9th Circuit Addresses FDCPA "Bona Fide Error" Defense
The Ninth Circuit this week addressed the evidence required to establish a "bona fide error" defense under the FDCPA, 15 U.S.C. 1692k(c). In Reichert v. National Credit Systems, Inc., the Court held that to establish the bona fide error defense, "a showing of 'procedures reasonably adapted to avoid any such error' must require more than a mere assertion to that effect. The procedures themselves must be explained, along with the manner in which they were adapted to avoid the error."
In Reichert, plaintiff debtor sued National Credit Systems ("NCS") in connection with its collection activities for debtor's former landlord. The debt that NCS attempted to collect included a $225 charge by the landlord's attorney for writing a letter to the debtor. The debtor alleged, among other things, that the inclusion of this charge, which was not specifically provided in the lease, violated FDCPA provision 15 U.S.C. §1692f(1). The district court granted summary judgment for the debtor. NCS appealed. On appeal, NCS asserted that the creditor had provided accurate information about debts in the past, and that this made its reliance on the creditor's information reasonable. NCS also cited the affidavit submitted in the district court from an NCS manager who referenced its "extensive procedures" to avoid errors.
The Ninth Circuit affirmed summary judgment for the debtor, citing its 2006 opinion in Clark v. Capital Credit and Collection Services, Inc., 460 F.3d 1162 (9th Cir. 2006), which held that the FDCPA is a strict liability statute and "defendant bears the burden of showing the violation can be excused." The Court recognized the inherent tension between a strict liability statue and the affirmative defense of bona fide error, and concluded that establishing that an error was unintentional, without more, is insufficient to establish the defense.
Specifically, the Court found that NCS had failed to carry its burden to establish that its reliance on the information provided by its client was reasonable because "[t]he fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable." The Court also found the evidence submitted by NCS failed to meet its burden to establish the bona fide error defense because it did not explain the procedures in place or the manner in which the procedures were adapted to avoid the error.
In Reichert, plaintiff debtor sued National Credit Systems ("NCS") in connection with its collection activities for debtor's former landlord. The debt that NCS attempted to collect included a $225 charge by the landlord's attorney for writing a letter to the debtor. The debtor alleged, among other things, that the inclusion of this charge, which was not specifically provided in the lease, violated FDCPA provision 15 U.S.C. §1692f(1). The district court granted summary judgment for the debtor. NCS appealed. On appeal, NCS asserted that the creditor had provided accurate information about debts in the past, and that this made its reliance on the creditor's information reasonable. NCS also cited the affidavit submitted in the district court from an NCS manager who referenced its "extensive procedures" to avoid errors.
The Ninth Circuit affirmed summary judgment for the debtor, citing its 2006 opinion in Clark v. Capital Credit and Collection Services, Inc., 460 F.3d 1162 (9th Cir. 2006), which held that the FDCPA is a strict liability statute and "defendant bears the burden of showing the violation can be excused." The Court recognized the inherent tension between a strict liability statue and the affirmative defense of bona fide error, and concluded that establishing that an error was unintentional, without more, is insufficient to establish the defense.
Specifically, the Court found that NCS had failed to carry its burden to establish that its reliance on the information provided by its client was reasonable because "[t]he fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable." The Court also found the evidence submitted by NCS failed to meet its burden to establish the bona fide error defense because it did not explain the procedures in place or the manner in which the procedures were adapted to avoid the error.
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