Ninth Circuit Holds Reliance on Contract Provision by Debt Collector Not Enough for FDCPA “Bona Fide Error” Defense

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The Ninth Circuit Court of Appeals held in Urbina v. National Business Factors Inc. that a debt collector cannot use a “bona fide error” defense to shield itself from liability under the Fair Debt Collection Practices Act (“FDCPA”) by merely: (1) requiring its creditor clients to provide accurate account information, and (2) requesting verification of account information from its creditor client, but not waiting to receive a response before trying to collect the debts.

National Business Factors (“NBF”), a debt collection company, entered an agreement with Tahoe Fracture Clinic (“TFC”), to collect debts owing to TFC. Their agreement required TFC to provide “only accurate data and that the balances reflect legitimate, enforceable obligations of the consumer.”

Plaintiff Mercedes Urbina was treated at TFC and failed to pay the amount due. TFC sent Urbina notice that she owed $614.52. When Urbina did not tender the amount due, TFC referred the debt to NBF for collections. NBF sent a letter to TFC asking TFC to verify the amount owed. Before receiving a response from TFC, NBF sent Urbina a collection letter seeking payment for $614.52 plus $29.07 in interest. Urbina filed suit alleging NBF violated the FDCPA by miscalculating the amount of interest owed.

The Ninth Circuit began its analysis by discussing the bona fide error defense: “[t]o avoid liability, debt collectors may raise the limited affirmative defense that their conduct was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” This defense requires the debt collector to show: (1) it violated the FDCPA unintentionally, (2) the violation resulted from a bona fide error, and (3) it maintained procedures reasonably adapted to avoid the violation. There was no dispute between the parties that NBF violated the FDCPA unintentionally and that the violation occurred due to bona fide error. The analysis from the Ninth Circuit revolved around whether the procedures were reasonably adapted to avoid the error.

The Ninth Circuit previously ruled in a recent case that a debt collector cannot wait until a creditor makes a mistake and then institute procedures to avoid any future error. Rather, a debt collector has an affirmative obligation to prevent discoverable errors. If a debt collector intends to take advantage of the bona fide error defense, it must explain how its procedures were adapted to avoid the mistake before it occurred.

The Ninth Circuit held that a one-time agreement requiring creditor clients to provide accurate information is not a sufficient procedure to shield a debt collector with the bona fide error defense. Rather, the procedures that have protected debt collectors in other cases “were consistently applied by collectors on a debt-by-debt basis.” Moreover, NBF could not rely on the letter sent to TFC requesting to verify the amount owed by Urbina as a sufficient procedure since it did not wait for a reply before mailing a collections letter.

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