MBA, Trade Groups File Amicus Brief in Fair Debt Collections Court Case

(Photo courtesy U.S. Court of Appeals for the Eleventh Circuit, Atlanta.)

The Mortgage Bankers Association and six other industry trade groups filed an amicus brief this week in a court case that could have profound consequences on mortgage debt collection processes.

The brief, filed in the United States Court of Appeals for the Eleventh Circuit in Hunstein v. Preferred Collection and Management Services Inc., asks the entire 11th Circuit to hear an appeal from a prior three-judge panel decision that rendered the Fair Debt Collection Practices Act prohibition on third-party contacts unconstitutional under the First Amendment.

The amicus brief was filed bylaw firm Bradley Arant Boult Cummings LLP on behalf of MBA; the American Bankers Association; the American Financial Services Association; the Chamber of Commerce of the United States; the Consumer Bankers Association; Credit Union National Association; and the Housing Policy Council.

“The impact of the Hunstein decision will have dire consequences for consumers and financial institutions,” said Justin Wiseman, MBA Associate Vice President and Managing Regulatory Counsel. “As such, this is an issue of exceptional importance and the full 11th Circuit should review the decision.”

Hunstein, the plaintiff, filed suit against Preferred Collection in 2019, alleging it transferred his personal information to a third-party vendor for debt collection. While a district court dismissed the case, saying Preferred Collection’s actions did not trigger FDCPA liability because it was “not in connection with the collection of any debt,” the Eleventh Circuit found otherwise.

The panel’s decision rendered the FDCPA prohibition on third-party contacts unconstitutional under the First Amendment, ruling a debt collector’s communication of a consumer’s personal information to a third-party print vendor violated the FDCPA prohibition on third-party communications in connection with debt collection under 15 U.S.C. § 1692c(b).  

In the brief, the trade groups asserted the panel’s broad definition of the FDCPA could have a crippling effect on debt collection practices.

“In addition to threatening severe adverse consequences for the financial services industry and for consumers, the panel’s interpretation of 15 U.S.C. § 1692c(b) runs afoul of the First Amendment,” the brief said. “As interpreted by the panel, Section 1692c(b) is one of the broadest restrictions in the federal code, prohibiting a wide range of financial institutions from engaging in routine business communications with third parties ‘concern[ing]’ or ‘with reference to’ a debt.”

Yet as the panel conceded, the brief pointed out, “this severe restriction on speech fails to accomplish any of the congressional goals behind the enactment of the Fair Debt Collection Practices Act, as it does ‘not purchase much in the way of “real” consumer privacy,’ and the consequences are not ‘particularly sensible or desirable.’ Such a broad restriction on speech cannot withstand intermediate scrutiny under the First Amendment.”

The panel’s interpretation of Section 1692c(b) promises “huge negative consequences” for consumers and communities, the brief said.

“National loan servicers rely on vendors to perform difficult tasks associated with contacting consumers in delinquency or default,” the brief said. “In large part, the vendor-performed tasks were designed with pro-consumer goals, such as preventing foreclosure, limiting property abandonment and blight, and preventing lapses in tax payments and property insurance coverage. Additionally, vendors typically have levels of subject-matter expertise exceeding loan servicers, the brief noted. “Through specialization in certain servicing-related tasks, vendors maximize compliance while minimizing costs, ultimately lowering the costs of credit for consumers,” it said.

The panel’s reading of Section 1692c(b) “throws all of these well-established and reasonable business practices into doubt,” the brief said. “The loan servicing industry’s reliance on third-party vendors to promote compliance with existing law might become unviable. Loan servicers cannot adjust their use of vendors on a loan-by-loan basis; instead, the FDCPA imposes a regulatory floor that applies to the loan servicers’ entire servicing portfolio. 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. In many cases, loan servicers will not be able to transfer servicing rights for acquired defaulted loans to servicers with specialized expertise for handling such loans, as ‘communications’ about those accounts might violate Section 1692c(b).”

The brief also asserted the panel’s reading of Section 1692c(b) also harms consumers by increasing credit costs for credit and restricting access to financing. “Under the panel’s interpretation, Section 1692c(b) severely restricts loan servicers and debt collectors’ ability to service loans and collect debts by prohibiting them from employing business partners and vendors,” it said. “As the Federal Reserve Bank of New York explained, such restrictions on debt collection practices harm creditors and consumers—particularly consumers who have the greatest need for credit. In short, consumers will suffer under the panel’s decision. While the impacts to the loan servicing industry could be devastating to thousands of Americans employed in it, it will be just as devastating for consumers and their communities.”

The trade groups requested a “rehearing en banc”—in which all of the Eleventh Circuit judges would hear the appeal, rather than a three-judge panel—to “consider the significant constitutional implications of the panel’s decision.”

“The impact of the panel’s decision is obvious; since April 21, plaintiffs have filed roughly 150 new FDCPA cases claiming debt collectors violated Section 1692c(b) through routine data transmittals with third parties,” the brief noted. “Waiting for the next case may be too late to prevent dire consequences awaiting consumers and the financial services industry.”