CUNA Says Appeals Court Ruling Will Hamper Debt Collection Efforts

Financial trade groups, including the Credit Union National Association, are asking the U.S. Court of Appeals for the 11th Circuit to reconsider a ruling that the groups say will hamper the debt collection industry by imposing “overly broad restrictions” on it.

The groups contend that a decision by a panel of three judges on the court “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 the case, Richard Hunstein incurred a debt to Johns Hopkins All Children’s Hospital for treatment of his son. The hospital assigned the debt to Preferred Collections & Management Services for collection. Preferred hired Compumail, a commercial mail vendor to handle the collection.

Preferred Collections gave Compumail details about the debt and Compumail used the information to send a dunning letter to Hunstein. Hunstein sued, contending that the exchange of information violated the Fair Debt Collection Practices Act. The federal district court agreed with him.

The case was appealed. A three-member panel of appellate judges last month decided that the transmission of data from Preferred Collection to Compumail violated a section of the law that prohibits a debt collector from communicating with anyone other than the debtor and certain third parties without the debtor’s consent.

The judges wrote that they understood that the ruling runs the risk of “upsetting the status quo in the debt collection industry.” They said that debt collectors may have to “in-source many of the services they had previously outsourced, potentially at great cost.”

That is the case, according to the trade groups.

“Practically speaking, that means for all consumer and mortgage loans, loan servicers will have to reconsider whether they can engage third parties such as housing counselors, tax-and-insurance monitoring services and property maintenance companies without violating the FDCPA,” they said, in asking for the court to reconsider the ruling and possibly allowing the full appeals court to consider it.

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