Legal Update: Hunstein v. Preferred Collection and Management Services, Inc.

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Duane Tyler, Head of Litigation at Moore Brewer Wolfe Jones Tyler & North.

In our June 2021 article in this space, we discussed the Hunstein case and its ruling that a debt collector’s communication with a third-party vendor hired by the debt collector to send demand letters to debtors violated section 1692c(b) of the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §§1692-1692p).

Section 1692c(b) provides:

Except as provided in section 1692b of this Title, 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 post judgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than (1) the consumer, (2) his attorney, (3) a consumer reporting agency if otherwise permitted by law, (4) the creditor, (5) the attorney of the creditor, or (6) the attorney of the debt collector. (Numbers added for clarity).  

Because a communication to a third-party vendor is not one of the six types of communications a debt collector can send in connection with the collection of a debt, the three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit (covering Alabama, Florida and Georgia) found the communications violated section 1692c(b). 

As discussed in the previous article, the court also had to decide whether the debtor, Hunstein, had standing to assert the claims in federal court.  The court concluded the violation of the FDCPA is sufficient to establish standing.  After the publication of our previous article, the same three judge-panel vacated its opinion and issued a new opinion[1] taking into consideration the United States Supreme Court decision in TransUnion, LLC v. Ramirez,[2] which discussed standing based solely on the violation of a statute.  While the three-judge panel again reached the same decision – that Hunstein had standing, and the communication violated section 1692c(b) – this time it was not unanimous.  Instead, in a 2-1 decision, the dissent argued Hunstein did not have standing in light of TransUnion.  On the violation issue, the dissent argued that Congress envisioned the role of intermediaries, like mail vendors, in the statutory scheme.  Since then, the latest development is the Eleventh Circuit’s issuance of an order vacating the new opinion and agreeing to rehear the case by the entire Eleventh Circuit en banc.[3]  The court has not yet identified the issue it will consider – standing and/or violation of section 1692c(b) - in the en banc hearing.

Holder Liability for Attorney Fees

In our February 2021 article, we discussed the conflicting court decisions on whether a consumer can recover attorney fees against the holder of a retail installment sale contract.  Since the passage of the Federal Trade Commission (FTC) Holder Rule – which limits the amount a consumer can recover from a holder to the amount the consumer paid under the contract – California law allowed a consumer who successfully sues a holder to recover reasonable attorney fees without regard to the limits imposed by the FTC Holder Rule.  In July 2018, in the case of Lafferty v. Wells Fargo Bank,[4] the Third District Court of Appeal based in Sacramento ruled attorney fees are within the FTC Holder Rule’s limit on a consumer’s recovery.  In response, the California Legislature passed Assembly Bill 1821 (Civil Code section 1459.5) for the purpose of allowing attorney fees in holder cases without regard to the limits of the FTC Holder Rule. 

Before the January 1, 2020 effective date of AB 1821, the FTC published a comment interpreting the FTC Holder Rule to mean a consumer’s recovery against a holder, including attorney fees, cannot exceed the amount the consumer paid under the contract.  Despite this FTC interpretation, AB 1821 went into effect on January 1, 2020.  Six months later, in June 2020, the Fifth District Court of Appeal based in Fresno, in Spikener v. Ally Financial, Inc.,[5] ruled that AB 1821 was preempted by the FTC Holder Rule, meaning that attorney fees are included in the Holder Rule limits on a consumer’s recovery against a holder. Finally, in Pulliam v. HNL Automotive, Inc.,[6] decided on January 29, 2021 by the Second District Court of Appeal based in Los Angeles, the court ruled that attorney fees are not within the definition of “recovery” in the FTC Holder Ruler and that the consumer was entitled to recover all reasonable attorney fees. 

In our previous article, we explained that California Rule of Court 8.500 (b) states the California Supreme Court “may order review of a Court of Appeal decision: (1) When necessary to secure uniformity of decision [among the Courts of Appeal]”.   We are happy to report that the Supreme Court has agreed to hear an appeal of the Pulliam case.[7]  The on-line docket for the case identifies the issue as “Does the word ‘recovery’ as used in the Holder Rule (16 C.F.R. § 433.2) include attorney fees?”  A date for oral argument is not yet set.  The Court’s decision should provide clarity and be the final word on this subject.

Consumer Financial Protection Bureau Regulations under Fair Debt Collection Practices Act

Any reading of CFPB regulations and the federal FDCPA makes it abundantly clear that they put burdens on creditors/debt collectors and provide protections to borrowers/consumers.  The latest CFPB debt collection regulations,[8] effective November 30, 2021, are consistent with that approach, with one welcome exception.  Appendix B to the new regulations contains a “model validation notice.”  As stated in the regulations “Compliant use of the model validation notice provides a safe harbor for the Rule’s content and format requirements.” 

Section 1692g of the federal FDCPA entitled “Validation of debts” states:

  • Notice of debt; contents

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

As stated in section 1692g(a), this information can be included and usually is included in the initial demand letter from a debt collector.  Errors in demand letters are but one type of conduct or communication consumer class action attorneys feed on, so a model form is indeed a welcome tool to use in debt collection.  Nevertheless, care is required when using the model form in California.

Under California’s Rosenthal Fair Debt Collection Practices Act (California Civil Code §§ 1788 et seq.) a person collecting its own debt is a debt collector.  Section 1788.2 (c) defines a debt collector as:

(c) The term "debt collector" means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection but does not include an attorney or counselor at law. (Emphasis added).

Moreover, sections 1692b through 1692j of the federal FDCPA are incorporated into Rosenthal.  Thus, in California, whether a credit union collects its own debts or uses a third-party debt collector, the credit union must comply with sections 1692b through 1692j of the federal FDCPA and the CFPB regulations enacted thereunder, including the sections governing information that must be included in validation notices (demand letters) in section 1692g(a).  The safe harbor form satisfies that issue.

Using the federal safe harbor form in California is not enough however, because Rosenthal requires additional information in an initial communication. The CFPB regulations recognize that various state laws may require additional information than what is required by the federal FDCPA and CFPB.  The regulations provide the following information that can be added without losing safe harbor protections:

  • Telephone contact information (telephone number and the times that the debt collector accepts consumer telephone calls);
  • A reference code;
  • Payment disclosures (either or both of the following statements: “Contact us about your payment options,” or a substantially similar statement and/or “I enclosed this amount: _____”, or a substantially similar statement, with payment instructions after the statement, and a prompt);
  • Disclosures under other applicable law (generally, this information is disclosed on the reverse side of the validation notice, but cannot be positioned so that they appear directly on the reverse of the consumer response section, below the scissor cutoff, and must include a statement on the front side of the validation notice referencing the disclosures on the back such as “Notice: See reverse side for important information” (there are specific requirements for disclosures about time-barred debt and those notices being on the front of the validation notice, but we do not collect on time-barred debts so I’ve excluded them from this email);
  • Certain electronic communication information (a debt collector may include the debt collector’s website or email address to assist the consumer in communicating with the debt collector electronically, and if a debt collector does not provide the validation notice electronically, the debt collector can include a statement explaining how a consumer can dispute the debt or request original-creditor information electronically);
  • Spanish-language translation request statements (either one or both of the following statements, or substantially similar phrases, “Póngase en contacto con nosotros para solicitar una copia de este formulario en español” which means “Contact us to request a copy of this form in Spanish” or “Quiero este formulario en español” which means “I want this form in Spanish” and there is a Spanish version of the model form that I have downloaded from the CFPB website, but we don’t have to send that initially, it is only needed if we get a request in response to the initial model form);
  • The merchant brand, affinity brand, or facility name; and
  • Consumer financial product or service disclosures (which I don’t believe applies to our collection work, but if a debt collector is not collecting a debt related to a consumer financial product or service, the debt collector may still include the disclosures that are required only for consumer financial product or service debts such as name of the creditor that owned the debt as of the itemization date or the statement that informs the consumer that additional information regarding consumer protections in debt collection is available on the Bureau’s website at

Credit unions should consult with counsel and their form providers regarding their use of the safe harbor form.

Article by Duane Tyler, Head of Litigation at Moore Brewer Wolfe Jones Tyler & North.

[1] Hunstein v. Preferred Collection & Mgmt. Servs, Inc., 2021 WL 4998980 (Oct. 28, 2021).

[2] TransUnion LLC v. Ramirez, 141 S.Ct. 2190 (June 25, 2021).

[3] Hunstein v. Preferred Collection & Mgmt. Servs, Inc., 2021 WL 5353154 (Nov. 17, 2021).

[4] Lafferty v. Wells Fargo Bank, N.A., 25 Cal.App.5th 398 (July 19, 2018; as modified Aug. 17, 2018).

[5] Spikener v. Ally Financial, Inc., 50 Cal.App.5th 151 (June 9, 2020).

[6] Pulliam v. HNL Automotive, Inc., et al., 60 Cal.App.5th 396 (Jan. 29, 2021).

[7] Pulliam v. HNL Automotive, Inc., et al., 484 P.3d 564 (Apr. 28, 2021).

[8] Debt Collection Practices (Regulation F), 12 CFR Part 1006.

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