On January 29, 2016 the U.S. District Court for the Southern District of Alabama granted a Motion for Summary Judgment by the Defendant in Robert L. Arnold v. Bayview Loan Servicing, LLC, et al. This was a bona fide error case, and was won on the existence of substantial evidence of policies & procedures and training. You can read the decision here.
The Court also granted Bayview’s motion to seal certain exhibit documents it views as confidential, proprietary information relating to its business operations that could cause irreparable harm to the company if made public. These included:
- A one-page exhibit concerning loan codes
- A one-page exhibit concerning functions of the firm’s Asset Management Department
- A nine-page exhibit consisting of the company’s internal FDCPA Policy
- A four-page exhibit reflecting portions of the firm’s internal FDCPA training course
The material facts were not disputed.
Arnold bought a home in 2001. In September 2005 he refinanced the mortgage, but then fell behind in payments, and ultimately – in September 2012 — declared bankruptcy, under which the judge granted a discharge for the mortgage.
In January 2013 Arnold received written notification that the mortgage loan servicing had been transferred to Bayview. The record clearly showed that Bayview was aware of the default, and that the debt had been discharged in bankruptcy. Accordingly, upon receipt of the account Bayview started the foreclosure process, and in fact purchased the property for most of the amount of the outstanding principal on Arnold’s loan.
When the account was transferred to Bayview, it was properly coded in their system and as a result, billing statements were no produced (instead, the account was sent through the foreclosure process).
However for some reason, in December 2013 – after ten months – two billing statements were sent, on December 2 and 16. The statements reflected the full outstanding balance; they did not reference the bankruptcy discharge, and they did not reference a credit for the foreclosure sale.
These statements were the reason Arnold sued Bayview, claiming several FDCPA violations.
Bona fide error defense
Bayview sought summary judgment in the case solely based on a bona fide error defense, which forestalls FDCPA liability.
In order to prove bona fide error, the company must show “a preponderance of evidence 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.” The court has clarified that this defense is not available for mistakes of law or misinterpretations of the FDCPA, but instead “to protect against liability for errors like clerical or factual mistakes.” (Edwards v. Niagara Credit Solutions, Inc. – 11th Cir. 2009)
In the opinion of the Court, Bayview presented such a preponderance of evidence, including:
Bayview’s violation was unintentional
Any violation of the FDCPA with regard to the mailing of the December 2013 billing statements was unintentional because (i) Arnold’s loan had been coded with a foreclosure man code when Bayview assumed servicing responsibilities, effectively suppressing all billing statements; (ii) Bayview sent no billing statements to Arnold between February 2013 and November 2013; (iii) the Bayview employee who performed a pre-foreclosure review of Arnold’s loan was bound to follow a Bayview checklist that did not call for changing the man code or issuing billing statements; (iv) nothing in the checklist or employee comments suggested that this individual intended to change the man code or reactivate Arnold’s loan; (v) the man code was changed anyway, even though Bayview had no reason to do so in its pre-foreclosure review; (vi) Bayview ceased communications to Arnold when it discovered the error; and (vii) Bayview provides extensive, ongoing training to employees in the area of FDCPA compliance.
The violation was in good faith
The Court concluded that all record information reflects that it was objectively reasonable for Bayview to rely on the foreclosure code to suppress monthly statements to Arnold; that Bayview had no reason to believe that the man code would be changed during the pre-foreclosure review process; and that it had provided appropriate training and checklists to its employees concerning pre-foreclosure review.
Procedures must be maintained to avoid readily discoverable errors
To satisfy this burden of proof, Bayview pointed to its general training procedures and its specific procedures for pre-foreclosure review. The Court concluded that the company had sufficiently demonstrated the existence of written policies, as well as substantial ongoing FDCPA compliance training. Bayview demonstrated the use of a detailed multipage checklist, used by employees including the one in this case who made the error of inadvertently changing the pre-foreclosure code (which caused the statements to be issued).
Plaintiff’s case against the owner of the debt, U.S. Bank
Arnold also sued the current debt owner, U.S. Bank (although it had always been clear that Bayview remained the servicer). This claim was also dismissed by summary judgment, under the protection that the FDCPA currently affords creditors, which do not qualify as “debt collectors.”
This case is a strong argument for the maintenance of clear, detailed policies and procedures, robust compliance tools (like checklists), and regular on-going training to reinforce their proper implementation. Additionally, systems must be in place to be able to prove it. This is clearly not an instance where a binder was simply pulled from a shelf.