Banking and Finance Law Daily Debt collector could not avoid FDCPA liability by obligating creditor to provide accurate information
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Friday, November 6, 2020

Debt collector could not avoid FDCPA liability by obligating creditor to provide accurate information

By Nicole D. Prysby, J.D.

Contractually obligating a creditor to provide accurate information regarding debts did not allow a debt collector to qualify for the FDCPA bona fide error defense, because it was not a procedure designed to avoid discoverable errors.

The Ninth Circuit Court of Appeals held that the bona fide error defense in the Fair Debt Collection Practices Act (FDCPA) does not allow debt collectors to avoid liability by contractually obligating creditor-clients to provide accurate information. A debt collector claimed that it qualified for the bona fide error defense because it contractually required creditor to provide it with accurate information. Therefore, it was not liable under the FDCPA when it tried to collect more than a consumer owed because it calculated interest using an incorrect date of last payment. The court rejected the debt collector’s argument and held that a debt collector must maintain procedures designed to avoid discoverable errors, such as errors in calculation and itemization. The bona fide error defense does not shield debt collectors who unreasonably rely on creditors’ representations. The court also rejected the debt collector’s argument that it separately qualified for the defense because it sends its creditor-clients follow-up requests seeking verification of the accuracy of their information. The debt collector did not qualify for the defense on that basis because it did not wait for a response before instituting collection efforts (Urbina v. National Business Factors Inc., Nov. 5, 2020, Christen, M.).

A consumer had an unpaid balance on a medical bill from Tahoe Fracture Clinic (TFC). TFC advised the consumer that she had an outstanding balance of $614 and when she did not respond, forwarded the bill to National Business Factors (NBF) for collection. NBF sent a letter to TFC requesting that TFC verify the amount due. The following day, without receiving a response from TFC, NBF sent the consumer a collection notice seeking payment of $614 plus interest. The consumer sued NBF, alleging violations of the FDCPA. NBF admitted it received an incorrect payment history from TFC and mistakenly calculated interest beginning Feb. 26, 2016 rather than Aug. 12, 2016. Because NBF had charged too much interest and attempted to collect more than the consumer owed, it was undisputed that NBF violated the FDCPA. NBF argued that because it contractually required TFC to provide it with accurate information, it qualified for the FDCPA’s bona fide error defense. The district court concluded that NBF was entitled to the defense because it employed a procedure reasonably adapted to avoid errors of the type that occurred in the consumer’s case.

The Ninth Circuit reversed after finding that NBF failed to demonstrate that it was entitled to the bona fide error defense because it did not show that it maintained procedures reasonably adapted to avoid the violation. The Ninth Circuit found persuasive the holding in an Eleventh Circuit case in which the court denied a debt collector’s claim, nearly identical to NBF’s, that an contract obligating a creditor-client to present only accurate information on debts qualified as a procedure reasonably adapted to avoid erroneous interest calculations. As the Eleventh Circuit stated, employing a one-time form contract with a creditor-client, then blindly relying on the creditor to send only valid debts, is not a procedure designed to avoid erroneous interest charges resulting from an inaccurate payment history. Procedures designed to avoid such erroneous charges might include: a requirement that the creditor verify under oath that each charge was accurate, the publication of an in-house fair debt compliance manual, updated regularly and supplied to each firm employee, training seminars for firm employees collecting consumer debts, and a multi-step, highly detailed pre-litigation review process to ensure accuracy and to review the work of firm employees to avoid violating the Act. NBF’s reliance on TFC to provide accurate information did not in any way compare to the types of procedures and systems found to qualify for the bona fide error defense.

NBF also argued that even if its collection service contract was insufficient to qualify for the bona fide error defense, it separately qualifies because it sends its creditor-clients follow up requests seeking verification of the accuracy of their information. This argument also fell short because NBF did not wait for a response from TFC before it attempted to collect from the consumer. Because NBF did not argue that it routinely waits for creditor-clients to respond before sending collection notices to debtors, it failed to show that its practice of requesting account verification from its clients is genuinely calculated to catch errors of the sort that occurred here.

The case is No. 19-16055.

Attorneys: Christopher P. Burke (Law Offices of Christopher P. Burke) for Mercedes Urbina. Robert Christopher Herman (Robert C. Herman, Attorney at Law) for National Business Factors Inc.

Companies: National Business Factors Inc.

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