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New Interpretation of the Fair Debt Collection Practices Act Rocks the Industry

"It’s not lost on us that our interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry."

This quote from the Eleventh Circuit Court of Appeal in its April 21, 2021 opinion from the case of Hunstein v. Preferred Collection and Management Services, Inc. is possibly the biggest understatement in the history of the Fair Debt Collection Practices Act. At a minimum, the Eleventh Circuit’s opinion has sent shockwaves and fear throughout multiple sectors of the financial services industry.

At issue is the Eleventh Circuit’s interpretation of Section 1692c(b) of the Fair Debt Collection Practices Act which states:

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 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.

By way of background, this lawsuit originated from unpaid bills for medical treatment. The hospital assigned the unpaid bills to Preferred Collection and Management Services, Inc. (“Preferred”) which operates as a debt collector.  Preferred, like the vast majority of large financial institutions and debt collectors, contracts with a third-party vendor to physically print and mail the collection letters that Preferred sends to various individuals. In conformity with this policy, Preferred sent to its vendor certain information about the Plaintiff including, (1) his status as a debtor, (2) the exact balance of his debt, and (3) the entity to which he owed the debt. The third-party vendor then printed and mailed a dunning letter to the Plaintiff.

Most importantly, no claim was ever made that Preferred sent incorrect information or that the debt was not actually owed.

Despite the benign circumstances, the Eleventh Circuit held that Preferred’s act of communicating the Plaintiff’s information to its own agent violated Section 1692c(b) since it constituted a communication “in connection with the debt.”

The effect of the Eleventh Circuit’s decision will have a national impact on all businesses and individuals operating as a “debt collector” who are now prohibited from communicating a debtor’s information to third-party service providers and vendors (such as mail processors). Although the Eleventh Circuit recognizes the impact of its holding, it has greatly underestimated that impact. There is simply no way for any business to internalize these processes overnight. For a large number of businesses, the Eleventh Circuit’s decision will require new people be hired and trained in addition the purchasing of new equipment; all in the wake of a global pandemic.

Already, the National Creditors Bar Association, the Florida Creditors Bar Association (where the case originated), and other trade associations, have set out to file Amicus Briefs in support of Preferred’s anticipated Petition for Rehearing En Banc. These organizations fear that the Eleventh Circuit’s holding will be weaponized and used to create a new flood of litigation.

In the interim, all businesses and individuals that collect debts as part of their business must immediately review and potentially reevaluate their use of all third-party services; not just mail vendors. 

For additional questions, please contact Litigation Attorney Edward J. Brown at ejbrown@bmdpl.com.

Explosive Growth in Pot of Gold Opportunity for Bank (and Other) Cannabis Lenders Driving Erosion of the Barriers

Our original article on bank lending to the cannabis industry anticipated that the convergence of interest between banks and the cannabis industry would draw more and larger banks to the industry. Banks were awash in liquidity with limited deployment options, while bankable cannabis businesses had rapidly growing needs for more and lower cost credit. Since then, the pot of gold opportunity for banks to lend into the cannabis industry has grown exponentially due to a combination of market constraints on equity causing a dramatic shift to debt and the ever-increasing capital needs of one of the country’s fastest growing industries. At the same time, hurdles to entry of new banks are being systematically cleared as the yellow brick road to the cannabis industry’s access to the financial markets is being paved, brick by brick, by the progressively increasing number and size of banks that are now entering the market.

2021 EEOC Charge Statistics: Retaliation & Impact of Remote Work

The U.S. Equal Employment Opportunity Commission (EEOC) released its detailed information on workplace discrimination charges it received in 2021. Unsurprisingly, for the second year in a row, the total number of charges decreased as COVID-19 either shut down workplaces or disconnected employees from each other. In 2021, the agency received a total of approximately 61,000 workplace discrimination charges - the fewest in 25 years by a wide margin. For reference, the agency received over 67,000 charges in 2020, and averaged almost 90,000 charges per year over the previous 10 years.

Ohio’s Managed Care Overhaul Delayed – New Implementation Timeline

At the direction of Governor Mike DeWine, the Ohio Department of Medicaid (ODM) launched the Medicaid Managed Care Procurement process in 2019. ODM’s stated vision for the procurement was to focus on people and not just the business of managed care. This is the first structural change to Ohio’s managed care system since the Centers for Medicare & Medicaid Services' (CMS) approval of Ohio’s Medicaid program in 2005. Initially, all of the new managed care programs were supposed to be implemented starting on July 1, 2022. However, ODM Director Maureen Corcoran recently confirmed that this date will be pushed back for several managed care-related programs.

Laboratory Specimen Collection Arrangements with Contract Hospitals - OIG Advisory Opinion 22-09

On April 28, 2022, the Department of Health and Human Services, Office of Inspector General (“OIG”) published an Advisory Opinion[1] in which it evaluated a proposed arrangement where a network of clinical laboratories (the “Requestor”) would compensate hospitals (each a “Contract Hospital”) for specimen collection, processing, and handling services (“Collection Services”) for laboratory tests furnished by the Requestor (the “Proposed Arrangement”). The OIG concluded that the Proposed Arrangement would generate prohibited remuneration under the federal Anti-Kickback Statute (“AKS”) if the requisite intent were present. This is due to both the possibility that the proposed per-patient-encounter fee would be used to induce or reward referrals to Requestor and the associated risk of improperly steering patients to Requestor.

Property Owner Protection from Tax Valuation Challenges

New legislation provides significant new protections for commercial property owners against challenges to valuation primarily by local school boards and prohibiting side agreements to avoid tax valuation changes. The Ohio Legislature has approved House Bill 126 which will go into effect July 2022 but will effectively apply to the 2023 tax valuation year.