Alston & Bird Consumer Finance Blog

Case law

The Hunstein Case: Upending Servicing and Debt Collection?

A&B Abstract:

The U.S. Court of Appeals for the Eleventh Circuit, covering Alabama, Florida, and Georgia, recently decided in Hunstein v. Preferred Collection and Management, Inc., that a debt collector’s communication with its third-party vendor violated section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”), which prohibits a debt collector for communicating, in connection with the collection of any debt, with an unauthorized third party.

The FDCPA and Regulation F

 In 1977, Congress enacted the FDCPA to eliminate abusive debt collection practices by debt collectors.  Section 1692c(b) of the FDCPA generally provides that, except with respect to seeking location information:

without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

The FDCPA defines “communication” to mean “the conveying of information regarding a debt directly or indirectly to any person through any medium.”

For decades the FDCPA was enforced by the Federal Trade Commission (“FTC”).  However, prior to the Dodd-Frank Act, no federal regulator had rulemaking authority under the FDCPA.  The Dodd-Frank Act empowered the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) with rulemaking authority with respect to the collection of debts by debt collectors, as defined by the FDCPA.  Prior to finalizing Regulation F, the CFPB conducted market outreach to better understand how debt collectors attempt to collect on accounts.  In July 2016, the CFPB published a study of third-party debt collection operations (“Operations Study”) that recognized debt collection firms’ reliance on vendors (such as print mail services, predictive dialers, voice analytics, payment processes and data servers).  In fact, the CFPB noted that most respondents use an outside vendor for sending written communications.

On November 30, 2020, amended Regulation F,  implementing the FDCPA, was published in the Federal Register with an effective date of November 30, 2021 (which has subsequently been delayed to January 29, 2022).  Regulation F does not specifically address the use of third-party vendors, such as print mail services, although the Operations Study was cited in the preamble to Regulation F.

With regard to civil liability, section 1692k of the FDCPA states that “[n]o provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.”

The Hunstein Case

Despite the CFPB’s implicit recognition of debt collectors’ use of print and other vendors,  a recent court decision suggests that use of certain vendors could violate the FDCPA’s prohibition on third-party communications.  In Hunstein, the U.S. Court of Appeals for the Eleventh Circuit reversed the district court’s judgment, holding that (1) a violation of section 1692c(b) of the FDCPA confers Article III standing; and (2) a debt collector’s transmittal of a consumer’s personal information to its dunning vendor constituted a communication “in connection with the collection of any debt” within the meaning of section 1692c(b).

The facts in this case are not unusual, and reflect the typical interactions between a debt collector and their third-party vendors. Specifically, the debt collector, Preferred Collection and Management Services Inc. (“Preferred”), electronically transmitted information concerning Hunstein’s debt (his name and his status as a debtor, the entity to which he owed the debt, the outstanding balance, the fact that his debt resulted from his son’s medical treatment, and his son’s name) to its third-party vendor. In turn, the vendor used that information to create, print, and mail a dunning letter to Hunstein.  As a result, Hunstein sued alleging that by sending his personal information to the third-party vendor, Preferred had violated section 1692c(b). The district court dismissed Hunstein’s action for failure to state a claim, holding that Hunstein had not sufficiently alleged that Preferred’s transmittal to its third-party vendor violated section 1692c(b), because it was not a communication “in connection with the collection of any debt.”  Hunstein appealed to the Eleventh Circuit. On appeal, the Eleventh Circuit addressed both the issues of Article III standing and whether Preferred’s communication was “in connection with the collection of any debt.”

The court first considered the threshold issue of whether a violation of section 1692c(b) confers Article III standing. Specifically, the court focused on whether Hunstein had suffered an injury in fact, which requires an invasion of a legally protected interest that is both concrete and particularized and actual or imminent, not conjectural or hypothetical. The court indicated that the “standing question here implicates the concreteness sub-element.”  The court explained that a plaintiff can satisfy the concreteness requirement in one of three ways. A plaintiff can meet this requirement by (1) alleging a tangible harm (e.g., physical injury, financial loss, and emotional distress), (2) alleging a risk of real harm, or (3) identifying a statutory violation that gives rise to an “intangible-but-nonetheless-concrete injury.”  The court ultimately concluded that Hunstein had met the concreteness requirement “[b]ecause (1) § 1692c(b) bears a close relationship to a harm that American courts have long recognized as cognizable and (2) Congress’s judgment indicates that violations of §1692c(b) constitute a concrete injury.”

After concluding that Hunstein had standing to sue, the court considered whether Preferred’s transmittal to its third-party vendor was a “communication in connection with the collection of any debt.” At the outset, the court noted that the parties were in agreement that Preferred was a “debt collector,” that Hunstein was a “consumer,” and that the debt at issue was a “consumer debt,” as contemplated under the FDCPA. Moreover, the parties agreed that Preferred’s transmittal of Hunstein’s information to the third-party vendor constituted a “communication” within the meaning of the FDCPA. Thus, the only question remaining before the court was whether Preferred’s communication was “in connection with the collection of any debt.” The court began its analysis by reviewing the plain meaning of the phrase “in connection with” and the word “connection,” and determined that “in connection with” and “connection” are generally defined to mean “with reference to or concerning” and “relationship or association,” respectively.  Based on these definitions, and the facts at issue, the court found it “inescapable that Preferred’s communication to [its third-party vendor] as least ‘concerned,’ was ‘with reference to,’ and bore a ‘relationship or association’ to its collection of Hunstein’s debt.”  Accordingly, the court held that Hunstein had alleged a communication “in connection with the collection of any debt” as that phrase is commonly understood.

The court next considered, and rejected, Preferred’s three arguments that its communication was not “in connection with the collection of any debt.” First, the court found Preferred’s reliance on prior Eleventh Circuit decisions interpreting the phrase “in connection with the collection of any debt,” as used under section 1692e, to be misplaced. The court explained that in those line of cases, the court had focused on the language of the underlying communications that were at issue. However, the court found that the district court’s conclusion that the phrase “in connection with the collection of any debt” necessarily entails a demand for payment “defies the language and structure of § 1692c(b) for two separate but related reasons—neither of which applies to § 1692e.” First, the court explained that the “demand-for-payment interpretation would render superfluous the exceptions spelled out in §§ 1692c(b) and 1692b.” The court noted that under section 1692c(b), “[c]ommunications with four of the six excepted parties—a consumer reporting agency, the creditor, the attorney of the creditor, and the attorney of the debt collector—would never include a demand for payment,” and that the “same is true of the parties covered by § 1692b and, by textual cross-reference, excluded from § 1692c(b)’s coverage.” Accordingly, the court held that the phrase “in connection with the collection of any debt” in section 1692c(b) must mean something more than a mere demand for payment, so as not to render “Congress’s enumerated exceptions…redundant.”

The court also rejected Preferred’s argument that the court adopt a holistic, multi-factoring balancing test that was adopted by the Sixth Circuit in its unpublished opinion in Goodson v. Bank of Am., N.A., 600 Fed. Appx. 422 (6th Cir. 2015), for two reasons: (1) “Goodson and the cases that have relied on it concern § 1692e—not § 1692c(b),” and (2) sections 1692c(b) and 1692e differ both “linguistically, in that the former includes a series of exceptions that an atextual reading risks rendering meaningless, while the latter does not, and…operationally, in that they ordinarily involve different parties.” Moreover, the court found that “in the context of § 1692c(b), the phrase ‘in connection with the collection of any debt’ has a discernible ordinary meaning that obviates the need for resort to extratextual ‘factors.’”

Finally, the court rejected Preferred’s “industry practice” argument—namely that there is widespread use of mail vendors and a relative dearth of FDCPA suits against them—holding that simply because “this is (or may be) the first case in which a debtor has sued a debt collector for disclosing his personal information to a mail vendor hardly proves that such disclosures are lawful.”

In holding that Preferred’s communication with its third-party vendor constituted a communication “in connection with the collection of any debt,” the court acknowledged that its “interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry…[and that its] 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.” Moreover, the court recognized that “those costs may not purchase much in the way of ‘real’ consumer privacy.” Nevertheless, the court noted that its “obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.”


The court’s textual reading of the statute fails to account for the technological changes to the industry since the FDCPA was enacted in 1977.

The CFPB has the authority to take a more pragmatic view, either through its advisory opinion program or formal rulemaking to recognize the important role of vendors while also putting in proper guardrails to protect consumers’ privacy.  Such a view would be consistent with the FTC’s treatment of this issue.  The FTC previously indicated that a debt collector could contact an employee of a telephone or telegraph company in order to contact the consumer, without violating the prohibition on communication to third parties, if the only information given is that necessary to enable the collector to transmit the message to, or make the contact with, the consumer. Presumably, a debt collector would have to transmit much the same information for purposes of communicating with the debtor through a letter vendor.

Congress also has the authority to modernize the FDCPA.  The House of Representatives recently passed a comprehensive debt collection bill (H.R. 2547, the Comprehensive Debt Collection Improvement Act, sponsored by Chairwoman Waters). While this bill currently doesn’t address the issue in Hunstein, that could be remedied in the Senate.

The consumer finance industry will be closely watching the Hunstein case as it works through the appeal process, as well as how other courts, Congress, CFPB and other regulators react.

Federal Court Inspects Maryland’s Restrictions on Inspection Fees

A&B Abstract:

Maryland’s inspection fee statute has been interpreted by the Maryland Court of Appeals and the Maryland Office of the Commissioner of Financial Regulation (“OCFR”) to apply both at the time of origination and throughout the servicing of a residential mortgage loan.  More recently, a lower federal district court decision came to a different interpretation.

Maryland’s Inspection Fee Restriction

Maryland Commercial Law Section 12-121 provides that, subject to limited exceptions, a lender may not impose a “lender’s inspection fee” in connection with a loan secured by residential real property.   A “lender’s inspection fee” means a fee imposed by a lender to pay for a visual inspection of real property. A lender’s inspection fee may be charged only if the inspection is needed to ascertain the completion of (i) the construction of a new home; or (ii) repairs, alternations, or other work required by the lender.  A “lender” is defined as a licensee or a person who makes a loan subject to Maryland’s Interest and Usury subtitle. In turn, a “licensee” is defined as a person that is required to be licensed to make loans subject to Maryland’s Interest and Usury subtitle, regardless of whether the person is actually licensed.

Prior Guidance

Previously, the Court of Appeals of Maryland held, in Taylor v. Friedman, 689 A.2d 59 (Md. Ct. App. 1997), that, unless permitted by Section 12-121(c), the prohibition on inspection fees was not limited to inspections for closings, but extended to any inspections throughout the life of the loan. In 2014, the OCFR released an advisory opinion stating that Taylor remains good law in Maryland and applies to circumstances where a servicer orders a visual inspection of property following default on the terms of the mortgage.

Roos vs. Seterus

More recently, the U.S. District Court for the District of Maryland in Roos v. Seterus held, despite previous decisions indicating otherwise, that non-lenders may charge inspection fees to mortgagors.  The defendants in Roos argued that they did not charge illegal inspection fees because (1) the deed of trust specifically authorized inspection fees; (2) Section 12-121 is inapplicable to the defendants; and (3) Section 12-121 does not have a blanket prohibition on the imposition of inspection fees. The defendants believed that since they were a servicer, and the plain language of the statute only prohibited lenders from charging inspection fees, the statute did not prohibit them from charging inspection fees.  The court agreed with defendants that the plain meaning of the statute only prohibits a “lender” from imposing or collecting inspection fees. Although the court in Roos did not itself provide a definition of “lender,” the court pointed to a Montgomery Circuit Court case, Kemp v. Seterus, Inc., No. 441428-V, 2018 Md. Cir. Ct. LEXIS 9 (Md. Cir. Ct. Oct. 19, 2018), which addressed the issue. In that case, the court stated that “the meaning of the statute [wa]s plain; only ‘persons’ which make loans to ‘borrowers’ are lenders and thus covered by the statute.” The court in Roos adopted the Kemp court’s definition of lender, finding it well reasoned and applicable since it involved the same issue and defendant.


It is unclear if this decision will convince the OCFR to change its long-standing position or if plaintiffs will appeal this decision.  Moreover, we note that this decision was issued by a federal district court interpreting Maryland state law and, as such, will not have precedential value in Maryland state courts. While defendants may have prevailed in this federal district court case, servicers should still remain cautious in charging inspection fees when servicing a loan secured by residential real estate in Maryland.

* We would like to thank Associate, David McGee, for his contributions to this blog post.

Recent Cases Deepen the Divide Among Circuits on Standing to Sue for Violations of FACTA

A&B Abstract:

Recent cases by the Eleventh Circuit and the D.C. Circuit deepen the divide among the courts on the standing of consumers to sue for violations of the Fair and Accurate Credit Transactions Act (“FACTA”).  In Muransky v. Godiva Chocolatier, Inc., 922 F.3d 1175 (11th Cir. 2019) and Jeffries v. Volume Services of America, 2019 WL 2750856 (D.C. Cir. July 2, 2019), the courts of appeal have held that the consumer plaintiff had Article III standing under the Supreme Court’s decision in Spokeo, Inc. v. Robins to sue retailers for violation of FACTA’s truncation requirement.  FACTA prohibits retailers from printing “more than the last 5 digits of the credit card number or the expiration date” on the consumer’s receipt.  Prior decisions from the Second, Third, Seventh and Ninth Circuits held that the consumer plaintiff lacked standing to sue the retailer for a violation of FACTA’s truncation requirement absent a resulting tangible injury.


In Muransky, the Eleventh Circuit recently vacated and reissued an earlier ruling holding that a plaintiff had standing under Spokeo to pursue a putative class action for violation of FACTA’s truncation requirement.  In Muransky, the retailer printed a receipt with the plaintiff’s first six and last four digits of his credit card.  After a short period of discovery, the parties settled the case for $6.3 million.  During the approval process, a class member objected to the settlement on the basis that the plaintiff suffered no harm, and class members who had their identities stolen would have their claims barred.  After the district court approved the settlement, the objector appealed.

On appeal, in addition to the objector’s challenge, an amicus brief was filed on behalf of the National Retail Federation, the U.S. Chamber of Commerce, and the International Franchise Association.  These groups argued that plaintiff’s lawyers had “weaponized” FACTA in recent years to force defendants to settle class actions “despite the absence of any actual harm or risk of harm.”  The groups noted recent, significant FACTA class action settlements in the Eleventh Circuit ranging from $2.5 million to $30.9 million.

The Eleventh Circuit affirmed the district court’s approval of the settlement, and rejected the challenge to the plaintiff’s standing.  The court recognized that prior courts in the Second, Third, Seventh and Ninth Circuits had held that consumers lacked standing to pursue lawsuits for violation of FACTA’s truncation requirement, absent some tangible injury.  In Kamal v. J. Crew Group, Inc., 918, F.3d 102 (3d Cir. 2019), the Third Circuit affirmed the dismissal of the consumer’s putative class action.  The Third Circuit held that printing the first six and last four digits of the credit card, without any additional degree of risk, was “a bare procedural violation” that does not create Article III standing.

The decision in Kamal was consistent with prior decisions from the Second Circuit (Crupar-Weinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017)), Seventh Circuit (Meyers v. Nicolet Restaurant of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016)), and Ninth Circuit (Bassett v. ABM Parking Services, Inc., 883 F.3d 776 (9th Cir. 2018)).  Each of those cases involved a violation of the FACTA truncation requirement involving the printing of the credit card expiration date on the receipt.  In each case, the court held that the plaintiff lacked standing to sue.

Even more recently, in Jeffries, the D.C. Circuit followed the reasoning of the Eleventh Circuit in Muransky to reverse the district court’s dismissal of a consumer’s putative class action for violation of FACTA’s truncation requirement on standing grounds.  In that case, the retailer had printed all 16 digits of the plaintiff’s credit card number and the expiration date of the card on the receipt.  These facts were important because the D.C. Circuit recognized that “not every violation of FACTA’s truncation requirement creates a risk of identity theft” sufficient to constitute a concrete injury in fact.  The court specifically cited with approval the expiration date cases from the Second, Seventh and Ninth Circuits, noting that the mere technical violation of printing the expiration date did not create a risk of identity theft triggering a concrete injury in fact.  However, the D.C. Circuit held that the “egregious” FACTA violation of printing all 16 digits and the expiration date created a real risk of harm to the plaintiff because it provided all of the information necessary for a criminal to defraud the plaintiff.


First, the procedural posture of Muransky and the “egregious” facts in Jeffries may have helped lead to their respective results.

In Muransky, the retailer did not challenge the plaintiff’s standing in the district court.  Rather, the standing challenge came from an objector to the settlement of the putative class action.  Thousands of class members had already made claims in the settlement, and the court was likely disinclined to unwind such a settlement due to a single objector.  Regardless, Muransky is nonetheless the law in the Eleventh Circuit, and district courts will be bound to follow it.  Muransky will only increase the already significant number of FACTA class actions brought in that jurisdiction.

In Jeffries, the retailer had printed all 16 digits of the plaintiff’s credit card number and the expiration date of the card on the receipt.  In finding standing, the D.C. Circuit noted the “egregious” nature of the FACTA violation.  Therefore, less “egregious” violations of FACTA can be distinguished from Jeffries, such that the D.C. Circuit may not necessarily become a safe haven for FACTA lawsuits.

Second, the divide among the courts of appeal continues to justify the Supreme Court clarifying the scope of Spokeo.