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Bona-Fide Error Is Not All It’s Cracked up to Be

  • Jun 5 2013

By: William James Campbell

An FDCPA Plaintiff’s lawyer can count on a couple of things when sending a demand letter or filing, for example a credit card collection lawsuit.  None is more predictable, however, than the assertion that the collectors illegal conduct is the result of a bona-fide error.  “The Bona-Fide Error Defense” is without a doubt the most misunderstood legal concept in all of FDCPA law.  Of course we always have to start Bona Fide Error discussions by saying that FDCPA is a strict liability statute and that that “bona fide error defense provides a narrow exception to this strict liability.” (McCollough v. Johnson, Rodenberg & Lauinger, (2009) 610 F.Supp.2d 1247, 1257).

It helps to see how the law in this area developed. There was, prior to April 21, 2010, a split in the law as to what must be shown to prove intent.  “Because the FDCPA is a strict liability statute, however, debt collectors are liable if they perform any intentional act that results in a violation, regardless of fault.” (see Shapiro v. Haenn, (D. Me. 2002) 222 F.Supp.2d 29, 43; Picht v. Jon R. Hawks, Ltd., 236 F.3d 446, 451).  As opposed to “[i]n other words, a violation is unintentional for purposes of the FDCPA’s bona fide error defense if the debt collector can establish the lack of specific intent to violate the Act.” (Johnson v. Riddle, (10th Cir. Utah 2006) 443 F.3d 723, 728).  Of course plaintiff lawyers prefer Shapiro over Johnson.  The courts in California have followed Shapiro finding that the FDCPA is a strict liability statute and a violation need not be intentional. (Reichert v. National Credit Systems, Inc., (9th Cir. 2008) 460 F.3d 1002, 1004;   Clark v. National Credit & Collection Servs., Inc., (9th Cir. 2006) 460 F.3d 1162)

However, on April 21, 2010 the United States Supreme Court settled this legal dilemma of intent as it relates to the bona fide error defense.  In  Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, (U.S. 2010) 130 S.Ct. 1605 the United States Supreme Court was confronted with the issue of whether mistake of law was covered by the bona fide error defense.  The Court, in confronting this issue, had to decide whether the unintentional prong of the bona fide error defense was measured by a specific intent to violate the law, which would cover mistakes of law, or whether there must be a showing that the conduct itself that created the violation was unintentional.  The Court ruled the later.

The Court said, “Our law is therefore no stranger to the possibility that an act may be ‘intentional’ for purposes of civil liability, even if the actor lacked actual knowledge that her conduct violated the law.” (Id. at 1612). Further, The Court said, “Congress also did not confine liability under the FDCPA to ‘willful’ violations.” (Id. at 1613). The Court also required that any mistake of fact must be accompanied by an unintentional act.

Carlisle argued, as most creditors probably would, that if this is the measurement then the bona fide error defense would not apply to all violations.  Carlisle, pointing to violations related to excessive phone calls, argued that the bona fide error defense “would be unavailable to a debt collector who violates a provision of the FDCPA applying to acts taken with particular intent because in such instances the relevant act would not be unintentional.   Including mistakes as to the scope of such a prohibition, Carlisle urges, would ensure that §1692k(c) applied throughout the FDCPA. (Id. at 1619).   The Court said, “We see no reason, however, why the bona fide error defense must cover every position of the act.” (Id. at 1619).  This means that if a creditor’s act is intentional, and those acts happen to violate the FDCPA, the bona fide error defense will not apply.

The U.S. Supreme Court essentially followed the rationale of Bentley v. Great Lakes Collection Bureau, (2d Cir. Conn. 1993) 6 F.3d 60, 63 (the FDCPA is a strict liability statute . . . and the degree of a defendant’s culpability may only be considered in computing damages. . . .) by saying, “it is a fair inference that Congress chose to permit injured consumers to recover actual damages, costs, fees, and modest statutory damages for “intentional” conduct, including violations resulting from mistaken interpretation of the FDCPA, while reserving the more onerous penalties of the FTC Act for debt collectors whose intentional actions also reflected ‘knowledge fairly implied on the basis of objective circumstances’ that the conduct was prohibited.” (Id. at 1619).

What does this all mean? Well, the U.S. Supreme Court essentially said that the Bona Fide Error Defense does not apply to intentional acts which make up an FDCPA violation. It helps to look at this in the construct of criminal law. In criminal law there are specific intent crimes and general intent crimes.  General intent crimes only require that the accused individual intend to engage in the conduct which makes up the crime.  This means the accused does not need to intend to break the law, instead must only intend to engage in the illegal conduct.  For example, driving under the influence; a person need not intend to drive with a .08 or higher blood alcohol level.  All a person need do is intentionally drink alcohol and intentionally drive after drinking.

Specific intent requires a result.  Murder is a great example here.  Specific intent not only requires that the accused intend to engage in the conduct which results in a killing but must specifically intend to kill as well.

Looking at FDCPA through the lens of criminal law then we would say that FDCPA is a general intent statute. Bona Fide Error does not apply if the violating collector intends to do the acts which make up the violation. For example, if a collector intentionally picks up a telephone, intentionally dials a debtor’s telephone number and intentionally attempts to collect a debt then Bona Fide Error would not apply if notice of representation of legal counsel was adequately provided.  This usually takes the Bona Fide Error Defense out of most FDCPA equations.

If it doesn’t then the second prong of the Bona Fide Error Defense likely will.  As the text of § 1692k(c) indicates, the procedures component of the bona fide error defense involves a two-step inquiry: first, whether the debt collector “maintained”–i.e., actually employed or implemented–procedures to avoid errors; and, second, whether the procedures were “reasonably adapted” to avoid the specific error at issue. (Johnson v. Riddle, (10th Cir. Utah 2006) 443 F.3d 723, 729).   The second prong of the analysis is fulfilled when “the debt collector actually employed both general procedures to comply with the FDCPA and specific procedures designed to avoid the error at issue.” (Jenkins v. Heintz, (7th Cir. 1997) 124 F.3d 824, 834-835).

Here is the bottom line. In the FDCPA arena Bona Fide Error is slung around like a lasso at a rodeo.  The problem, at least for debt collectors, is that nobody has really attempted to look at what the law really says.

Posted in: Debt Collections