In the Hunstein case, the U.S. Court of Appeals for the Eleventh Circuit recently issued a decision that could increase liability exposure for those firms that qualify as “debt collectors” under the federal Fair Debt Collections Practices Act (“FDCPA”).
In reversing the district court, the Eleventh Circuit found that a consumer had stated a claim against a debt collector for violating 15 U.S.C. 1692c(b), which prohibits debt collectors from communicating with third parties “in connection with the collection of any debt,” subject to certain statutory exceptions. The complaint stated that a debt collector had communicated information about the consumer’s debt to a third-party mail vendor so that the vendor could send the consumer a dunning letter. Specifically, the debt collector had sent information to the vendor including the consumer’s name, the amount of the debt, the creditor’s name, and the purpose of the debt. The Court agreed that communicating this information to the third-party vendor stated a claim under 15 U.S.C. 1692c(b) because the debt collector’s communication with the mail vendor was prohibited under the statute and did not fall under any of the statutory exceptions.
Hunstein presents a matter of first impression in the federal courts, and MDK strongly encourages its clients that qualify as “debt collectors” under the FDCPA to examine their business practices to ensure that borrower information is not communicated to prohibited third parties. In some situations, mortgage servicers can qualify as “debt collectors” under the FDCPA, for instance, if the servicers were transferred the debt for servicing after the debt reached a state of default. If so, a mortgage servicer who qualifies as a debt collector could violate 15 U.S.C. 1692c(b) by outsourcing borrower notices to a third-party vendor.
Notably, as the attorney for mortgage servicers, MDK is not a prohibited third-party vendor and instead falls under a statutory exception permitting debt collectors to communicate borrower information to their attorneys. As a result, to the extent that MDK’s clients would seek to limit liability exposure after Hunstein, MDK’s clients may rely on MDK to send borrower notices without risking liability under 15 U.S.C. 1692c(b).
Finally, because MDK qualifies as a “debt collector” under the FDCPA, MDK is examining its business procedures to ensure that it cannot be held liable for violating 15 U.S.C. 1692c(b) as well.