August 31, 2023

FDCPA Update: Third-Party Standing

KK Takeaway:

Under the Fair Debt Collection Practices Act, debt collectors are barred from contacting third parties regarding a consumer’s debt without the consumer’s consent. This statute was enacted for the protection of consumers. As a result, only the consumer can bring a lawsuit against a debt collector for this violation, no matter the injury a third-party may suffer from being contacted by the debt collector.

Background

Magdy v. I.C. System, Inc. No. 21-3010 (8th Cir. 2022)

In July of 2020, I.C. System, Inc. (ICS) sent a debt collection letter to Andrew Magdy as the attorney for an indebted consumer. As it turns out, Magdy was not the attorney for the consumer, and had never been the attorney for the consumer in any capacity. Magdy realized this after performing an extensive search into his files, using time he could have spent working on files for his actual clients. What’s more, the consumer never represented that Magdy was their attorney and never gave consent for a third-party to be contacted regarding the consumer’s debt. Debtor consent is a requirement under the Fair Debt Collection Practices Act (FDCPA) for a debt collector to contact third parties regarding the debt. Magdy sued ICS in the District Court asserting the company was in violation of the FDCPA and as a result he suffered an injury. The District Court held that, while ICS was in violation of the FDCPA, Magdy lacked standing to bring the lawsuit because he was not affiliated with the consumer in question.

After analyzing the statute’s text to determine the statute’s purpose, the District Court held that, because the statute emphasizes that no third-party may be contacted regarding the debt “without the consent of the consumer”, Magdy falls outside the scope of the class of persons the statute was designed to protect. When the case was brought to the Court of Appeals the court used the “Zone of Interest Test” to determine the scope of the statute’s protection. In analyzing the statute, the Court of Appeals indicated that the trigger for the statute’s protection is the act of the debt collector sending the communication to the third party. If the debt collector has consent from the consumer, the debt collector can send as many communications regarding the consumer’s debt to third parties. The Court of Appeals affirmed, and Magdy was prevented from bringing a lawsuit against the debt collector because he was not affiliated with the consumer in question.

Jordan E. Shealy
Attorney, Real Estate
Kelley Kronenberg-Fort Lauderdale, FL.
(954) 370-9970
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