The Supreme Court ruled today, in a 7-2 ruling in JERMAN v. CARLISLE, McNELLIE, RINI, KRAMER & ULRICH LPA. held that the Bona Fide Error Defense (“BFE”) in the Fair Debt Collection Practices Act (“FDCPA”) does not apply to mistakes of law.
The FDCPA requires a debt collector to issue a validation notice to a debtor within five days of initially contacting him or her. In that validation notice, the collector is required to tell the debt that the debtor will assume that the debt is valid if the consumer does not posit an objection to it within 30 days. In this case, Ms. Jerman was dunned by the defendant, a debt collection law firm with a letter that required the Plaintiff to posit her dispute to the debt in writing. The FDCPA contains no such requirement that the consumer must posit that dispute in writing.
Jerman sued the Carlisle firm and sought to turn it into a class action. Carlisle successfully asserted the BFE defense in the trial court. On appeal, the 6th Circuit upheld the lower court’s finding that the BFE defense extended to mistakes of law as well as mistakes of fact. The Supreme Court reversed the 6th Circuit as it took a much narrower view of the BFE defense.
The FDCPA is a consumer protection statute designed to protect debtors from nefarious debt collectors. Because the FDCPA can be unintentionally violated, Congress inserted a defense for debt collectors as 15. U.S.C. 1692j, as follows:
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.
The Court’s rationale for maintaining a distinction between mistakes of fact which are covered by the BFE Defense and mistakes of law was fascinating and, in my opinion (for whatever that is worth), well reasoned. The Court began its opinion by holding that ignorance of the law is no excuse. It then discusses laws that show that one may violate a civil law unintentionally and yet may still be held liable. Analyzing the statutory scheme of the FDCPA, the Court reasoned, there is private cause of action by a debtor/consumer for violations of the statute. Further, the Federal Trade Commission can also pursue that same debt collectors for intentional violations of the statute. Hence, all violations may be pursued by a consumer except as provided for by the BFE Defense.
Advice to Debt Collectors – The mistake made the Carlisle firm in requiring debtors to posit their disputes in writing is an old trap and easily avoidable. I don’t mean any disrespect to the firm. I am just surprised that it made this mistake. I have blogged about this trap previously and this case is a good reminder to us all.
My second bit of advice is for you to be sure that you have policies and procedures in place so that if you do get sued, you can raise the BFE defense (assuming that you are accused of making a mistake of fact and not law). Get your collection letters reviewed, have a written policy and procedures policy in place and train your collectors.
While ignorance of law is no excuse, as the Court found, it is equally true that an ounce of prevention is worth a pound of cure, right?
If you have any debt collection related questions, call or email Attorney Gary Nitzkin for a free consultation. Visit our website at www.creditor-law.com. For more information about collection law, follow our blog at www.michigancollectionlawblog.com or call (888) 293-2882.