The debt collection industry has been waiting with bated breath for almost two years for the ruling on the Hunstein case.
Since most financial institutions use external vendors to send letters to their consumers, this landmark case has important implications for the industry. Adding fuel to the fire, several copycat cases, similar to the Hunstein case, were filed in various state and federal courts throughout the country.
So what exactly is the Hunstein case, and how does it impact the debt collection industry? Let’s dig deeper.
Background of the Hunstein v. Preferred Collection & Management Services Case
It all started with Richard Hunstein receiving a postal mail to settle his debt.
Hunstein incurred an expensive medical bill, and when he could not pay it, the debt was transferred to a third-party collection agency, Preferred Collection & Management Services. This collection agency uses a third-party mail vendor to send reminders to the debtors urging them to repay the debt.
So the collection agency electronically shared details about Hunstein’s debt to the vendor, including his name, his son’s name, the amount of money he owed, and to whom he owed it. The mail vendor used a template, populated the fields with personal information of Hunstein, and sent the collector letter to him.
Hunstein lodged a case within a few days of receiving this letter, alleging that disclosing his personal information to the mail vendor violated the Fair Debt Collection Practices Act (FDCPA).
Under the FDCPA, debt collectors cannot engage in unfair or deceptive debt collection practices. The law makes it illegal for a debt collector to engage in harassment or abuse, or publicize the creditor’s information.
According to Hunstein, the collection agency sent his personal information to the mailing vendor, which then used this information to send the collection letter, violating the FDCPA.
In early 2021, a lower court ruled that the debt collection agency didn’t violate the FDCPA. But when appealed to the Eleventh Circuit, it was overturned by a three-judge panel stating that the debtor may be harmed by sharing such information with external vendors.
The defendant filed a petition for en banc rehearing in May 2021, and now the Eleventh Circuit has finally ruled on this case.
The Ruling
After months of contemplation, the U.S. District Court for the Western District of North Carolina, on September 8, 2022, remanded a case back to state court, ruling that a plaintiff does not have the standing to sue in federal court under the FDCPA — since there was no public disclosure of information.
The defendant argued that this lawsuit should be dismissed because it lacks standing to bring an action under FDCPA. To stand under FDCPA, one must allege an invasion of privacy or another injury caused directly by another person who has violated the FDCPA. Because no one actually read or saw his private information in this case, the court concluded that there was no invasion of privacy.
The district court agreed with the defendant and ruled that it did not have subject matter jurisdiction over this case because there is no private right of action under FDCPA.
“The problem with this theory is that his alleged reputational injury lacks a necessary element of the comparator tort—the requirement that the disclosure is public. Without publicity, a disclosure cannot possibly cause the sort of reputational harm remediated at the common law,” the Appeals Court’s ruling read.
This ruling was issued by eight of the 12 judges in the Eleventh Circuit since the plaintiff has suffered no actual harm except for the violation of the statute.
What It Means for the Debt Collection Industry
While this case may be over, its implications are far-reaching.
The ruling was based on the fact that the plaintiff did not suffer any harm from receiving the collection letter and that he did not suffer any damages. This ruling is significant because it clarifies how courts interpret FDCPA regarding third-party vendors and their relationship with debt collectors and creditors.
The Hunstein Case ruling means that debt collectors can carry on contracting with third parties to assist with collecting outstanding accounts as long as they do not violate any state laws or federal regulations regarding collection letters or phone calls. The ruling also provides some clarity on what constitutes a violation under the FDCPA as well as what does not.
But there are a few things to keep in mind:
- The ruling hasn’t openly expressed if sharing the debtors’ details with third-party mailing vendors violates the FDCPA.
- The case was dismissed majorly because Hunstein didn’t suffer any real consequences or harm from sharing personal information with the mailing vendor.
- There has been a sudden influx of similar cases in various state and federal courts, which are worth following — and may end up with different rulings than the Hunstein case.
In light of the ruling, it’s safe to say that the collection agencies can continue to work with mailing vendors while keeping an eye on any scope for the extension of the FDCPA to address the concerns of consumers voiced through the Hunstein case.