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Supreme Court Rules Debt Collectors May Not Use Bona Fide Error Defense for Mistakes of Law

April 22, 2010

Back in January, our Rialto debt collection abuse lawyers wrote about oral arguments in a Supreme Court case asking whether collection agencies may claim a good faith defense when they make mistakes of law. In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA et al., No. 08-1200 (April 21, 2010), a debt collection law firm asked the high court to decide whether it could use the "bona fide error" defense in the Fair Debt Collection Practices Act to defend itself from a lawsuit brought over a mistake of law rather than one of fact. The FDCPA allows debtors to sue debt collectors for violations of the Act, but says debt collectors may not be liable for violations that were not intentional and the result of a "bona fide error." Now, the New York Law Journal reported April 22, the Supreme Court has ruled in favor of consumers.

The lawsuit was brought by Karen Jerman, whose property Carlisle McNellie sought to foreclose on in 2006. In fact, Jerman had paid her mortgage debt in full. The law firm's notice to Jerman said the debt would be assumed valid unless she contested it in writing, which is a mistaken interpretation of the FDCPA. The law allows debtors to contest the validity of debts, but they need not do so in writing. Jerman did successfully contest the debt, and when her mortgage company acknowledge that she had paid it off, Carlisle McNellie dropped the case. Jerman then sued the law firm for its violation of the FDCPA. The federal district court found that Carlisle McNellie had violated the Act, but granted summary judgment to the firm, saying it was shielded by the bona fide error defense. The Sixth U.S. Circuit Court of Appeals upheld that decision, creating a split with the majority of circuits that had ruled that the bona fide error defense is only available for clerical and factual mistakes.

In its ruling, the seven-justice majority at the Supreme Court disagreed. Justice Sonia Sotomayor, writing for the majority, said there was little evidence that Congress had intended to extend the defense to mistakes of fact. Furthermore, she wrote, state laws similar to the FDCPA have explicitly excluded mistakes of law from their own bona fide error defenses. Debt collectors and their attorneys in those states have not seen the explosion of litigation that Carlisle McNellie suggested would arise from an unfavorable ruling. Justice Breyer, concurring, wrote that lawyers who are unsure how to proceed may seek an advisory opinion from the FTC. Justice Scalia also concurred, but disagreed with some of the logic behind the majority's ruling. Justice Kennedy dissented, joined by Alito, saying the decision allows more lawsuits against attorneys who make good-faith mistakes.

As Rowland Heights unfair debt collection attorneys, we can assure readers that collection agencies already routinely break or stretch the law, relying on consumers' ignorance of the law to protect them from lawsuits. If the majority had decided that debt collectors could use the "bona fide error" defense for mistakes of law, there would have been nothing stopping them from intentionally breaking the law, and defending themselves from the resulting lawsuits by simply claiming they had misunderstood the law. In short, such a decision would undermine the FDCPA and its intention to protect consumers from debt collectors' overreaching. That's why we're grateful that the majority decided in favor of consumers' rights.

At Howard Law PC, we frequently represent clients who are victims of illegal and unfair behavior by collection firms. The FDCPA and its California counterpart, the Rosenthal FDCPA, require certain behaviors by debt collectors and prohibit other behaviors. Among other things, debt collectors may not threaten actions they cannot, or do not intend to, take; call before 8 a.m. or after 9 p.m.; contact anyone other than the debtor or his or her spouse; or call at work after learning that the employer won't permit it. However, they must identify themselves as debt collectors, and they must verify the debt on request or cease communication. Our Fullerton abusive debt collection attorneys hear frequently about violations of these rules and others, and we help consumers fight back with lawsuits that can stop the harassment and sometimes win back money.

Howard Law offers free consultations, so you risk nothing by speaking to us about your rights and your case. To set one up, call us toll-free at 1-800-872-5925 or contact us through the internet today.