On December 13, 2016, the United States District Court for the Northern District of Illinois granted the defendant’s motion for summary judgment and denied the plaintiff’s motion for summary judgment in Novak v. Monarch Recovery Management (U.S. District Court, N.D. Ill., Case No. 15-C-2448). In this case, plaintiff Christine Novak alleged that defendant Monarch Recovery Management violated the Fair Debt Collection Practices Act (FDCPA) by sending her a dunning letter after her Chapter 13 bankruptcy filing. Monarch sought summary judgment in the case solely based on a bona fide error defense.
You can read the Court’s Memorandum Opinion and Order here.
The material facts in the case were not disputed.
The plaintiff opened a credit card account with Credit One Bank “in or around January of 2013” and incurred a debt that was later acquired by MSW Capital, LLC, who placed the plaintiff’s account for collection by the defendant in August 2014.
Before sending any letters to the plaintiff, the defendant conducted a bankruptcy scrub with credit reporting agency Experian, which was completed on August 12, 2014. The defendant subsequently sent letters to the plaintiff on August 13 and October 8, 2014 and attempted to call the plaintiff, failing in all instances to successfully reach the plaintiff.
On November 20, 2014, the plaintiff filed for Chapter 13 bankruptcy, but the defendant was not included on the bankruptcy service list and did not receive notice of the plaintiff’s bankruptcy filing. The defendant sent a third letter on January 5, 2015 and ultimately closed the plaintiff’s account on January 12, 2015. The defendant was notified for the first time of the plaintiff’s bankruptcy by the plaintiff’s attorney on January 26, 2015, after which the plaintiff filed suit against the defendant.
The Court began discussing the case by noting the following:
"a debt collector who violates § 1692e, or any other substantive portion of the FDCPA, can escape liability if it establishes 'by a preponderance of the evidence that (1) the violation was unintentional, resulting from a ‘bona fide error,’ and (2) that error occurred not-withstanding the maintenance of procedures reasonably adapted to avoid any such error.'"
With respect to the defendant’s bona fide error defense, Judge Elaine E. Bucklo notes that "the first prong of the bona fide error defense asks whether defendant’s violation of the FDCPA was unintentional," and concludes that the defendant had no way of knowing about the plaintiff’s bankruptcy before sending the third letter.
The second prong of the bona fide error defense, which the plaintiff focuses on, concerns "whether the procedures Monarch had in place to avoid sending collection letters to consumers in bankruptcy were reasonably adapted to avoiding the error that led to the violation."
The Court analyzed this second prong of the bona fide error defense by looking at testimony from Monarch President Diane Mazzacano, who testified about Monarch’s policies and procedures for ensuring compliance with the FDCPA. Mazzacano testified about the following aspects of Monarch’s policies and procedures for avoiding violating the FDCPA’s provision against collecting from consumers involved in a bankruptcy:
- Monarch’s practice for all clients "is not to place accounts with Monarch for collection where the consumer has filed bankruptcy."
- Monarch runs all new accounts through an outside bankruptcy scrubs service before beginning any collection activity.
- Monarch’s employees "are trained, and there is a procedure in place, when a consumer indicates that she has filed bankruptcy, for the collector to notate the account, and the account is closed to the collection floor."
- Collectors are "monitored and supervised daily by assistant managers, managers, the vice president of collections, the quality assurance department, and the compliance department to ensure compliance with the FDCPA."
Monarch additionally submitted two versions of its written bankruptcy policy to the Court, which further detail their policies and procedures for dealing with accounts like the plaintiff’s.
The plaintiff’s argument rests on her assertion that the defendant’s policies and procedures are "inherently flawed" for only asking for a scrub from Experian, which the Court dismissed, saying based on past case law that "debt collectors need not take every possible precaution to avoid making an error that results in a violation, as § 1692k(c) only requires collectors to adopt reasonable procedures."
Judge Bucklo concludes that "Monarch has established the bona fide error defense as a matter of law" while also noting that due to the plaintiff offering "no response at all to defendant’s argument that it is entitled to judgment" that the defendant is entitled to judgment "regardless of its ability to establish the bona fide error defense."
This case is another strong argument for maintaining clear and detailed policies and procedures for FDCPA compliance, similar to the Arnold v. Bayview Loan Servicing, LLC, et al case covered by insideARM in February 2016. Additionally, it’s important to keep good records about your firm’s policies and procedures, in case you need to prove in court that you have them.