Written Procedures A Major Factor in Ruling Against Collector in FDCPA Bona Fide Error Case

Last week the U.S. Court of Appeals for the 7th Circuit affirmed a District Court ruling against Nationwide Credit Corporation (Nationwide) in an FDCPA case involving the “bona fide error” defense.

According to the Decision,

Nationwide telephoned Leeb about an unpaid medical bill. Leeb disputed the debt, saying that his insurance company should have paid. Because Leeb disputed his debt, the Fair Debt Collection Practices Act required Nationwide to “cease collection” until it verified the debt. But, without verifying the debt, Nationwide sent Leeb a letter that: (1) showed a “balance” of $327; (2) instructed Leeb to “detach the upper portion and return with payment”; (3) asked Leeb to provide additional information; and (4) stated that the letter was “from a debt collector attempting to collect a debt and any information obtained will be used for that purpose.” Leeb sued Nation-wide under the FDCPA.

On summary judgment, the district court held that Nationwide violated the FDCPA because it did not “cease collection.”

The appeals court agreed, stating that Nationwide’s January 5 letter, objectively viewed, was an attempt to collect the debt. The judge further supported the district court’s determination that Nationwide was not excused by the FDCPA’s “bona fide error” provision, because Nationwide failed to show each of the three required elements: that its violation was unintentional; that its violation resulted from a clerical or factual mistake; and that it maintained procedures reasonably adapted to avoid such mistakes.

insideARM Perspective

Policies and — more significantly — procedures were a major factor in this case.

In the court’s analysis, Nationwide did not show that its violation resulted from a “bona fide error,” which the Supreme Court (in Jerman) instructs are “clerical or factual mistakes.” Jerman. Nationwide argues that its “policy is to never send the [version of the] letter [that it sent to Leeb on January 5th] in response to … disputes… .”

But, Nationwide failed to show that it maintained “procedures reasonably adapted to avoid” errors that could result in this type of violation. Nationwide first argued that it maintained adequate procedures because its employees were trained on the FDCPA. But Jerman held that mistakes of law are not excused and so rejected the debt collector’s legal training as an adequate “procedure.”

Nationwide next argued that it maintained adequate procedures because sending the January 5 letter was against its “policy.” But Jerman instructs that “procedures” are “processes that have mechanical or other such regular orderly steps… .” Nationwide does not argue that its “policy” told its employee what she should have done, much less that the policy gave her any “mechanical” or “regular orderly” steps to follow. Following Jerman’s instruction, the appeals court rejected the argument that a thinly specified “policy,” allegedly barring some action but saying nothing about what action to take, is an adequate “procedure” under § 1692k(c).