For the past few weeks, the receivables industry has been abuzz with news of the pivotal Hunstein vs. Preferred Collections case. In case you’re not familiar, Preferred Collections & Management Services, Inc.—a third-party debt collector—was sued for violating the Fair Debt Collection Practices Act by communicating with a third party “in connection with the collection of any debt.”
What makes this case so impactful is that the third party wasn’t a relative, friend, or colleague of the consumer. Instead, the court determined Preferred Collections violated the law by sending consumer information to a letter vendor, something that’s standard practice throughout the industry. The precedent set by the court’s ruling could affect the way receivables firms operate and receive payments going forward.
Hunstein vs. Preferred Collection Background
The consumer debtor filed a lawsuit against Preferred Collections alleging the collection agency violated both the FDCPA and the Florida Consumer Collection Practices Act, by electronically transmitting information about their debt to a letter vendor. The district court initially dismissed the lawsuit. However, on appeal, the Eleventh Circuit Court concluded that the agency was in violation of the FDCPA’s privacy protections.
The implications of the ruling are yet to be determined. Even the court acknowledged that the ruling “runs the risk of upsetting the status quo in the debt collection industry.” The court goes on to say, “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.”
Potential Impact of the Hunstein Decision
While electronically transmitting information to a letter vendor or payment processor is much different from disclosing debts to a consumer’s friends or employer, in the court’s opinion sharing consumer information with third-party vendors violates consumer privacy. In light of the decision, receivables firms and collection agencies should take steps to remain compliant and minimize liability.
What could this mean for vendors like CRMs and payment software providers? Firms who share consumer information with these companies could be violating consumer privacy.
The case highlights a need for real-time data communications, increased compliance protocols, and documentation of consumer consent for businesses within the industry who use third-party vendors to streamline their practices.
Options for Compliant Payments for Receivables Firms
Firms have a few options for continuing to automate their payment practices while reducing exposure of consumer’s personal information and minimizing liability.
Send only redacted file information. Firms may opt to send a limited amount of information like file number and balance, leaving out personal consumer information. Consumers can still make payments toward their balance and firms can match payments without violating consumer privacy.
Obtain direct consent from the consumer before sending information to payment software providers. Firms may elect to send batch files, but only for those consumers who’ve consented to provide their information to a payment vendor. The FDCPA specifies that consumers have to give consent directly to collectors before the business can communicate with third-parties.
Waiting for consent to send batch files complicates the workflow. A more streamlined solution would allow firms to send data in real-time immediately after getting consumer consent. This option would eliminate time delays and simplify data transfer.
Refrain from sending consumer information to third-party payment software providers. This may mean using guest payment options that do not require sending batch files or sharing consumer information. Consumers can continue to self-service their accounts and firms avoid manual check processing and trips to the bank. However, firms may need to manually match payments with the correct consumer to reconcile accounts.
Left unchecked, the decision broadens the scope of the FDCPA, potentially excluding communications with any third-party vendor. It carries the risk of making it more difficult for consumers to take care of their outstanding balances.
HealPay continues to consult with firms and track the latest news about the ruling to accommodate our clients in the receivables industry.
All information contained are the opinions of the author and do not constitute legal advice.