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Financial Services Law Insights and Observations


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  • District Court highlights the importance of precise dispute letters when challenging debt collection


    On June 6, the U.S. District Court for the Northern District of Alabama ruled on dueling motions for summary judgment in a suit against a debt collection agency for alleged violations of the FDCPA. The plaintiff contended the debt collection agency improperly handled the reporting of two accounts to credit reporting agencies, one of which the debt collection agency failed to identify as disputed after receiving a dispute letter from the plaintiff’s counsel, violating both § 1692e and § 1692f of the FDCPA.

    First, the court concluded that the plaintiff’s § 1692f claim was defective because it was duplicative of the § 1692e claim. A claim under the 1692f “catch-all” prohibition against unfair and unconscionable conduct must be supported to conduct “beyond that which [s]he asserts violates other provisions of the FDCPA.” Since the plaintiff offered no additional allegations beyond what was claimed to support the 1692e claim, the court granted the debt collection agency summary judgment on the § 1692f claim.

    The court found that there was a genuine dispute as to whether the debt collection agency should have known that one of the debts was disputed, and denied summary judgment to both parties. Here, the plaintiff sent a dispute letter notifying the debt collection agency of a dispute “for all debts that [plaintiff] may have,” and then stated that “the above referenced individual(s) disputes the debt which you are attempting to collect.” While the plaintiff alleged that the reference to “all debts” put the debt collection agency on notice of multiple debts being disputed, the debt collection agency halted negative reporting on the first account by matching the plaintiff’s name and social security number, it did not do the same for the second account because no matching information was provided. The court found that the dispute letter was ambiguous, and consequently denied motion for summary judgment for both sides.

    Courts FDCPA Debt Collection Bona Fide Error

  • District Court: Failing to invoke the BFE defense does not entitle a plaintiff to judgment as a matter of law


    On March 15, the U.S. District Court for the Eastern District of Washington denied a plaintiff’s motion for partial summary judgment, ruling that just because a defendant did not invoke the bona fide error (BFE) defense when accused of allegedly violating the FDCPA it does not mean the defendant has admitted to violating the statute. In 2018, the defendant debt collector attempted to collect unpaid debt in the amount of $786.68 from the plaintiff and began reporting the debt to the consumer reporting agencies (CRAs). In 2021, after the original creditor recalled the account from the defendant for an unspecified reason, the defendant submitted two requests to the CRAs to delete the item from the plaintiff’s credit report and took no further action on the account. Shortly thereafter, the plaintiff noticed a $787.00 debt on one of his credit reports. He contacted the original creditor and was told the company could not find an account in his name that was referred for collection. The plaintiff sued for violations of Section 1692e of the FDCPA and related violations of Washington state law, and later filed for a partial motion for summary judgment contending that the FDCPA “is a strict liability remedial statute that contains a single affirmative defense to liability—the bona fide error defense,” and that because the defendant did not plead the BFE defense “he is entitled to judgment as a matter of law as to Defendant’s liability under the statute.” While the defendant acknowledged that it did not plead the BFE defense, it countered that the plaintiff “cannot prove a prima facie case of liability.”

    The court concluded that “[w]hile the statute is strict liability, ‘a debt collector’s false or misleading representation must be ‘material’ in order for it to be actionable under the FDCPA.” Noting that the alleged violation appeared to be based on the grounds that the defendant reported an inflated account balance ($787.00 versus $786.68), the court stated it “has little trouble in concluding that inflating an account balance by 32 cents is not a materially false representation. To the contrary, it is a ‘mere technical falsehood that mislead[s] no one.’” Moreover, the court stated that because the defendant immediately ceased reporting the account and sent deletion requests to the CRAs after the account was recalled, and that there was no evidence to suggest that the debt collector knew or should have known that it was communicating information that was false, the plaintiff could not show, at this stage of the proceeding, that Section 1692e was violated.

    Courts FDCPA Debt Collection Bona Fide Error Consumer Reporting Agency Consumer Finance

  • 7th Circuit affirms ruling in one case, overturns ruling in bona fide error case


    On February 2, the U.S. Court of Appeals for the Seventh Circuit, in a consolidated case, affirmed summary judgment for one defendant’s FDCPA bona fide error defense and overturned summary judgment on the same defense for another. According to the opinion, the plaintiffs in each case disputed debts that appeared on their credit reports by notifying the defendants via fax. In the first case, an employee sent the fax dispute to the wrong department, and thus the dispute was never recorded on the account. In the second case, the defendant stopped monitoring the fax machine but had not disconnected it, and therefore did not even realize it received the dispute. The plaintiffs filed separate lawsuits, and the district courts in each case granted summary judgment for the defendants on the grounds that each was entitled to the FDCPA’s bona fide error defense.

    The 7th Circuit consolidated the cases on appeal. The appellate court affirmed the first case, holding that the defendant’s procedures were “reasonably adapted” to avoid errors when receiving faxes because there were step-by-step instructions on which department to send faxes to. The court determined that the employee sent the fax to the wrong department by mistake. The plaintiff argued that the defendant nevertheless needed to have a policy in place for what to do when a fax ended up in the wrong department, but the 7th Circuit agreed with the district court that “[t]he absence of such a policy, however, does not mean that the defendant failed to maintain reasonably adapted procedures.” By contrast, the court found the procedures in the second case were not reasonably adapted and did not qualify for the bona fide error defense. While the defendant did remove its fax number from its website, it did not remove the number from the National Registry and did not announce that it would completely stop checking the machine, leaving it no way to prevent the relevant errors.

    Courts Appellate Seventh Circuit FDCPA Bona Fide Error

  • District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action


    On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.

    After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.

    Courts CFPB Enforcement FCRA FDCPA Consumer Reporting Agency Credit Report Debt Collection CFPA Bona Fide Error

  • 2nd Circuit: No bona fide error defense without written policies to avoid the error


    On September 4, the U.S. Court of Appeals for the Second Circuit affirmed in part and vacated in part a summary judgment ruling in favor of a debt collector, concluding that the debt collector was not entitled to the FDCPA’s bona fide error defense as a matter of law when it erroneously sent communications to a consumer with the same name as the actual debtor. According to the opinion, a debt collector sent collection notices to a consumer with the same first name, middle initial, and last name as the actual debtor. The consumer informed the debt collector that he was not the debtor and provided the last two digits of his social security number, which were different than the debtor’s social security number on file with the debt collector. The debt collector continued to send communications, including a subpoena duces tecum, to the consumer and the consumer filed suit, alleging various violations of the FDCPA. The district court granted summary judgment in favor of the debt collector, concluding that the debt collector did not violate certain provisions of the FDCPA and noting that while it violated others, the FDCPA’s bona fide error defense applied making the debt collector not liable for the violations.

    On appeal, the 2nd Circuit agreed with the district court that the debt collector did not violate Section 1692e(5) or Section 1692f of the FDCPA because it did not intend to send the communications to a non-debtor, nor did the debt collector’s actions constitute “unfair or unconscionable means” of collection because the consumer was not forced to respond to the information subpoena or attend a debtor’s examination. However, the appellate court determined that the district court erred in granting summary judgment on the bona fide error defense because a reasonable jury could conclude that the debt collector “did not maintain procedures reasonably adapted to avoid its error.” The appellate court also noted that the debt collector was “in possession of more than enough evidence” that the consumer was not the debtor, including different social security numbers and birth years, and a reasonable jury could conclude the mistake “was not made in good faith.” Additionally, the appellate court emphasized that the debt collector had “no written policies” to address situations in which employees are uncertain about whether a debtor may live at a particular address. Thus, the debt collector was not entitled to summary judgment on the outstanding FDCPA claims, and the appellate court remanded the case to the district court.

    Courts Second Circuit Appellate Debt Collection FDCPA Bona Fide Error

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