by Bret Chaness, Esq.
Rubin Lublin, LLC
USFN Member (AL, GA, MS, TN)

In a decision that sent shock waves through the debt collection industry, the 11th Circuit held on April 21 that the seemingly benign act of electronically sending information to a letter vendor for inclusion in a standard form dunning letter violated the Fair Debt Collection Practices Act (“FDCPA”). The case – Hunstein v. Preferred Collection and Mgmt. Servs., Inc., 994 F.3d 1341 (11th Cir. 2021) – involved a debt collector that “electronically transmitted to Compumail [its mailing vendor] certain information about [him], including, among other things: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that his debt concerned his son’s medical treatment, and (5) his son’s name. Compumail used that information to generate and send a dunning letter to Hunstein.”

Hunstein sued Preferred, alleging a violation of 15 U.S.C. § 1692c(b), which prohibits, with few exceptions, communications with third parties in connection with the collection of any debt. Specifically, the statute provides that, 

without the prior consent of the consumer given directly to the debt collector . . . 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.

The district court dismissed the case, concluding that Preferred’s communications to Compumail were not “in connection with the collection of any debt.” Relying on prior 11th Circuit cases, the district court noted that for a communication to be “in connection with the collection of any debt,” the communication must “[make] an express or implied demand for payment.” Since the information that Preferred sent to Compumail did not demand payment of a debt, the district court held that it was not “in connection with the collection of any debt.”

On appeal, the 11th Circuit first addressed the ever-present issue in FDCPA litigation of subject matter jurisdiction, which was not raised in the district court. Hunstein did not allege that he suffered any tangible harm, but the Court of Appeals held that he had Article III standing because a bare violation of Section 1692b(c) was a concrete harm.

With the standing issue behind it, the Court of Appeals then analyzed whether the district court correctly concluded that the communication to Compumail was not “in connection with the collection of a debt.” The Court disagreed that such a communication must “[make] an express or implied demand for payment” because the cases that came to such a conclusion were based upon violations of Section 1692e, not 1692b(c). Section 1692e concerns communications to consumers, while Section 1692b(c) concerns communications with third parties. Because communications with third parties would never demand payment from the debtor, the Court concluded that the term “in connection with the collection of a debt” does not have the same meaning in both sections.

Instead, the Court held that the term should be given its plain meaning, looking at the meaning of “the phrase ‘in connection with’ and its cognate word, ‘connection.’”

Dictionaries have adopted broad definitions of both. Webster's Third defines “connection” to mean “relationship or association.” Connection, Webster's Third International Dictionary at 481 (1961), and the Oxford Dictionary of English defines the key phrase “in connection with” to mean “with reference to [or] concerning,” In Connection With, Oxford Dictionary of English at 369 (2010). Usage authorities further explain that the phrase “in connection with” is “invariably a vague, loose connective.” Bryan A. Garner, Garner's Dictionary of Legal Usage 440 (3d ed. 2011).

Based on this broad definition, the Court stated that “[i]t seems 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 Hunstein has alleged a communication ‘in connection with the collection of any debt’ as that phrase is commonly understood.”
The Court recognized the broad reaching impact its holding may have, concluding that,

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.

While Congress has yet to weigh in on whether it thinks the Court properly read Section 1692c(b), it appears that the Consumer Financial Protection Bureau (CFPB) may have been caught off guard by the holding. The CFPB – which has rulemaking authority under the FDCPA – is soon implementing its long-awaited Regulation F on November 21, 2021. The comments to Regulation F frequently discuss the use of third-party vendors to send letters and note that “over 85 percent of debt collectors surveyed by the Bureau reported using letter vendors.” Despite this knowledge, the CFPB is not implementing any rule prohibiting this practice. One rule even expressly contemplates the use of letter vendors, providing that a debt collector can use a vendor to receive disputes from consumers and may use the vendor’s mailing address in its correspondences.

It is yet to be seen whether Hunstein will remain good law, as Preferred filed a Petition for Rehearing En Banc on May 26. Numerous creditors’ rights groups have since moved for leave of court to file amicus briefs in support of the petition. At least one brief has argued that the 11th Circuit’s interpretation of Section 1692c(b) runs afoul of the First Amendment.

Unless and until the decision is reversed by an en banc court or a successful appeal to the Supreme Court, Hunstein is likely to significantly impact the debt collection industry. For starters, legal fees are sure to increase, as the National Creditors Bar Association claims in its amicus brief that Hunstein “has already generated over 100 federal court lawsuits across the country, mostly class actions,” and that “[n]o appellate decision in decades (and possible none, ever) has sparked such a flood of FDCPA litigation in so short a time.”

Perhaps more pressing, though, is the impact that Hunstein may have on the everyday business operations of those who qualify as debt collectors under the FDCPA. The court’s expansive definition of “in connection with the collection of any debt” has the potential to make some tasks next to impossible. A review of the amicus briefs shows the grave concerns facing the industry. One brief suggests that the FDCPA may now prohibit simply filing and serving a lawsuit to collect a debt, since lawyers and their staff – who work at firms that may qualify as debt collectors – must communicate with court staff, judges, process servers, and others to effectively prosecute a case. Another brief argues that “loan servicers will have to reconsider whether they can engage third parties such as housing counselors, tax-and-insurance monitoring services, and property maintenance companies without violating the FDCPA.” The same brief goes on to suggest that even transferring service rights might run afoul of the FDCPA because communications with the new servicer could violate Section 1692c(b).

Although Hunstein is the law only in Florida, Georgia, and Alabama, there is no telling how many judges in other circuits may choose to follow its holding. Additionally, there are concerns for some entities who are not considered debt collectors under the FDCPA, as states such as California have incorporated many FDCPA provisions – including Section 1692c(b) – into state collection laws, but greatly expanded the definition of debt collector to include creditors collecting their own debts and “any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection.”

Aside from the uncertainty surrounding how judges in other states and circuits may rule, it is likely difficult, if not impossible, to insource all operations in only three states. For the time being, debt collectors and creditors around the country will need to evaluate their operations to determine if any changes should be made in light of Hunstein.

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Summer 2021 USFN Report