first case in which a debtor brings suit against a debt collector for disclosure of personal information to a mail vendor “hardly proves that such disclosures are lawful.”⁵

Industry Implications

As the court contemplated, this decision has widespread implications across the debt collection landscape.⁶ Debt collectors commonly transmit consumer personal information in their third-party vendor relationships. For example, a debt collector may outsource bankruptcy, Telephone Consumer Protection Act and Servicemember Civil Relief Act scrubs to a vendor, contract with a third party for administrative printing services or engage with a software provider to store consumer information.

While the Eleventh Circuit recognized that its interpretation risks “upsetting the status quo in the debt-collection industry,” it determined that it is Congress’ role to amend or clarify the FDCPA in light of the consequences.⁷ We will continue to monitor any developments addressing the issue as well as Hunstein to see if rehearing is sought or the decision is appealed.