Ninth Circuit: Contractually Obligating Creditor Clients to Provide Accurate Information is Insufficient on Its Own to Satisfy Bona Fide Error Defense

Editor's Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

The Ninth Circuit recently joined the Eleventh Circuit in holding that a debt collector cannot escape FDCPA liability by way of the bona fide error defense by merely contracting for the provision of accurate information on delinquent accounts. A copy of the opinion is available here.

In Urbina v. National Business Factors, Inc., the defendant debt collector undertook collection efforts based on erroneous information it received from its creditor client. Pursuant to the collection services agreement, however, the creditor client agreed it would assign outstanding debts for collection “with only accurate data” and warranted that the “balances reflect legitimate, enforceable obligations of the consumer.” At issue, was whether the creditor client’s one-time contractual assurances constituted a procedure reasonably adapted to avoid the violation, so as to satisfy the bona fide error defense. The district court found that it was. The Ninth Circuit reversed, citing the Eleventh Circuit’s decision in a nearly identical case: Owens v. I.C. Sys., Inc., 629 F.3d 1263 (11th Cir. 2011). Like the Eleventh Circuit, the Ninth Circuit reasoned that debt collectors have an affirmative obligation to maintain procedures and blindly relying on a creditor to send only valid debts pursuant to a one-time form contract is not a procedure designed to avoid erroneous collections.

Takeaway: Moving forward debt collectors should be sure to maintain procedures for catching errors in creditor-clients’ data beyond just a one-time form contract requiring accurate information. Possible procedures could include: scrubs designed to cull out-of-statute accounts or improper fees/interest; data reviews prior to collection activity; and account-specific creditor certifications at time of placement.