It’s not every day that we see multiple decisions on the bona fide error defense from the courts, yet recently we saw three. Two were great, and one was scary. Below we’ll discuss each and how this may impact your business.
Decision 1: “Redundant” Policies and Procedures Save the Day
The first decision we’ll discuss is Williams v. Enhanced Recovery Co., No. 18-cv-03699 (N.D. Cal. Aug. 14, 2019). In this case, ERC was unable to establish contact with the consumer despite mailing collection letters and several attempts to reach the consumer by phone. After being unable to connect with the consumer, ERC reported the consumer’s accounts to the credit bureaus. Next thing ERC knew, the consumer filed a lawsuit against the company alleging that, despite the consumer sending in a dispute letter, ERC continued to report the account without indicating the consumer disputed it. ERC, however, never received the consumer’s dispute letter.
The court punted the disputed issue of whether there was indeed a dispute letter sent and received. Instead, the court went straight to granting summary judgment in favor of ERC on the bona fide error defense. Even if the consumer sent a dispute letter, the court found that ERC’s “redundant” policies and procedures for mail processing, dispute handling, and credit reporting were more than reasonable to prevent the alleged error.
Legal and compliance professionals in this industry understand the importance of policies and procedures. Those in business and operational roles might feel like their legal/compliance colleagues place too much emphasis on documenting processes. However, this case is a perfect example of these exact documented processes being the difference between potential class action liability and no liability.
Shelly Gensmer, ERC’s Vice President of Legal and Compliance, spoke with insideARM about this case:
“ERC goes above and beyond to ensure its policies and procedures are written and followed such that its practices follow the law, but even more so, it puts in place additional means to catch any exceptions in processes. It even has measures in place to make sure the exceptions process goes the way it was designed. The judge’s order was strong in ERC’s favor and while we certainly take some level of pride in the success of this case, our takeaway is to continue to press the importance in all of our departments that policies and procedures must be reviewed and updated regularly.”
Decision 2: The Obvious Saves the Day
The next decision we’ll discuss is Ketterman v. I.C. Systems, Inc., No. 4:18-cv-1136 (E.D. Mo. Aug. 12, 2019). In this case, the consumer sued I.C. Systems for allegedly attempting to collect a utility debt owed by his ex-wife, not him. The decision primarily discusses processing fees—the bona fide error defense came in at the end as an “even if” resolution. On that specific issue, the court found that I.C. Systems reasonably relied on the information provided by the creditor regarding the ownership of the debt to qualify it for the bona fide error defense. The facts presented also show that it was reasonable to believe the consumer owed the debt. The consumer’s testimony shows that he lived in the home while the debt accumulated, his name was on the account, and he paid the utility bill in the past.
Decision 3: Programmers Beware, Connecticut Thinks You Don’t Ever Make Mistakes
The final decision—admittedly a scary one—is Garcia v. Law Offices of Howard Lee Schiff, P.C., No. 3:16-cv-791 (D. Conn. Aug. 15, 2019). The defendant here sent a collection letter that included a debt itemization similar to the one required by the New York Department of Financial Services and contemplated by the Consumer Financial Protection Bureau’s Notice of Proposed Rulemaking for debt collection (NPRM). The current balance in the letter was different than the balance at charge off, but the itemization did not explain the difference. The itemization listed zeros for interest, fees, and payments since charge off. The letter omitted the consumer’s prior payment to the creditor, which was a typographical error.
The court found that the letter is confusing and misleading to the consumer about the amount he owed. However, even though the evidence shows this error was inadvertent, the court refused to find that the defendant was entitled to the bona fide error defense. The court found that the programmer’s mistake was not reasonable, considering the programmer’s experience and the letter’s short length. The court found that the defendant’s policies and procedures were not reasonable to prevent the mistake due to the error not being caught in testing despite the letter’s simplicity.
There are a few red flags in this decision. First, the court mistakenly thinks that the length and “simplicity” of a letter equates to the level of complexity in programming such letter, which is not the case. Second, the court thinks that experienced programmers are not human and are immune from inadvertent, typographical errors—the exact type of error contemplated by the bona fide error defense. Third, the court seems to oversimplify the letter testing process for a business that sends significant volumes of letters.
The takeaways from Garcia are twofold. First, double-check the calculations in the debt itemization on letters. Second, said with tongue-in-cheek, programmers are beyond inadvertent human mistakes.
By Katie Grzechnik Neill