Last week a federal judge in the Eastern District of Washington allowed Hunstein copycat case to continue and rejected the primary Hunstein defenses we've seen thus far from the ARM industry. 

Jackin v. Enhanced Recovery Company is a typical Hunstein copycat case. The consumer alleged that Enhanced Recovery Company (ERC) violated the Fair Debt Collection Practices Act (FDCPA) by sending data to a letter vendor (RevSpring) so that RevSpring could produce and mail the consumer a letter. The consumer claims she noticed that ERC used a letter vendor because the P.O. box listed as the return address did not belong to ERC.

ERC moved to dismiss the complaint under several different legal theories, many of which were raised by ARM industry participants in amicus briefs last year in the Hunstein matter (see here, here, and here for example). After considering arguments from the consumer and ERC, District Court Judge Salvador Mendoza Jr. addressed and rejected each theory in a June 10, 2022 Order.

The Ruling:

First, citing a Pennsylvania Hunstein copycat case (Khimmat v.  Weltman Weinberg and Reis Co., LPA), Judge Mendoza held mail vendors are not a medium because "medium" refers to the mechanical means of communication such as telephone, telegram, or in more modern terms, email or a file transfer. It refers to a means of transmission, not to an intermediary.  Judge Mendoza declined to find a distinction between "person" and a "medium" such that the terms would be mutually exclusive and held that since ERC directly conveyed information about the debt to Rev Spring, the data transfer was a communication.


ERC's contention that the data transmission was permissible due to an agency relationship between ERC and RevSpring was rejected because even if ERC could establish that RevSpring was its agent, the FDCPA does not have an exclusion for agents in general. Instead, the only exceptions to third-party disclosure are listed in the statute (15 U.S.C.A. 1692c(b)). 

ERC argued that the case should be dismissed based on the Supreme Court's 2021 opinion in Transunion v. Ramirez, which said, a disclosure to a printing vendor is not necessarily actionable. Judge Mendoza brushed away this argument, tersely stating that the Supreme Court's language regarding printing vendors was in a footnote and not binding authority.

Next, Judge Mendoza rejected ERC's argument that the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) have approved the use of outside vendors to send collections letters. Though neither agency has found such action to violate the FDCPA, the judge declined to find that inaction equals acceptance. 

Lastly, ERC argued that barring debt collectors from using mail vendors was an impermissible burden on commercial speech in violation of the First Amendment of the U.S. Constitution. Judge Mendoza disagreed, stating that the third-party disclosure exemption provided in the FDCPA is sufficient to allow debt collectors to collect debts. 

The Order can be found here

insideARM Perspective:

Though this is merely a district court opinion and not an appellate opinion from a circuit court, every decision supporting Hunstein makes it harder to claim the original Hunstein opinion was an outlier caused by an improper admission by counsel and bad facts. The more decisions like this we see, the more important it is for ARM entities to examine their risk tolerance and decide what makes sense for their organization. 

There does not seem to be any relief from the absurdity of the Hunstein decision on the horizon. Despite pleas from the ARM industry, an alleged commitment to allow supervised entities to utilize new technology, and explicit references to letter vendors in Regulation F, it has become apparent that the CFPB is staying silent on Hunstein (or maybe their silence speaks very loudly?). Further, since the Eleventh Circuit's review of Hunstein is limited to the standing issue only, even a favorable opinion likely won't close the pandora's box opened last April. 

So, now that we are fourteen months removed from the original Hunstein decision, and the problem has gotten worse, not better, what should ARM entities be doing to protect their organizations?

Should they continue to wait for the issue to be resolved through a court opinion or by a regulatory agency? Should ARM entities bring all letter production in-house despite what it will cost? Does the cost of materials and labor outweigh the potential cost of a class-action lawsuit or death-by-a-thousand-paper-cuts settlements? Or should ARM entities switch to corresponding through email, whether or not their client sends a hand-off letter? It's important to note here that the hand-off letter cited in Reg F is a 'safe harbor' and not a requirement. Is there anything letter vendors can do? Should they start looking at getting collection licenses and engaging directly with creditors? 

I don't know the answer to these questions; each organization will need to decide its risk tolerance based on its portfolio, business needs, ability, and willingness to fight. They should also consult with outside counsel and consider the difference between what is safe and what is defensible because those are often two different things. What does appear to be clear though, is that there is no knight in shining armor here. There is no fix, and the disease that is Hunstein appears to have spread beyond our ability to control it. 

Next Article: Credit Eco to Go: The Problem Solving ...