Tuesday, July 8, 2008
Ninth Circuit Takes Stringent View of Debt Collection Practices Statute
By STEVEN M. ELLIS, Staff Writer
Those who attempt to collect erroneous debts need to show more than past accuracy on the creditor’s part to avoid strict liability under federal law governing collection practices, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
Holding that debt collectors have an affirmative obligation to maintain their own procedures to avoid discoverable errors in order to establish a bona fide error defense to liability under the Fair Debt Collection Practices Act, the court ruled in an opinion by Judge Mary M. Schroeder that neither an Arizona debt collector’s reliance on a creditor, nor the company’s conclusory declaration that it had “extensive procedures” to avoid errors, were sufficient.
Debt collector National Credit Systems Inc. sought in 2002 to enforce a $2,124 debt against Robert Reichert after he and his wife allegedly breached a lease agreement with an apartment complex, which subsequently assigned the debt to NCS.
When Reichert disputed the debt, NCS sent him a written verification of the amount, which stated that it included a $225 charge for a letter an attorney wrote to Reichert on behalf of the apartment complex.
Reichert then filed suit, alleging that NCS had violated the FDCPA by seeking an amount not expressly authorized by the lease agreement, and moved for summary judgment.
NCS also moved for summary judgment. Arguing that the act did not impose strict liability, it claimed that it had properly relied on the apartment complex’s representation of the debt.
Alternatively, it also asserted that it was entitled to a defense against liability because the violation had not been intentional and the error in good faith.
Under the act, a debt collector may not be held liable if the collector can show by a preponderance of the evidence that a violation was not intentional and resulted from a bona fide error despite procedures reasonably adapted to avoid such an error.
However, U.S. District Judge Roger G. Strand of the District of Arizona granted Reichert’s motion and ruled that NCS had violated the act, regardless of the company’s intent.
Noting that the its only evidence as to the procedures it utilized to avoid errors was a declaration by its general manager stating that the apartment complex had never previously provided incorrect information and that the company had “extensive procedures” in place, Strand similarly rejected the company’s bona fide error defense.
NCS appealed, but the Ninth Circuit, after the appeal was briefed, issued an opinion in Clark v. Capital Credit & Collection Services, Inc. (2006) 460 F.3d 1162 holding that the act imposes strict liability, with only a limited exception for bona fide errors.
Following this line of reasoning, Schroeder wrote that NCS had failed to meet its burden to establish that its reliance on the creditor was reasonable.
“The fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable and act as a substitute for the maintenance of adequate procedures to avoid future mistakes…,” she said.
“When we spoke in Clark of the nonliability of a debt collector who ‘reasonably relies’ on the reported debt, we were referring to a reliance on the basis of procedures maintained to avoid mistakes. A debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence.”
“If the bona fide error defense is to have any meaning in the context of a strict liability statute, then 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…. Only then is the mistake entitled to be treated as one made in good faith.”
Judges Procter Hug Jr. and Richard R. Clifton joined Schroeder in her opinion.
The case is Reichert v. National Credit Systems, Inc., 06-15503.
Copyright 2008, Metropolitan News Company