FDCPA Ruling Reinforces Debt Collectors? Obligation to Check Client Information

A ruling this week by a federal appeals court held that debt collectors must provide more than a declaration that it had “extensive procedures” to avoid errors and a reliance on accurate creditor information when mounting a bona fide error defense to violations of the Fair Debt Collection Practices Act (FDCPA).

In a case before the U.S. Ninth Circuit Court of Appeals, Judge Mary M. Schroeder ruled late Monday that debt collection agencies could not blame errors that ran afoul of the FDCPA on creditor information, and that a collection agency must have processes in place to assure such errors do not occur.

The case involved collector National Credit Systems, Inc. (NCS). In 2002, NCS was seeking payment of a $2,124 debt from Robert Reichert. The debt was incurred on a breach of a lease agreement Reichert signed with an apartment complex.

Upon a request for validation of the debt, NCS sent a letter verifying amount the debt, including a $225 charge for an attorney’s letter that was sent by the apartment complex. Reichert claimed that since the fee was not expressly authorized by the lease agreement, NCS had violated the FDCPA.

NCS argued that it had relied on the apartment complex’s representation of the debt. NCS also said that it was entitled to a defense against liability because the violation had not been intentional and the error in good faith.
 
U.S. District Judge Roger G. Strand of the District of Arizona ruled for Reichert and the case was sent to the Ninth Circuit Court on appeal.

In her ruling, Judge Schroeder wrote, “The fact that the creditor provided accurate information in the past cannot, in and of itself, establish that reliance in the present case was reasonable and act as a substitute for the maintenance of adequate procedures to avoid future mistakes.” She also wrote that “A debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence.”