Supreme Court Allows Suit Against Debt Collectors For Mistakes Of Law Under The FDCPA

In the recent case of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, the U.S. Supreme Court, in a 7-2 decision, held that the “bona fide error” defense in §1692k(c) of the Fair Debt Collection Practices Act (FDCPA) does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.

The FDCPA imposes civil liability on debt collectors for certain prohibited debt collection practices. The exception to that rule, however, is that a debt collector is not liable under the FDCPA if “the violation was not intentional and resulted from a bona fide error.”

In Jerman, a law firm filed a foreclosure action in Ohio state court on behalf of a mortgage company. Included with the complaint was a notice to the property owner that the mortgage debt would be assumed valid unless it was disputed in writing. The property owner’s lawyer sent a letter disputing the debt, and upon acknowledging that the debt had in fact been paid, the mortgage company withdrew the suit. The property owner then filed a separate action, contending that the mortgage company’s issuance of the notice, which required the property owner to dispute the debt in writing, violated §1692g(a) of the FDCPA, which governs the contents of notices to debtors. The District Court held that the mortgage company’s lawyers had violated §1692g(a) but ultimately dismissed the case under §1692k(c)’s “bona fide error” defense. The Sixth Circuit affirmed and specifically noted that the defense is not just limited to clerical or factual errors, but also extends to mistakes of law.

On appeal, the U.S. Supreme Court reversed, holding that a debt collector’s misinterpretation of the legal requirements of the FDCPA cannot be deemed “not intentional” under §1692k(c). As the Court noted, “ignorance of the law will not excuse any person, either civilly or criminally.” The Court also explained that this holding does not place unmanageable burdens on debt-collecting attorneys. The FDCPA contains several provisions that protect against abusive lawsuits, and lawyers still have recourse to the “bona fide error” defense when a violation results from a qualifying factual error.

Justices Anthony M. Kennedy and Samuel A. Alito, Jr., the lone dissenters, warned that the majority opinion may force lawyers to resolve ambiguities against their clients’ interests when interpreting the legal requirements of the FDCPA. According to Justice Kennedy, the majority holding “gives new impetus to this already troubling dynamic of allowing certain actors in the system to spin even good-faith, technical violations of federal law into lucrative litigation.”

^{1  No. 08-1200, 559 U.S.  (Apr. 21, 2010).}

^{2  15 U.S.C. §1692 et seq.}

Posted by: Ali Razzaghi