An appeals court has dismissed a debt collection lawsuit that threatened to upend the ability of debt collectors— and banks that hire them— from outsourcing the notification of a debt to consumers.
In an expected win for the debt collection industry, the 11th U.S. Circuit Court of Appeals on Friday
The court held that a debt collector did not violate the Fair Debt Collection Practices Act when it gave an outside mail letter vendor a consumer's personal account information related to collecting a debt.
Though the FDCPA forbids any communication about a debt to a third party, financial services companies have used mail vendors for decades to send notification letters to debtors.
"It's not an unexpected decision," said Richard Perr, co-managing partner at Kaufman Dolowich & Voluck.
The Hunstein decision last year forced some debt collectors in Alabama, Georgia and Florida to stop using letter vendors. It also produced "hundreds of copycat lawsuits across the U.S.," said Scott Purcell, the CEO of the Association of Credit and Collection Professionals.
"It is a relief to see that many of the broader negative implications of this case have now been mitigated," Purcell said. "This decision solidifies that concrete harm must be shown to meet the standing requirements for bringing a lawsuit under the Fair Debt Collection Practices Act in federal court."
The case involved the plaintiff Richard Hunstein who sued Johns Hopkins All Children's Hospital over a debt for his son's medical treatment.
Ultimately the case turned on the issue of standing and whether the electronic delivery of private information that was not made public constituted harm to the consumer.
Last year, a three-judge panel
However, the Supreme Court issued a verdict last year in TransUnion LLC v. Ramirez, that found a plaintiff must show concrete injury to establish an alleged intangible harm.
In the Hunstein case, Chief Judge William Pryor said that because the plaintiff was unable to show concrete harm — such as the public dissemination of private information — he had no standing and dismissed the case.
"The plaintiff alleges that a creditor sent information about his debt to a mail vendor, which then sent him a letter on behalf of the creditor reminding him of the terms of the debt," Pryor wrote. "Though he identified no specific harm in his complaint, he now claims that the debt collector's act caused him a concrete injury because it was analogous to the common law tort of public disclosure."
The judge continued: "The comparison to public disclosure of private facts is the sole basis on which the plaintiff rested his claim of concrete harm. Because that comparison fails, he cannot show any real harm, and we dismiss his complaint."
Going forward, lawyers representing debt collectors and vendors said they expect fewer lawsuits filed in federal court.
"The battle just switches to state court on the merits," Perr said. "But the industry would have loved a decision that these claims are frivolous."
