BREAKING: 11th Circuit Holds Transmitting Data to Mail Vendor is Unauthorized Third-Party Disclosure

Last month, insideARM reported that in the case of Hunstein v. Preferred Collection & Mgmt. Servs., No. 8:19-cv-983 (M.D. Fla. Oct. 29, 2019), the 11^th Circuit Court of Appeals heard oral arguments regarding whether the practice of using a mail house to send demand letters to consumers violated the Fair Debt Collection Practices Act (FDCPA). Today, the Court has given us their answer, holding that transmitting data to a mail house to generate and send demand letters to consumers does indeed violate the prohibition on third-party disclosure set forth in 15 USCA § 1692c(b). 

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The Background:

In Hunstein, the consumer argued that sending a data file with consumer information to a mail house to prepare and mail a collection letter is an action “in connection with” the collection of a debt, and thus an unauthorized third-party disclosure in violation of 15 USCA §1692c(b). The District Court disagreed and dismissed the case with prejudice.

The consumer appealed to the 11^th Circuit, and on March 10, 2021, the 11^th Circuit heard oral arguments.   The debt collector, Preferred Collection and Management Services, Inc. (Preferred), argued primarily that because the transmittal did not include a demand for payment, the transmission merely “related to” the collection of a debt and was not an unauthorized third-party disclosure. In support of this position, Preferred cited several cases stating that the Court should adopt a factor-based analysis to determine whether the transmission was “in connection with” or merely “related to” the collection of a debt.

Today’s ruling from the 11^th Circuit:

In reaching its holding, the Court focused on the plain meaning of the word “connection” and then on the statutory language. Regarding the word “connection” the Court noted that the dictionary definition of “connection” means “relationship or association” and “in connection with” is a “vague, loose connective” and means “with reference to [or] concerning.” the Court reasoned, “It seems to us inescapable that Preferred’s communication to Compumail at least ‘concerned’ was ‘with reference to’ and bore a ‘relationship or association’ to its collection of Hunstein’s debt,” and held that the transmission of data was, therefore “in connection with the collection of a debt” as the phrase is commonly understood,

Next, the Court turned to the language of 15 USCA §1692c(b), which states “a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.”   In rejecting Preferred’s argument regarding the application of a demand for payment factor, the Court reasoned that under such an interpretation, “Communication 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 in original). Therefore, the Court found that “the phrase ‘in connection with the collection of any debt’ in §1692c(b) must mean something more than a mere demand for payment.  Otherwise, Congress’s enumerated exceptions would be redundant.”

Further, the Court distinguished each of the cases cited by Preferred in support of its factor-based analysis since the statute at issue in each of those cases was 15 USCA § 1692e, and not 15 USCA §1692c(b).   The Court noted that since §1692e operates differently than §1692c(b), the District Court should not have relied on the cases cited by Preferred when it dismissed the Hunstein matter with prejudice in 2019.

The Court recognized that its ruling might have widespread implications across the debt collection landscape. However, it did not allow that possibility to sway its opinion, stating,

“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. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, 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. We recognize, as well, that those costs may not purchase much in the way of 'real' consumer privacy, as we doubt that the Compumails of the world routinely read, care about, or abuse the information that debt collectors transmit to them. 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.”

Finally, the Court found that the consumer had standing to bring the action because a violation of 1692c(b) gives rise to a concrete injury in fact under Article III.  The dismissal entered in October 2019 has been reversed, and the case has been remanded to the district court for further proceedings.

The full opinion can be found here.

insideARM Perspective:

What does this opinion mean? Should everyone panic?  No.  The opinion just came out today; in the coming days, there will be many brilliant legal minds focused on what comes next and whether there is any way to obtain some relief from this opinion. That said, accounts receivable entities are cautioned to read this opinion in its entirety and consult with legal counsel regarding their next steps.