Third-party Vendors and the FDCPA: Should you stop all outsourcing where creditors are concerned?
On April 21, 2021, the 11th Circuit ruled that a debtor has standing to bring a suit against a creditor because the creditor shared information about the debt with a third party. If this ruling is upheld, will that mean all businesses handling debtor information will be required to bring previously outsourced services, such as letter mailing campaigns, back inside the company?
A brief outline of the case
In this case, the plaintiff is suing Preferred Collection and Management Services, Inc. because they sent potentially sensitive information to a third-party commercial vendor to create and mail letters on their behalf. The plaintiff claims that he did not consent to the debt collection agency giving anyone information, including his name, outstanding debt, his son’s name, and that the debt is due to his son’s medical bills. The main violation under review is that under the Fair Debt Collection Practices Act (FDCPA), debt collectors are prohibited from sending information to third-party vendors without the debtor’s consent.
What this means for your business
In this case, the information was specific to a debt, and was shared with by a collection agency with their mailing house for a dunning letter.
Could these same restrictions apply to other third-party services?
How is a creditor supposed to collect on a debt if the creditor can’t share the debtor’s payment information with their bank or payment processor?
Even the court acknowledged that their broad interpretation could have broad effects:
“One final (and related) point: It’s not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry. We presume that, in the ordinary course of business, debt collectors share information about consumers not only with dunning vendors like Compumail, but also with other third-party entities. Our reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.”
For now, it seems that this ruling will be in effect starting May 5, 2021. Preferred Collection and Management Services, Inc., is planning to ask the courts for a rehearing in the near future.
If you are a first-party creditor, it might be time to consider alternative plans in the event that this mandate stays in place, including managing your communication with debtors in-house, or finding other ways to work within FDCPA guidelines.
Want to learn more? See what Troutman Pepper says here.