Confirmation Letters and the Decision by the Eleventh Circuit Court of Appeals

What does it mean for payment confirmation and reminder letters under the newly issued decision by the United States Court of Appeals for the Eleventh Circuit in the case of Hunstein v. Preferred Collection and Management Services, Inc.?

Background on the Decision of The Eleventh Circuit Court of Appeals

In this case, the Court held that the defendant’s, a debt collector, transmittal of information to a third-party letter vendor was equal to a communication connection with the collection of any debt within the meaning of § 1692c(b). The information being data that concerned the debt that included the Debtor’s name, the outstanding balance, the fact the debt was incurred from the medical treatment of the Debtor’s son and his son’s name. The letter emphasized requested payment on the delinquent debt, made it clear that the letter was sent to collect a debt, and that additional fees would be incurred if immediate payment is not made. In other words, the third party was sent information to send a dunning letter. The origin of this word comes from the 17th-century verb “dun,” which means to demand payment of a debt.

Confirmation Letters and Dunning Letters

Payment confirmation and reminder letters are much different than a dunning letter and are limited to the payment information needed to confirm the payment authorized by the Debtor. The letter is not connected with the debt collection but sent as an FDCPA and NACHA compliance requirement to confirm a payment authorized and originated by the Debtor. The subject matter of the letter is not the debt, but the payment authorized. The letter does not demand payment or request additional payments. The information submitted to the third party is limited to the information required to confirm the payment authorized and originated by the Debtor. The balance is not disclosed nor how the debt was incurred. This type of letter should arguably not be prohibited because of this ruling.

Communications, Letter Vendors, and Compliance with the Eleventh Court of Appeals Ruling

While all can understand that opinions differ as interpretations often can, extreme caution should be taken before applying a strict interpretation without regard to subject matter or reason for using a third-party letter vendor. Suppose an agency believes that all letter vendors are prohibited and as a result terminates relationships with letter vendors. In that case, it must be ready and able to send timely communications directly or risk non-compliance with the FDCPA and NACHA.

Specifically, if an agency accepts post-dated payments, including those payments made by an authorized payment schedule set up by the Debtor per the FDCPA, they must send written notification to the Debtor no more than ten or less than three days before deposit of the post-dated payment. If written communication is not sent, the processing of the post-dated payment will constitute unfair or unconscionable means to collect the debt under the FDCPA. Non-compliance with the FDCPA is not something that any agency can overlook. FDCPA violations can easily lead to CFPB actions against the agency, consumer lawsuits (including class actions), fines, or business license loss.

Secondly, any agency accepting recurring ACH payments over the phone or does not record authorizations for one-time ACH payments made by phone per NACHA rules must send confirmation letters. Specifically, NACHA requires that one-time ACH transactions authorized over the telephone either be recorded or a confirmation email/letter must be sent that confirms the authorization. For recurring ACH transactions authorized over the phone, the call needs to be recorded, and a confirmation email/letter needs to be sent. If a third party does not send a confirmation letter or email and the agency fails to send it, the payment would be out of compliance with NACHA rules. Such non-compliance could result in losing the ability to process ACH, ACH returns, or fines.

Reformatting Letters to Comply with the Eleventh Circuit Court of Appeals Decision

As an alternative for those agencies that decide on a rigorous conservative application of the ruling, instead of taking the steps to terminate relationships with third-party vendors, agencies should first consider reviewing potential process changes that could limit potential risk. You can reduce the information to only that of what is needed to complete the process outsourced. For example, under the case standard created in the Zortman case, well known in the industry, letters could potentially be edited to omit the name from the rest of the debt information.

However, what cannot be overlooked is the fact that under the strict conservative interpretation, sending payment confirmation or reminder letters through third-party vendors is only one of many concerns that such would create. The Court points to the exceptions included in the statute as the only parties intended to be excluded as improper communications. The exceptions being reporting agencies, creditors, attorneys of creditors, attorneys of debt collectors, or persons providing a debtor’s location information. While as the Court points out, third-party letter vendors are not included, neither are email vendors, text vendors, hosted software systems, or payment processors. Will all be required to use internally created applications? Will agencies need to add functionality to meet the heavy burden of text and email compliance in-house?

In conclusion, the case is yet to be final as the agency has the right to appeal the decision. It is the hope of all that the opportunity will be given to rehear the case. Even if an appeal leads to the same ruling in favor of the consumer, it could still be beneficial to all if Judges add additional language to limit this interpretation in a manner to avoid the potential of a strict conservative overbroad interpretation.