Eleventh Circuit upsets an industry standard for debt collectors and their salespeople | Alston & Bird

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Our Financial Services Litigation and Financial Services and Products groups examine the trials and tribulations facing the debt collection industry as a result of two Eleventh Circuit decisions on what “communication” really means under Fair Debt Collections Practices Act.

  • The first one Hunstein decision reinterpreted section 1692 (c) to everyone’s satisfaction
  • Does sharing data with a third-party provider count as “in connection with debt collection”?
  • Where is Hunstein II leave things?

Observers for creditors ‘and debt collectors‘ courts were disappointed late last month when the Eleventh Circuit finally took action on pending motions for a new hearing and for a new bench hearing in Hunstein v. Preferred Collection and Management Services Inc. The tribunal, unfortunately, applied a different reasoning to maintain its original ruling that plaintiff Hunstein in fact suffered Article III prejudice and left in place his entire unfounded and arguably unconstitutional interpretation of the Fair Debt Collections Practices Act (FDCPA). If the court had found that Hunstein lacked standing, his prior opinion would have been quashed for lack of jurisdiction, and the debt collectors would not have had to face an appeals court decision. that a standard industry practice violates the law. In view of last month’s decision, debt collection defendants may face challenges. Hunstein held substantial for a while.

Take this from the top. On April 21, 2021, a panel of three judges from the Eleventh Circuit upset the activity of consumer debt collection with its decision in Hunstein v. Preferred Collection and Management Services Inc. 994 F.3d 1341 (11th Cir. 2021) (Hunstein I). Hunstein I held that the quite mundane (and industry-standard) practice of a debt collector of sending data to a third-party vendor to print and send debt collection letters violated section 1692c ( b) of the FDCPA. This article provides, subject to exceptions not relevant here, that “a collection agent may not communicate, in the course of the collection of a debt”, with a person other than the debtor. In Florida’s Middle District court, Preferred conceded that its transfer of data to the print provider was a “communication” under the FDCPA, but argued that the transfer was not made “in the framework for debt recovery ”. The district court accepted Preferred’s argument and dismissed the case. Hunstein appealed.

The panel requested additional information from the parties on whether the complaint alleged injury under Article III sufficient to create ratione materiae jurisdiction in federal courts. Much of the Hunstein I the ruling focused on the issue of Article III, which, while interesting, bears no relation to the issue of greater interest to debt collectors: does the FDCPA really prohibit the use of print providers? What about other vendors, like process servers? Hunstein I concluded that, since the disclosure of information about Hunstein’s medical debt was akin to the public disclosure of private facts liable to prosecution at common law, a violation of the FDCPA disclosure ban was sufficient to create the standing to act under Article III. The panel therefore had substantive jurisdiction to examine the interpretation of Section 1692c (b).

This is where, from a debt collector‘s perspective, things went off the rails. Accepting the parties’ stipulation that the transfer of data to the print supplier was a “communication”, the panel rejected Preferred’s arguments that a covered “communication” must contain a demand for payment and that the court should follow the procedure. sixth circuit decision in Goodson v. Bank of America NA., 600 F. App’x 422 (6th Cir. 2015), and adopt a multi-factor balancing test to determine if the communication was “related to the collection of a debt”. Finally, noting that “[i]We are aware that our interpretation of § 1692 (c) risks upsetting the status quo in the debt collection industry, ”the panel rejected Preferred’s“ industry practice ”argument, suggesting that industry returns to Congress for redress.

Unsurprisingly, the Hunstein I This decision led to hundreds of new lawsuits – some of which were class actions – against the debt collectors. Preferred filed a motion for a new hearing and a new bench hearing. In early June 2021, seventeen potential Amici requested permission to file briefs in support of Preferred’s position. Those who submitted amicus briefs included state and national creditors’ bars, major banking professional associations, debt collectors, a consortium of print and mail providers, phone and cloud providers, and a professional association of processing servers. Collectively, the main arguments of the briefs were (1) Hunstein I the standing analysis was wrong; (2) the court should not have accepted the parties’ stipulation that the data transfer from Preferred was a “communication” because it was not; (3) the FDCPA restrictions on the content of debt collection telegrams make it clear that communications via a third party medium (eg, the telegraph company or the print provider) do not violate the FDCPA; (4) if the interpretation were maintained, it would deeply disrupt the recovery of debts because collectors necessarily have recourse to numerous sellers; and (5) the court’s interpretation of Section 1692 (c) is a restriction on commercial speech that does not survive First Amendment consideration under the Supreme Court ruling in Central Hudson Gas & Electric Corp. vs. New York Public Service Commission, 447 US 557, 561 (1980). The court granted the amici leave to file their briefs in mid-June, and on June 14, an Eleventh Circuit judge refused the warrant in the case. On June 25, 2021, the Supreme Court issued its decision in TransUnion LLC v. Ramirez, discussing Section III for Fair Credit Reporting Act violation claims. Amici quickly filed an additional clearance with the Eleventh Circuit. Forensic observers then waited for a court request for Hunstein to file objections to the petitions. For over four months he did not come.

Instead, on October 28, 2021, the original Hunstein panel withdrew its panel opinion of April 21, 2021 and issued a new opinion. Hunstein v. Preferred Collection and Management Services Inc., n ° 19-14434 (11th Cir. 2021) (Hunstein II). Hunstein II differs from Hunstein I only in his analysis of the standing of Article III – he now deals with TransUnion, and argues (on vigorous dissent) that Hunstein’s complaint alleges prejudice under Article III. “Vigorous” doesn’t quite do justice to the tenor of the dissent between Majority and Dissent – the new opinion features an epic exchange of nasty footnotes. The part of Hunstein II the opinion dealing with the interpretation of Article 1692 (c) is almost word for word identical to the discussion in Hunstein I.

Where does that leave things? We still have a published decision of a federal appeals court that comes to a questionable conclusion on statutory interpretation and does not face a number of issues (identified by the amici) with that interpretation. Outside the eleventh circuit, litigants can argue that Hunstein II is wrong on the FDCPA and is not convincing. It is conceivable that over time a contrary authority will develop. In circuit courts, however, litigants will have to directly challenge Hunstein II, as on the question of “communication” or under the First Amendment, or distinguish it on the grounds that the information in Hunstein was particularly sensitive. Is there any hope for further action from the Eleventh Circuit? May be. Preferred has signaled it will request a new bench hearing, getting an extension until Dec. 3 to file a motion. While the Eleventh Circuit has only recently received four bench requests per year, the panel’s split bitterness over position and national interest in the case could spark off bench interest. Yes the bench examination is granted and if the tribunal en banc concludes that Hunstein did not allege prejudice under Article III, the crisis ends: in the absence of jurisdiction ratione materiae, the Eleventh Circuit is powerless to interpret the FDCPA in this particular case, and both Hunstein opinions lose their precedent value. It won’t happen quickly, however. It would probably take at least a year to complete the bench proceedings, even if the review were granted.

In the meantime, expect more lawsuits against debt collectors for harmless, industry-standard practices.

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