Earlier this month, the Middle District of Georgia (M.D. Georgia) reviewed whether a debt collector can avoid Fair Debt Collection Practices Act (FDCPA) liability by relying on the information provided by the creditor as a stand-alone defense -- as opposed to through the bona fide error defense. In Foster v. Franklin Collection Services, Inc., Case No. 5:17-cv-8 (M.D. Ga. Sep. 13, 2018), the court declined to recognize such a stand-alone defense.

Factual and Procedural Background

Plaintiff incurred a medical debt for treatment at RedMed Urgent & Family Clinic ("RedMed"). Plaintiff indicated on her intake form that she had insurance. RedMed placed plaintiff's account for collection with Franklin Collection Services, Inc. (Franklin).

Franklin sent plaintiff a letter stating she had a balance due and included the 1692g validation notice. Within the validation period, plaintiff called RedMed -- not Franklin -- disputing the debt, stating that her insurance made an error and that it would reprocess the claim.

While the contract between Franklin and RedMed states that RedMed has a continuing obligation to provide any new or additional information with respect to accounts placed with Franklin, Franklin never received information about plaintiff's call regarding the insurance issue. Without knowledge of the dispute or the insurance issue, Franklin sent a second collection letter to plaintiff a few months later, listing the same amount owed as the first letter.

Plaintiff filed an FDCPA lawsuit against Franklin alleging, among other things, that Franklin attempted to collect a debt that plaintiff did not owe. Franklin filed a motion for summary judgment on the issue, arguing that it is entitled to a defense -- separate from the bona fide error defense -- due to its reliance on the information provided by RedMed. 

The Decision

During briefing, the court asked Franklin to either provide additional briefing of how the issue fits within the bona fide error defense or to forego the bona fide error defense. Franklin chose the latter, arguing that a "right to rely" defense was established in Ducarest v. Alco Collections, Inc., 931 F.Supp. 459 (M.D. La. 1996). 

The court disagreed with Franklin and found that there is no stand-alone "right to rely" defense within the Eleventh Circuit because the FDCPA is a strict liability statute. The court relied on an Eleventh Circuit Court of Appeals case, Owen v. I.C. System, Inc., 629 F.3d 1263 (11th Cir. 2011). In Owen, the Eleventh Circuit found that debt collectors are liable even if FDCPA violations are not knowing or unintentional. The court stated that the only exception to this rule is the bona fide error defense, which Franklin relinquished and therefore the court did not analyze.

Based on this, the court denied Franklin's motion for summary judgment on this particular issue.

insideARM Perspective

The Circuit Courts of Appeal appear to be divided regarding just how much a debt collector can rely on information provided by the creditor.

In the Foster case described above, the debt collector had no way of knowing that the amount they were collecting was not owed. The creditor never contacted Franklin with a change of information. Nor did the consumer ever contact Franklin with her dispute as required by 1692g, which was stated in the letter received by the consumer. Yet, outside of the bona fide error defense, the debt collector is none-the-less liable according to M.D. Georgia under 1962e. 

On the other hand, the Seventh Circuit held that the 1692g verification requirement extends only to the debt collector's records, not the creditor's. In Walton v. EOS CCA, the Seventh Circuit held that a debt collector need only verify that they are collecting on the amount the creditor provided and that requiring a debt collector to investigate the validity of the amount owed would be "burdensome and significantly beyond the [FDCPA's] purpose."

Mashing these two rulings together, we get inconsistent guidance for debt collectors about when and how they can rely on the information provided by the creditor. Let's assume that plaintiff in the above case did dispute the debt directly with Franklin. If this was the 7th Circuit, Franklin would only be required to verify that it was collecting the amount the creditor placed with it. Yet, despite this, Franklin would still be liable in the Eleventh Circuit -- save for the bona fide error defense -- even if all of its information matched what the creditor provided.

It seems a little odd that the same information a debt collector can rely on pursuant to its 1692g investigation is insufficient to shield it from liability except for when the bona fide error defense is invoked. The bona fide error defense is expensive to litigate and requires a debt collector to open its doors by providing its policies and procedures to plaintiffs' attorneys, who are likely on the prowl for their next claim, whether or not it has any merit. Even if the debt collector succeeds with the bona fide error defense, the attorney's fees provision of the FDCPA does not allow a debt collector acting in good faith to recover their fees.

This is an issue that a set of regulatory rules for debt collections could clarify. The rules could address the discrepancy of when and how a debt collector can rely on information from the creditor, and also provide some sort of legal relief outside of the arudous bona fide error process for debt collectors who are acting in good faith.

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