More than a year ago on April 21, 2021, the 11th Circuit Court of Appeals issued an opinion in Hunstein v. Preferred Collection and Management Services Inc. that rocked the world of the debt collection industry, and the larger financial services industry in general. That decision put into question the legality of the common collection practice of using a third-party vendor to send collection letters to consumers. The practice was so common and universally accepted that even the Consumer Financial Protection Bureau acknowledged it as permissible in the debt collection rule it finalized in 2021.

Yet, the Hunstein court held that the mere transmission of information to a letter vendor to facilitate the automated processing and mailing of a letter to a consumer was a “communication” with the letter vendor under the Fair Debt Collection Practices Act, even though not a single person at the letter vendor ever saw the information that had been processed through automation. Specifically, in the original opinion, the court held that: (1) a consumer had standing to bring a claim under the Fair Debt Collection Practices Act (FDCPA) because he alleged an invasion of privacy based on the spread of his debt-related information; and (2) a debt collector’s outsourcing of its letter process to a third-party mail vendor violates the FDCPA because sending the data to create and mail letters to consumers violates the prohibition on third-party disclosure set forth in Section 1692c(b) of the FDCPA.

When this startling decision came out, the entire financial services industry took notice because nearly all financial services providers and financial institutions used letter vendors to provide consumers with needed information. Adding to the distress, hundreds of copycat cases were filed in both state and federal courts around the country.

As a result, various groups in the debt collection industry weighed in as the courts began to reevaluate the problematic decision, including ACA International, which filed an amicus brief. Several other financial services trade associations groups, including the Credit Union National Association, Mortgage Bankers Association, American Bankers Association, American Financial Services Association, Consumer Bankers Association and the Housing and Policy Council also weighed in as amici. In the amici brief they stated, “Appellant Richard Hunstein’s position in this case threatens the functioning of debt collectors, mortgage servicers, and the broader financial services industry, as well as the many other sectors of the economy that depend upon access to financial services.”

In late October 2021, the financial services industry faced another blow when the original decision was reaffirmed by a panel of three judges, holding that: (1) the violation of Section 1692c(b) alleged in the case gives rise to a concrete injury in fact under Article III; and (2) The debt collector’s transmittal of the consumer’s personal information to its dunning letter vendor constituted a communication “in connection with the collection of any debt” within the meaning of Section 1692c(b). Preferred Collection then sought an en banc review.

After months of waiting for additional clarity, last week, on Sept. 8, 2022, the 11th Circuit issued an en banc decision vacating the previous decisions, concluding there was no concrete harm and thus no Article III standing. While the court did not address the larger questions on the merits of congressional intent, the court did include some helpful dicta. The court stated in that regard,

“… But even assuming—which we do not—that Congress was attempting to target the workaday vendor relationships alleged here, congressional intent does not automatically transform every arguable invasion of privacy into an actionable, concrete injury. As TransUnion explained, courts have no “freewheeling power to hold defendants accountable for legal infractions.” Because Hunstein has alleged only a legal infraction—a “bare procedural violation”—and not a concrete harm, we lack jurisdiction to consider his claim.”

This decision is significant for the financial services industry because copycat cases that were filed in federal courts and stayed pending this decision are now in jeopardy. However, it is expected that similar cases to Hunstein will continue in state courts and many copycat cases are still working their way through those courts.

What does this mean for financial service providers using letter vendors?

In light of the en banc panel’s decision, it is arguably safer to continue to use letter vendors than it was after the original decision. The en banc panel’s skepticism about whether there is actually any harm in this practice, coupled with helpful dicta, and the CFPB’s seeming blessing to use third-party vendors, make arguments against the use of a letter vendor related to privacy seem like a stretch. Nevertheless, now that this can of worms has been opened, financial services providers should continue to monitor this litigation in state courts for any other twists and turns that may make the use of letter vendors harder.

It also may be relevant to monitor any potential efforts by advocacy groups to expand the scope or reading of the FDCPA through state or federal legislation mirroring the concerns of Hunstein, particularly since the National Consumer Law Center and others filed an amicus brief outlining concerns about privacy issues.