The FDCPA Bona Error Defense goes before the Supreme Court early next year

The Fair Debt Collection Practices Act is a federal statute that governs every debt collector involved in collecting debts related to personal, home or consumer items. In 1995, the United States Supreme Court in Heinz v Jenkins, made clear that the FDCPA applies to attorneys as well.
The FDCPA contains a defense to debt collectors who get sued for violation of this statute. The “Bona Fide Error” Defense (“BFE Defense”) as it is commonly called, states:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”

15 U.S.C. 1692k(c)
There is a major issue with the Bona Fide Error Defense upon which the circuit courts disagree. The major question with the BFE Defense is whether it applies to mistakes of law as well as mistakes of fact (clerical mistakes). Not only are the circuits in disagreement on this issue, but we have competing and contrary decisions from within our circuit (6th Circuit) alone. The United States Supreme Court in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA is going to take up the issue. This is going to be a real nail biter for every debt collector (and the defendant law firm.).
In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, (“Carlisle”), the defendant law firm was hired by Countrywide Bank to foreclose on Ms. Jerman’s mortgage. In connection with its lawsuit to foreclose on Jerman’s mortgage, Carlisle attached a Notice Under the Fair Debt Collection Practices Act which provided, among other things, that:

the debt described herein will be assumed to be valid by the creditor’s law firm [Carlisle] unless the debtor(s) . . . within thirty (30) days after receipt of this notice, dispute, in writing, the validity of the debt or some portion thereof.

The FDCPA does NOT require a consumer to dispute a debt in writing. The statute does require a consumer who wants validation of the debt, to make that demand in writing, but there is no like requirement for disputing the debt. Sounds a lot like splitting hairs, huh? Nevertheless, this fearsome fight has a lot at stake as the BFE Defense is substantial. Frequently, it is the only defense that a debt collector has to a FDCPA lawsuit. Hence, the scope of this defense will have a major impact on the outcomes of future cases.
Ms. Jerman (and her attorneys’) have asked the District Court for class action certification of this lawsuit. Carlisle has argued, persuasively, that it is entitled to the BFE Defense because such defense applies not only to mistakes of fact, but mistakes of law. Again, whether this is true or not is currently up for grabs. There are cases around the country that hold that the BFE Defense only applies to clerical mistakes. In fact, this view was starting to gain momentum amongst the circuits and is well on its way to becoming the majority view.
There are, however, other cases, that state that the BFE Defense applies only to clerical mistakes. These cases typically rely upon the BFE Defense cited in the Truth in Lending Law, a companion Consumer Protection Statute to the FDCPA. The BFE Defense in TILA, indisputably applies only to clerical sorts of mistakes.
The Supreme Court has docketed a hearing on Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA for January 13, 2010. I will keep you, my good reader, posted as to what happens next!

If you have questions about credit or collection issues, contact Attorney Gary Nitzkin or call toll free (888) 293-2882 for a free consultation.  For more information about our firm, visit www.creditor-law.com.  For more information about debt collection, follow our blog at www.michigancollectionlawblog.com.

This entry was posted on Tuesday, December 15th, 2009 and is filed under Debt Collection Laws - Federal . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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