Introduction

The Fair Debt Collection Practices Act (hereinafter referred to as the "FDCPA" and/or the "Act") imposes civil liability on debt collectors who engage in collection practices that are prohibited under the Act. 15 U.S.C. § 1692. A debt collector, as defined by the act, includes any person who "regularly collects ... debts owed or due or asserted to be owed or due another" in regard to consumer debts. § 1692a(5). Prohibited practices include, but are not limited to: (1) false representations as to the debt’s character, amount, or legal status; (2) communications at an unusual time or place, likely to be inconvenient to the consumer; and (3) using obscene or profane language and/or violence or threats of violence. In addition to prohibiting certain types of debt collection practices, the Act imposes affirmative duties on debt collectors, including the requirement that within five (5) days of an initial communication, the debt collector must send the consumer a written notice containing "a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector." §1692g(a)(3).   

 

Any debt collector who fails to comply with the provisions of the FDCPA is liable for: (1) actual damages; (2) costs; (3) reasonable attorney fees as determined by the court; and (4) $1,000 for each individual violation. § 1692k(a)(2). However, a debt collector will not be held liable for violations of the act if is shown that the violation was not intentional and was the result of a bona fide error or where an act or omission was done in good faith and in conformity with a Federal Trade Commission ("FTC") opinion. § 1692k(c) and 1692k(e) 

 

The bona fide error defense post Jerman v. Carlisle, et al. 

On April 21, 2010, the United States Supreme Court in the case of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA ("Jerman"), held that the bona fide error defense, under the FDCPA, does not extend to violations that resulted from a debt collector’s incorrect interpretation of the legal requirements of the Act. 130 S.Ct. 1605 (2010). Prior to Jerman there was a split in authority amongst the district and circuit courts as to the scope of the FDCPA’s bona fide error defense.  

 

In Jerman the Supreme Court overturned a Sixth Circuit Court of Appeal decision holding that a notice sent pursuant to §1692g(a)(3), which stated that the debtor must dispute the debt "in writing" was a violation of the FDCPA, as the Act does not require a dispute regarding the validity of the debt to be written. The lower court further held that despite the Act having been violated, the bona fide error defense applied to the debt collectors’ mistake of law and insulated it from civil liability. 

 

In its opinion the Supreme Court reasoned that the bona fide error defense is limited to factual and clerical errors based upon, among other factors, the lack of congressional intent to extend the defense to incorrect interpretations of the law. In enacting the FDCPA, Congress adopted the pertinent portions of the bona fide error defense from the Truth in Lending Act ("TILA"), which at that time has been uniformly interpreted by the courts as to not include mistakes of law. While Congress subsequently amended the defense in TILA, it did not amend the FDCPA. Accordingly, the Court found no basis for the extension of the defense beyond clerical and factual errors, and overturned the lower court’s decision on that issue. Id. At 1607 

While it is clear after Jerman that the bone fide error defense under the FDCPA is limited to clerical and factual errors, legal interpretations of each provision of the Act itself are not. When a debt collector is faced with a novel and/or ambiguous question of law regarding a provision of the Act it must either request a opinion from the FTC, who need only issue advisory options where practicable, and proceed in conformity therewith or risk liability if its legal interpretation is subsequently determined to be incorrect. (Note: the FTC has received only seven requests and issued four advisory opinions within the last ten Years. Jerman 130 S.Ct. 1605, 1625 (2010)).  

 

Rouse v. Law Offices of Rory Clark ("Rouse") and limitations on the recovery of costs by a prevailing defendant under the FDCPA 

 

On May 3, 2010, the Ninth Circuit Court of Appeal addressed the issue of costs awarded in an FDCPA action to a prevailing defendant as a matter of first impression. The Court held that FDCPA authorizes an award of costs only in limited circumstances where the plaintiff brought the action in bad faith and for the purpose of harassment. Rouse v. Law Offices of Rory Clark, 603 F.3d, 699 (2010).

 

Section 1692k(a)(3) of the Act provides in pertinent part: "on findings by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs." While the lower court interpreted Section 1692k(a)(3) to mean that costs are a factor in determining the reasonableness of attorneys fees, the Ninth Circuit took the position less favorable to debt collectors by determining the costs, as well as attorneys fees, may only be awarded to a prevailing defendant where the plaintiff brought the action in bad faith and with the intent to harass the debt collector. Finding, no binding or persuasive authority directly on point the Court based its opinion, in part, on the express purpose of the FDCPA to shield consumers from the abusive practices of debt collectors. Id. At 705.  

 

Accordingly, a debt collector who is forced to defend itself against alleged violations of the FDCPA, will not be able to recover its costs of the defense, without the court making a finding that the debtor brought the action in both bad faith and for the purpose of harassment, even where the debt collector is ultimately determined to have not violated the Act. 

 

Conclusion