U.S. Supreme Court Rules Against Debt Collector in FDCPA Case

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The United States Supreme Court Wednesday handed down a ruling that severely complicates the bona fide error defense under the FDCPA for ARM companies involved in litigation.

In a 7-2 ruling, the Court said that collection law firms could not use misinterpretations of the law in a bona fide error defense under the Fair Debt Collection Practices Act (FDCPA).

In the case — Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich — the plaintiff sued the defendant ARM firm for violating the FDCPA when it attempted to foreclose on her home after she had paid her mortgage. The Ohio firm required that Jerman prove in writing within 30 days that she had paid her Countrywide Home Loans mortgage; otherwise the debt would be assumed valid.  Jerman hired a lawyer to meet the Ohio firm’s written requirement, but FDCPA law does not require consumers to challenge debt claims in writing.

The firm, which specializes in real estate and foreclosure law, admitted in its 2006 validation notice to Jerman it intended to require she dispute the claim in writing. But Carlisle said it did not know that the FDCPA did not require a written dispute. After Jerman sued, the firm argued that it should not be held liable because it was an unintentional or “bona fide error” and has safe harbor protection under FDCPA.

A lower court ruling agreed with Jerman, noting that Carlisle had violated the FDCPA, but that it was not liable under the FDCPA for damages because the violation was unintentional. An appeals court decision affirmed that ruling, sending the case to the Supreme Court.

In an opinion written for the majority by Justice Sonya Sotomayor, the Court said that “ignorance of the law will not excuse any person, either civilly or criminally.” Carlisle had argued that misinterpretations of the law were written into the FDCPA. But Sotomayor and the majority disagreed, noting that ignorance of the law was not explicitly written into the FDCPA.

The dissent opinion, written by Justice Anthony Kennedy and joined by Justice Samuel Alito, focused on the impact that the ruling would have on ARM lawyers. They noted that it leaves the door open for potential abuses by plaintiffs’ attorneys.

“The decision aligns the judicial system with those who would use litigation to enrich themselves at the expense of attorneys who strictly follow and adhere to professional and ethical standards,” wrote Kennedy.

But Sotomayor spoke directly to that objection in the majority opinion, writing, “We do not foresee that our decision today will place unmanageable burdens on lawyers practicing in the debt collection industry.”

Valerie Hayes, general counsel and vice president of legal and government affairs for ACA International – a leading trade group in the accounts receivable management industry – agreed with the dissent, noting that there will be some immediate impact from the ruling.

“There have been a number of cases filed this year that have been stayed by the court waiting for the ruling on this case by the Supreme Court,” said Hayes. “There will be immediate impact in those cases, and some others where the bona fide error defense is being used.”

“Obviously, errors of law cannot be used under the bona fide error defense going forward,” she noted.

Hayes said that ACA intends to make errors of law an issue in its ongoing attempt to amend the FDCPA. “We’re disappointed that the bona fide error defense will not be extended to errors of law,” she said. “We will try to incorporate a provision within the bona fide error defense that would extend to errors of law.”

The entire Supreme Court opinion, including dissent and concurring opinions written by Justices Stephen Breyer and Antonin Scalia, can be read at http://www.supremecourt.gov/opinions/09pdf/08-1200.pdf.

 

[EDITOR’S NOTE: For a follow-up on the Jerman case a year later, after it was remanded to the lower court, please read “Zero Damages: A Hollow Victory for Plaintiffs in Jerman v. Carlisle“]

 

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Posted in Collection Laws and Regulations, Debt Collection, FDCPA .

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  • avatar DONALD DALY says:

    “ERRORS OF LAW”. Is that the same as taking a test, failing, but then because the subject matter was never reviewed by the flunky a passing grade should be granted? Anyone who questions the A.R.M. industries unpopular reputation has only to look at anyone that goes this route and then tries to validate their action. It would seem the court got this no~brainer absolutely correct.

  • avatar Robert Petersen says:

    …I trust the mortgage was paid and the demand for a written dispute was completely unnecessary rather than another way for a debtor to avoid payment or profit from an error.

  • avatar Anthony Serrano says:

    The message is simple…if the consumer is willing to dispute and PAY the bill…why go forward with the foreclosure? Let the consumer pay the bill, cancel the account back to the client, and move on. On the other hand, if you pursue the litigation, get into trouble and then try to claim “ignorance of the law”….time for the client to get a new law firm!

  • avatar eileen corrice says:

    Donald, take a step back. Was her mortgage paid? Just plain tired of debtors looking for a way out. If she could afford to hire a debtors rights attorney, she should have used that same money to cure the default on her mortgage. In my opinion, it makes more sense to dispute a debt in writing, although it’s not required by the FDCPA. However, do you really think that the courts would agree that a note on your kitchen calendar ‘I called ABC Agency to dispute my debt today’ valid proof? But silly me, when did the government ever make sense? Logic is not part of their MO.

  • avatar William Fason says:

    Ladies and Gentlemen: I’m now wondering whether the statements now printed on virtually every credit card agreement and statement is now correct, wherein it states: “If you find an error in your statement, you must contact us within 60 days in writing. You may contact us by telephone, but doing so will not preserve your rights.” Or words to this effect. Doesn’t this opinion solidly stand for the proposition that orally contacting the credit card company (or the collection agency handling collection for same) must now take those oral phone calls and left messages on answering machines much more seriously? I did not see a “carve-out” exception for credit card companies or the collection firms that represent them. I presume the same is true for those who have obtained civil money judgments and are contacted orally by the judgment debtor to object to the judgment in some way. That last sentence isn’t clear from the ruling, but I suspect that the FTC will issue an opinion letter soon enough.

  • avatar Loran Fite says:

    what part of “the plaintiff sued the defendant ARM firm for violating the FDCPA when it attempted to foreclose on her home after she had paid her mortgage.” is difficult to understand? This is not a question of DID SHE PAY the mortgage!

  • avatar DONALD DALY says:

    EILEEN-???, THIS MATTER WASN’T CONCERNED WHETHER SHE HAD PAID HER MORTGAGE, ALTHOUGH IT STATES SHE DID, IT’S ABOUT AN OUTFIT WHO RECEIVED A VALID DISPUTE AND REPLIED TO THE CONSUMER=”PROVE IT”! LAST I KNEW THAT IS THE RESPONSIBILTY OF THE COLLECTOR, AND THE COURT AGREED. I DIDN’T DRAFT THIS LAW BUT I HAVE WORKED WITHIN IT FOR AWHILE. IT HAS BEEN PROBABLY THE MOST PUBLISHED CONSUMER PROTECTION PIECE FOR THE PAST 33 YEARS.

  • avatar Joyce holman says:

    If you (Bob and Eileen) read the article more carfully you’d see Jermaine HAD paid her mortgage. To me, it appears that the collection agency was attempting to illegally collect on a debt that no longer existed. And so sorry… not all debtors are “looking for a way out.” If certain collection agents would play by the rules then an informed consumer wouldn’t have the opportunity to call them (OR SUE THEM) on their unlawful, and often ridiculously unlawful collection tactics.

  • avatar Patrick Lunsford says:

    @ Anonymous on April 23, 2010 at 3:33PM EST

    Of course, it was not a unanimous decision from the Supreme Court. There was a pretty strong dissent from two Justices (Kennedy & Alito) and in Scalia’s concurrence, he also raised some questions.

    So I hardly think the ARM company was irresponsible here. It was a tough legal question that needed a definitive answer.

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