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Financial Services Law Insights and Observations


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  • 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

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  • 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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