Washington Federal Court Holds “Vague” and “Conclusory” References to “Reasonable Procedures” Not Enough to Establish FDCPA’s Bona Fide Error Defense

In Gebreseralse v. Columbia Debt Recovery, LLC, the plaintiff, a tenant under a residential lease agreement, vacated the premises early due to concerns over the property’s condition. In response, the property management company engaged a collection agency to recover the remaining amounts claimed as due and owing under the lease.

Over the course of several months, the collection agency sent the plaintiff multiple emails and letters containing errors. The initial letter contained an itemization of amounts due, which misstated the amount of rent and the security deposit. In a subsequent letter, the agency stated that the principal was accruing interest at the rate of 12%, which was followed by an email stating that the rate was 8%, which was followed by another letter stating that the rate was again 12%. A number of communications also included conflicting interest calculations. Finally, while several of the communications stated that the account qualified for a 50% reduction if paid by a certain date, one email provided a discounted payoff deadline that had passed three weeks before the email was sent.

The plaintiff filed suit against the collection agency in Washington state court, alleging that the inaccurate information in the defendant’s letters and emails amounted to “false, deceptive, or misleading” representations and “unfair and unconscionable means” in connection with the collection of a debt, in violation of §§ 1692e and 1692f of the Fair Debt Collection Practices Act (FDCPA).

After removal to the U.S. District Court for the Western District of Washington, the plaintiff moved for partial summary judgment. The defendant conceded that the stated interest calculations and rates were incorrect, but argued that the communications were not materially misleading, and invoked the bona fide error defense.

The court rejected the defendant’s bona fide error defense because, even if the errors were unintentional, the defendant failed to show it maintained procedures reasonably adapted to avoid the violations. As the court explained, the bona fide error defense is an affirmative defense, for which the debt collector has the burden of proof. Thus, to qualify for the defense, a defendant must prove that: (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.

In support of its defense, the defendant submitted a declaration stating that it “maintains ongoing training and testing to ensure compliance with the FDCPA,” and that “interest is calculated on a daily basis by the operating system based on the assigned amount or principal, the delinquency date, and the current date.” The court held that this “conclusory” declaration was “vague and uncorroborated by any evidence in the record regarding procedures.” Further, the defendant could “only surmise as to whether procedures were followed and how the violations occurred. Citing relevant case law, the court explained that “if the bona fide error defense is to have any meaning in the context of a strict liability statute, then a showing of procedures reasonably adapted to avoid any such error must require more than a mere assertion to that effect… The procedures themselves must be explained, along with the manner in which they were adapted to avoid the error.”

In addition, the court rejected the defendant’s argument that the communications were not materially misleading, finding that the misstatements concerning the amount of rent, security deposit, interest rate, and interest calculations were material because they affected the total amount of debt demanded, thus frustrating the plaintiff’s ability to intelligently choose her response to each communication. The court also rejected the defendant’s argument that, had the plaintiff contacted the defendant in response to the discounted payoff offer, she would have paid less than the amounts stated in the letter, explaining that “consumers are under no obligation to seek explanation of confusing or misleading language in debt collection letters.”

Troutman Pepper's Take:

This case is a good reminder that in order for a defendant to avail itself of the bona fide error defense, it must do more than just assert that it has policies and procedures designed to avoid such errors. It must produce documentation evidencing the same and detailing the exact policies and procedures.

A copy of the order is available here.