The Bona Fide Error (BFE) defense may be a strong shield when defending a Fair Debt Collection Practices Act (FDCPA) lawsuit, but that shield can be difficult to hold. To use the BFE defense and protect their organizations from FDCPA lawsuits, it's crucial that debt collectors understand the defense's nuance, intricacy, and application. Three recent cases highlight and provide insight into the important aspects, challenges, and alternative uses of the BFE defense.
The BFE defense, found here at 15 U.S.C. § 1692(k)(c), can protect debt collectors from liability if they can prove “that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” Those attempting to avail themselves of a BFE defense must show all three of the following:
- The violation was unintentional.
- The error was bona fide (made in “good faith”); and
- That the error was made despite procedures adapted and maintained to avoid the error that occurred.
Challenges in Successfully Defending FDCPA Suits:
While the bona fide error defense offers debt collectors a valuable tool in avoiding liability, successfully using it in FDCPA suits remains challenging. Debt collectors must be prepared to meet a stringent standard of proof, demonstrating that the violation was unintentional and made in good faith.
In Kaszko v. RSH & Assocs., Civil Action 22-2316-KHV (D. Kan. Sep 01, 2023), a district court in Kansas denied a debt collector’s bona fide error defense based on a lack of evidence submitted to establish that the violations were unintentional and on the debt collector’s failure to reasonably investigate the error. Though the debt collector argued that they believed, in good faith, that the consumer was a guarantor on the debt owed, they admitted they never bothered to check the guaranty agreement itself. The Court held that this lack of thorough investigation created a question regarding whether the debt collector acted reasonably. Consequently, the debt collector’s bona fide error defense was unsuccessful.
The Defense is in the Details:
To effectively utilize the bona fide error defense, debt collectors must establish and implement comprehensive policies and procedures to prevent common errors that lead to FDCPA violations. These policies and procedures must be rigorous enough to withstand scrutiny.
This issue was highlighted in the case of Sprayberry v. Portfolio Recovery Assocs., 21-36000, 21-36001 (9th Cir. Aug 28, 2023), where the Ninth Circuit Court of Appeals stated that the debt collector fell short in showing that they maintained policies and procedures created to avoid errors regarding the statute of limitations. Specifically, the Court said that the debt collector “provided no evidence of [their] legal research nor any details of the procedures used for either reviewing or updating [their] research on state statutes of limitations.” Further, the debt collector did not provide evidence that it implemented any review procedure.
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Versatile Uses of the Bona Fide Error Defense
Though the BFE defense is most often used to avoid FDCPA violations, a debt collector in California recently used it to help vacate a default judgment. In Antich v. Capital Accounts, LLC, B313167 (Cal. App. Jul 26, 2023), a default judgment was entered against a debt collector on an FDCPA claim related to credit reporting. Unbeknownst to the debt collector, their in-house counsel abandoned their employment without filing a response in the case. Upon learning about the judgment, the debt collector sought to vacate it. However, to do so, the debt collector was required to show that had the case proceeded, it would have had a meritorious defense.
The debt collector argued that had the case proceeded it would have been able to assert a bona fide error defense. In support of this argument, the debt collector provided evidence of its system and policies and procedures tailored to prevent credit reporting errors. In light of the procedures provided by the debt collector, the court agreed that the debt collector might have been able to avail himself of the BFE defense and agreed the default judgment against the debt collector should be vacated. Thus, providing the debt collector a chance to avoid a costly judgment.
Tying it all together
The bona fide error defense remains a critical protection for debt collectors, allowing them to defend against FDCPA suits arising from unintentional errors. However, as illustrated above, successfully utilizing this defense is no sure thing. The three requirements to successfully mount a BFE defense (unintentional, good faith, and that the error occurred despite policies and procedures) hinge on creating and maintaining robust policies and procedures adapted to prevent a wide variety of errors.
It is equally important to be able to provide a court with the details necessary to show that these policies and procedures are being implemented. Companies must also be vigilant and thorough when investigating complaints and disputes. Only by taking these precautions can a bona fide error defense be a useful tool when debt collection doesn’t go as planned.