U.S. Supreme Court Hears Arguments on Whether Debt Collector's Legal Error is a Defense against Culpability
The U.S. Supreme Court heard arguments yesterday on an important matter that will have a tremendous effect on the debt collection process. In Jerman v. Carlisle, the Court considered whether a debt collector’s legal error qualifies for the bona fide error defense under the Fair Debt Collection Practices Act (FDCPA). Under the FDCPA, debt collectors must, as part of their initial contact, provide consumers with certain prescribed notices.
In this case, the creditor issued a notice which it believed was in compliance with the Act. Unfortunately for the creditor, its collection notice requiring the person to contest the debt “in writing” violated the law. Under the FDCPA, both the Federal Trade Commission and consumers subjected to collection abuses may bring civil suits against debt collectors for violations of the Act, and subject creditors to damages. The law proscribes some exemptions for debt collectors - debt collectors can avoid liability if the act was done in conformity with any advisory opinion of the Federal Trade Commission or if the violation was not intentional and resulted in a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such error. The question in this case is whether this creditor’s misunderstanding of the law (i.e., requiring a writing to dispute the debt) fell within the bona fide error defense.
The homeowner successfully obtained the dismissal of the foreclosure lawsuit against her because her debt had already been fully paid. Thereafter, she pursued an action challenging the debt collection practices of the creditor under the FDCPA. She lost her case in both the trial court and appellate court based upon the creditor’s bona fide error defense, and appealed to the U.S. Supreme Court.
Ruling in favor of the homeowner here would result in monetary losses for some such good-faith debt collectors who accidentally violate the Act. But, as Justice Ginsburg noted during oral argument in this matter, there is no "Federal statute that makes mistake of law a defense." As we all know, rarely is ignorance of the law a defense to civil liability or criminal penalties.
If the U.S. Supreme Court rules against the creditor in this case, debt collectors who are unsure about the interpretation of the law will be forced to request and receive an advisory opinion from the Federal Trade Commission prior to any collection notice to receive protection from liability. There have only been seven instances of such requests and only four answered in the past decade. I have similar questions on this issue as Chief Justice Roberts posited during oral argument – why is the number of advisory opinions so small? Does receiving an advisory opinion take an unreasonable amount of time? Is this practical for debt collectors?
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