The Fair Debt Collections Practices Act ("FDCPA") is a consumer-friendly statute that contains many technical requirements that debt collectors easily can violate, even when acting in good faith. Even if the debt collector commits merely a technical violation of the FDCPA that does not cause actual harm to the consumer, the debt collector still may be held liable for statutory damages up to $1,000 and more significantly, the consumer’s attorney’s fees. In FDCPA class action suits, the amount of statutory damages that can be recovered is the lesser of $500,000 or 1 percent of the debt collector’s net worth. Because of this statutory scheme, consumers have filed FDCPA lawsuits with increasing frequency in recent years. This trend likely will continue as a result of United States Supreme Court recent decision narrowing the scope of the bona fide error defense and holding that an erroneous interpretation of the FDCPA will not shield debt collectors from liability under the bona fide error defense.
In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S.Ct. 1605 (2010), the defendant law firm filed a foreclosure lawsuit. The complaint included a notice that the mortgage debt would be assumed valid unless the plaintiff disputed it in writing. The plaintiff’s lawyer sent a letter disputing the debt, and when the mortgage company acknowledged that the debt had been paid, the law firm withdrew the lawsuit. Nevertheless, the plaintiff filed a lawsuit alleging that the law firm (and the attorney who filed the foreclosure lawsuit) violated the FDCPA by sending her a notice that unlawfully required her to dispute the debt in writing. The plaintiff also sought class certification.
The district court held that the law firm violated the FDCPA. However, because the case law was divided as to whether a consumer must dispute a debt in writing, the district court granted summary judgment in favor of the law firm pursuant to the bona fide error defense set forth in 15 U.S.C. § 1692k(c). The Sixth Circuit affirmed the grant of summary judgment to the law firm.
In a 7-2 decision, the Supreme Court held that the bona fide error defense does not encompass an erroneous interpretation of the FDCPA. The Court concluded that neither the text nor the legislative history of the FDCPA revealed an intent by Congress to provide a mistake-of-law defense. The narrowing of the bona fide error defense is just another example of a debt collector stumbling over the technicalities of the FDCPA in its collection efforts and creating a cause of action for the debtor while attempting to collect on a debt owed. The coverage of the FDCPA is broad and its provisions are technical in nature. Companies and their agents must be very familiar with the requirements of the statute to avoid not only failing to collect a valid debt but to avoid incurring costly liability for violating its strict requirements.
For more information regarding this article, contact Neil Wilcove at 770.818.1430 or by email at [email protected] or Bill Buechner at 770.818.1420 or [email protected].