The American Bankers Association and a coalition of financial trade groups filed an amicus brief urging the 11th U.S. Circuit Court of Appeals to rehear Hunstein v. Preferred Collection. The Hunstein case ruled that using a vendor to generate a letter to a debtor violated the Fair Debt Collection Practices Act’s prohibition on disclosing a consumer’s debt to a third party.
The decision effectively prohibits third-party debt collectors and the entire financial services industry—including banks, credit unions and finance and mortgage companies—from using third-party service providers that are vital to servicing of loans, according to the trade groups.
“The decision also threatens to limit the ability to share information necessary for buying, selling, and securitizing loans, which is critical to the financial services market. None of this was intended by the drafters of a statute meant to curb abusive debt collection practices,” the groups wrote in the brief.
If allowed to stand, the court decision would effectively require FDCPA-covered institutions and servicers to bring in-house many clerical or technical functions currently performed by vendors or third parties. The trade groups noted that “this is simply not possible in some cases, and would be extremely expensive in nearly all cases.”