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From Banking and Finance Law Daily, November 23, 2015

Sending collection letter after debt was disputed violates FDCPA

By Richard A. Roth, J.D.

A debt collector that sent a consumer a collection letter after the consumer made clear that he disputed the debt failed to stop its collection efforts until it validated the debt as required by the Fair Debt Collection Practices, the U.S. Court of Appeals for the Seventh Circuit has decided. The company also failed to show that it was entitled to the protection of the FDCPA’s Act bona fide error defense (Leeb v. Nationwide Credit Corp., Nov. 20, 2015, Williams, A.).

The dispute began when the consumer’s health care insurer failed to pay a claim for emergency medical services. The bill was assigned to Nationwide Credit Corporation, a debt collector, which began its efforts with a telephone call asking the consumer to pay the bill. After that:

  1. the consumer informed Nationwide, by mail and fax, that he disputed the debt;
  2. the consumer received a letter from Nationwide seeking payment and threatening to report the debt to credit reporting agencies;
  3. the consumer demanded, by mail and fax, that Nationwide acknowledge his dispute and not report the debt to credit reporting agencies;
  4. the consumer sent a letter to the health care provider telling it to seek payment from the insurer, and he sent a copy of the letter to Nationwide;
  5. the provider told the consumer, by telephone, that it would take the account out of collection and seek payment from the insurer;
  6. the consumer told Nationwide, by mail and fax, that the care provider was stopping collection efforts;
  7. Nationwide sent the consumer another letter.

According to the consumer, that last letter violated Nationwide’s FDCPA duty to cease efforts to collect a disputed debt until that debt was verified (see 15 U.S.C. §1692g(b)). A federal district court judge agreed and entered summary judgment in the consumer’s favor.

Collection attempt. Nationwide argued that the last letter was not actually an attempt to collect a debt. The company asserted that it merely was responding to the consumer’s demand that it acknowledge his dispute. Also, the consumer believed he did not owe the debt, and thus the letter could not have been an attempt to collect. The appellate court disagreed.

According to the court, the letter did far more than acknowledge the consumer’s dispute. The letter quoted a balance due and told the consumer to tear off the top portion of the letter and return it with his payment. The letter also asked the consumer to provide additional information, and it informed the consumer that the letter was from a debt collector and that any information would be used for debt collection purposes.

The consumer’s subjective belief about whether he owed the debt was irrelevant, the court said. Viewed objectively, the letter was an attempt to collect the debt, and that was an FDCPA violation.

Bona fide error. The FDCPA offers debt collectors a shield known as the bona fide error defense. Under the defense, a debt collector is not liable for an unintentional violation that “resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error” (see 15 U.S.C. §1692k(c)). Nationwide tried to claim the benefit of the bona fide defense, but the court rebuffed the claim.

Nationwide’s problem was that the bona fide error defense only protects a debt collector in the case of a factual or clerical error, not an error in legal analysis, as the Supreme Court decided inJerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A. According to the Supreme Court, “procedures” implies “processes that have mechanical or other such regular orderly steps.” Nationwide failed to demonstrate such procedures, the appellate court said.

To begin with, Nationwide conceded that an employee sent the letter intentionally, but argued that since the employee had no intent to violate the FDCPA, the violation was unintentional. That might show the violation was not willful, the court said, but did not show the violation was unintentional.

Second, the company said its policy is never to send that particular form letter in response to a consumer’s dispute. However, the company did not explain how the admittedly intentional violation of company policy could be considered a clerical or factual mistake.

Neither had Nationwide shown what procedures it maintained to avoid such an error. The company pointed to training it gave its employees, but Jerman made clear that training alone was not an adequate procedure. Neither was having a company policy against sending such a letter, the court added—the policy did not tell the employee what should be done and provided no “mechanical” or “regular orderly” steps to follow.

The case is No. 14-1329.

Attorneys: Keith J. Keogh (Keogh Law, Ltd.) for Gregory Leeb. David M. Schultz (Hinshaw & Culbertson LLP) for Nationwide Credit Corporation.

Companies: Nationwide Credit Corporation

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