New interpretation of Fair Debt Collection Practices Act shakes up industry – Finance and Banking



United States: New Interpretation of Fair Debt Collection Practices Act Shakes Industry

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“We are aware that our interpretation of § 1692c (b) risks upsetting the status quo in the debt collection industry.”

This quote from the Court of Appeal of the Eleventh Circuit in its opinion of April 21, 2021 on the case of Hunstein v. Preferred Collection and Management Services, Inc. is perhaps the biggest understatement in the history of the Fair Debt Collection Practices Act. At a minimum, the Eleventh Circuit opinion sent shockwaves and fear through several sectors of the financial services industry.

The problem is the Eleventh Circuit’s interpretation of Section 1692c (b) of the Fair Debt Collection Practices Act, which states:

Except in the cases provided for in article 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express authorization of a competent court, or to the extent reasonably necessary to make a post judicial remedy. – judging, a debt the collector cannot communicate, in the context of the recovery of a debt, with a person other than the consumer, his lawyer, a consumer information agency if the law allows otherwise, the creditor , the creditor’s lawyer or the debt collector’s lawyer.

For your information, this lawsuit originates from unpaid bills for medical treatment. The hospital assigned the unpaid invoices to Preferred Collection and Management Services, Inc. (“Preferred”) which acts as collection agent. Preferred, like the vast majority of large financial institutions and debt collectors, contracts with a third-party vendor to physically print and mail the collection letters Preferred sends to various people. In accordance with this policy, Preferred sent its seller certain information about the applicant, including (1) its debtor status, (2) the exact balance of its debt and (3) the entity to which it owed the debt. The third-party seller then printed and mailed a follow-up letter to the requester.

More importantly, no claim was ever made that Preferred sent incorrect information or that the debt was not actually due.

Despite the benign circumstances, the Eleventh Circuit ruled that Preferred’s act of communicating the applicant’s information to its own agent violated Section 1692c (b) because it was a “debt-related” communication. .

The effect of the Eleventh Circuit ruling will have a national impact on all businesses and individuals operating as ‘debt collectors’ who are now prohibited from disclosing a debtor’s information to third party service providers and vendors ( such as mail processors). Although the Eleventh Circuit recognizes the impact of his detention, it has vastly underestimated that impact. There is simply no way for a business to internalize these processes overnight. For many companies, the Eleventh Circuit’s decision will require the hiring and training of new people in addition to the purchase of new equipment; all in the wake of a global pandemic.

Already, the National Creditors Bar Association, the Florida Creditors Bar Association (where the case originates) and other professional associations have decided to file Amicus briefs in support of Preferred’s early petition for the bank rehearing. These organizations fear that the detention of the Eleventh Circuit could be militarized and used to create a new flood of litigation.

In the meantime, all businesses and individuals who collect debts in the course of their business should immediately review and possibly re-evaluate their use of any third-party services; not just the mail vendors.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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