October 28, 2022 – An 11th case from the United States Circuit Court of Appeals has left the debt collection world on pins and needles for a year wondering if a departmental part of their business practice was suddenly a violation of the Fair Debt Collection Practices Act (FDCPA). For years, it was common to share consumer debt information with third-party mail providers to send collection letters, but one decision has thrown it all into chaos.
Through a series of calls, the end result of the Hunsteinv.PreferredCollection action has been reached and the hand twist is over, for now. But the extent of its impact is still unknown. A look at the long and winding road to resolution in favor of debt collectors underscores how precarious the current state of the law is and the ability for plaintiffs to bring claims that would avoid its reach.
Those involved in collection activities should consider potential legal exposure.
Background to the case
Plaintiff Richard Hunstein’s hospital medical debt was assigned to a debt collection agency, Preferred Collection and Management Services, who then hired a commercial mail provider to notify Hunstein of his debt obligation. As part of the debt, the collection agency provided the seller with Hunstein’s name, his son’s name, the amount of the debt, and the fact that the debt was incurred due to his son’s medical treatment.
In 2019, Hunstein pursued this disclosure of his debt in violation of the FDCPA. The crux of the action was whether certain data shared between debt collectors and their third-party vendors constituted an actionable violation of law.
The district court granted the defendant’s motion to dismiss, but a series of appeals ensued, causing concern in the debt collection world over the past year.
The threshold issue in Hunstein was whether the alleged violation of the FDCPA resulted in such material harm that the plaintiff had an action in federal court (a court vested with authority under Article III of the United States Constitution).
First, the mere allegation of a violation of federal law is not sufficient to grant the right to sue in federal court. As the Supreme Court held in TransUnionLLC v. Ramirez in 2021, to have standing in federal court under Article IIIa, concrete harm is required, even in the context of a violation of law. The Supreme Court held that “a plaintiff must demonstrate (i) that he suffered actual, specific, and real or imminent factual harm; (ii) that the harm was probably caused by the defendant; and (iii) that the harm would likely be remedied by judicial redress.”
Courts will assess intangible harms, of the type alleged in Hunstein, by considering whether they bear “a close relationship” to harms traditionally recognized as actionable by US courts, as guided by the Supreme Court in Spokeo, Inc. v. Robins in 2016. Courts usually look for analogous related damages.
In Hunstein v. PreferredCollectionandManagementServices (“HunsteinI”) on appeal, in August 2021, the 11th Circuit panel vacated, finding that there was in fact concrete harm to confer Article III standing. The court ruled that the transmission of consumer debt information to the seller was “communication” “in connection with the collection of any debt” and therefore prohibited under the FDCPA.
The HunsteinI panel drew an analogy between Richard Hunstein’s alleged immaterial harm and prosecutable offenses such as invasion of privacy and public disclosure of private facts. In the court’s view, Congress had intended the FDCPA to similarly protect against invasions of individual privacy. Therefore, Hunstein had standing to sue for this related harm.
Later in 2021, the 11th Circuit panel reversed and replaced its opinion (“HunsteinII”) in light of the Supreme Court’s decision in TransUnion v. Ramirez, where the Supreme Court had directly addressed standing issues , intangible damage and concrete damage.
In TransUnion, plaintiffs sued under the Fair Credit Reporting Act for TransUnion’s failure to maintain the accuracy of their credit reports. There, the issue of class members’ standing was whether their “misleading credit reports” had been provided “to third-party companies.” If so, that would establish concrete harm closely related to the common law tort of defamation, and thus concrete harm sufficient to justify standing under Article III.
By contrast, class members whose credit reports were not provided to third parties would not have standing.
In a footnote, the Supreme Court in TransUnion directly addressed plaintiffs’ argument that TransUnion’s transmission of customer credit information to a vendor that printed and sent direct mail was “publication” under defamation law. The Supreme Court found this argument “unnecessary” because courts have generally not “recognized disclosures to printers as actionable publications … and do not have a sufficiently “close” “relation” with the traditional tort of defamation to qualify for Article III.
The 11th Circuit panel in HunsteinII was undeterred by this footnote, however, calling it dicta and again finding that Richard Hunstein had standing to pursue his claim.
Following a majority vote to rehear the enbanc case, in September 2022, the 11th Circuit in an 8-4 decision, “HunsteinIII”, determined that Hunstein lacked standing.
In HunsteinIII, guided by Supreme Court cases including TransUnion, the court found that the alleged harm – disclosure to a private party – was not similar to the cited analogous harm, disclosure to the public. This traditional tort requires publicity, which was not alleged by Hunstein. Since none of the exposures covered by the tort of public disclosure were at issue, Hunstein did not allege concrete harm.
We may not have seen the end of Hunstein. The HunsteinIII decision was not unanimous, and Richard Hunstein could appeal to the Supreme Court or even file a new case in state court. In addition, many cases of imitation have been filed in the wake of HunsteinI.
Based on HunsteinIII and TransUnion, actions filed in federal court can present significant challenges. On the other hand, Hunstein’s multiple rounds gave plaintiffs an opportunity to improve their pleadings. These cases will need to be followed up by debt collectors in their jurisdictions of operation. More importantly, state cases can still be prosecuted, and those cases can address the issue on the merits (given the absence of the standing issue at the heart of a federal court action).
Potential for regulatory action
The Consumer Financial Protection Bureau (CFPB) is well aware that many debt collectors rely on letter sellers for their mailings and has not expressed concern.
In the notes to Regulation F, the latest update to debt collection rules, the CFPB noted that “over 85% of debt collectors surveyed by the Bureau said they use letter sellers.”
Additionally, the CFPB’s comments to Regulation F Section 1026.34 mention that one of the appropriate addresses a debt collector could provide to accept disputes and requests for original creditor information is the mailing address. from the seller.
It would be surprising with this very open and apparent history if the bureau suddenly questioned this long-standing practice.
At this point, using vendor letters seems like a safer practice than last year, but the legal landscape may continue to evolve. With regulators staying on the sidelines, debt collectors should watch for any further development of the law in federal and state courts.
Joseph Cioffi is a regular columnist on consumer and commercial finance for Reuters Legal News and Westlaw Today.
The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust. Westlaw Today is owned by Thomson Reuters and operates independently from Reuters News.