7th Circuit: Bona fide error defense applies for collection of time-barred debt

Courts Appellate Debt Collection FDCPA Seventh Circuit

On April 29, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a debt collector, concluding the collector’s FDCPA violations were unintentional and the debt collector was entitled to the bona fide error defense. According to the opinion, a consumer made his last credit card payment in August 2010, but attempted to make an additional payment in June 2011, which never cleared. In December 2015, the debt collector sent a collection letter to the consumer and subsequently filed a collection action in state court, both assuming a last payment date of June 2011 (the date of the payment that did not clear). The state court dismissed the suit because the last payment that actually cleared was outside of the state’s five-year statute of limitations, meaning the debt was time-barred. The consumer filed suit against the debt collector for violating the FDCPA’s prohibition on collecting time-barred debt. The district court granted summary judgment in favor of the debt collector, holding that the debt collector’s violations were “unintentional and occurred despite reasonable procedures aimed at avoiding untimely collection attempts,” under the statute’s bona fide error defense.

On appeal, the appellate court rejected the consumer’s arguments that the debt collector was unreasonable by not engaging in a meaningful review of the account to learn the true last payment date and that the debt collector had “‘thinly specified policies’” to weed out time-barred debts. The appellate court determined that the FDCPA violations were unintentional, as the debt collector was unaware that the June 2011 payment had failed. Additionally, the appellate court held that the debt collector was not required under the FDCPA to independently verify the validity of the debt to satisfy the requirements of the bona fide error defense. Moreover, while the debt collector’s policies and procedures were “simple,” they were “reasonably adapted to avoid late collection efforts,” and even though they did not prevent the mistake, the FDCPA “‘does not require debt collectors to take every conceivable precaution to avoid errors; rather, it only requires reasonable precaution.’” Because the bona fide error defense applied, the appellate court affirmed summary judgment for the debt collector.