Debt collectors can no longer claim ignorance of the law as an excuse for violating the Fair Debt Collections Practices Act (FDCPA) while attempting to collect a debt.
On Wednesday, the United States Supreme Court handed down a ruling that severely restricts the “bona fide error” defense under the Fair Debt Collection Practices Act for debt collectors that send erroneous collection notices.
In a 7-2 ruling, the high court ruled that collection law firms could not use misinterpretations of the law in a “bona fide error” defense under the FDCPA.
In the matter of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, Karen Jerman sued an Ohio law firm for violating the FDCPA when it attempted to foreclose on her home following payment on the mortgage. In its initial collection notice, the law firm sought written proof that Jerman paid her Countrywide Home Loans mortgage. Absent proof of payment or a written dispute within 30 days, the debt would be presumed valid. Jerman hired an attorney to meet the written requirement, although the FDCPA does not explicitly require consumers to submit disputes in writing.
Specializing in real estate and foreclosure law, Carlisle admitted that its initial validation notice intended dispute claims to be submitted in writing. After Jerman sued, the firm argued that it should not be held liable under the FDCPA because the violation was an unintentional or “bona fide error.” Carlisle defended the matter asserting a “safe harbor protection” stating they were unaware that “written” disputes were not required under the FDCPA.
Although consumers are often instructed by debt collectors to submit written disputes, no such language exists under the Fair Debt Collection Practices Act. In this instance, Carlisle argued that said “bona fide error” was the result of a clerical mistake.
The lower court sided with Jerman, noting that while Carlisle had violated the FDCPA, it was not liable under the Fair Debt Collection Practices Act for damages as the violation was unintentional or a “bona fide error.” An appeals court decision affirmed that ruling, sending the case to the United States Supreme Court.
In an opinion written for the 7-2 majority by Justice Sonya Sotomayor, the high court stated that “ignorance of the law will not excuse any person, either civilly or criminally.” Carlisle had argued that misinterpretations of the law were written into the Fair Debt Collection Practices Act. Sotomayor and the majority disagreed, noting that ignorance of the law was not explicitly written into the FDCPA.
Justice Anthony Kennedy, in a dissent joined by Justice Samuel Alito Jr., said the high court’s decision “aligns the judicial system with those who would use litigation to enrich themselves at the expense of attorneys who strictly follow and adhere to professional and ethical standards.”But Sotomayor spoke directly to that objection in the majority opinion, writing, “We do not foresee that our decision today will place unmanageable burdens on lawyers practicing in the debt collection industry.”
“Debt collectors should be treated like anyone else when violating a federal statute,” said Scott Kleiman, a foreclosure defense attorney with Kalis & Kleiman. “The Supreme Court decision keeps intact an important reason for debt collectors to abide by the law. While strong financial incentives encourage the collection of delinquent debts, continued unlawful behavior will not be excused and punished to the fullest extent of the law.”
The case originated when Carlisle – acting as a debt collector – sent a notice and foreclosure complaint to Jerman, requiring her to submit any dispute “in writing” within 30 days. The “in writing” language was included in the notice based upon legal authority from other jurisdictions.
Although Countrywide Home Loans subsequently dismissed the foreclosure action, Jerman turned to the Icove Legal Group, a Cleveland-based public interest law firm that filed a class-action suit on behalf of her and other homeowners who received the erroneous notice. “This case will have a far-reaching impact within the debt collection industry as consumer laws in a number of states have ‘bona fide error’ statutes identical to the Fair Debt Collection Practices Act,” stated attorney Ed Icove, in applauding the 7-2 majority decision.
The entire United States Supreme Court opinion can be read at http://www.supremecourt.gov/opinions/09pdf/08-1200…
Source: The Credit Report with Bill Lewis – Highlands Today, an edition of the Tampa Tribune. http://www2.highlandstoday.com/content/2010/apr/25/us-supreme-court-rules-against-debt-collector/columns-welewisjr/
William E. Lewis Jr., is a credit repair expert with Credit Restoration Consultants and host of “The Credit Report with Bill Lewis” on AM 1470 WWNN, a daily forum for business and financial news, politics, economic trends, and cutting edge issues.