The plaintiff incurred a debt to a medical provider who placed the debt with a debt collector. The collection letter from the debt collector included a request for repayment of principal and interest. The plaintiff filed a lawsuit alleging that the debt collector violated the Fair Debt Collection Practices Act (FDCPA) because it was not allowed to charge interest on the unpaid debt or, alternatively, that it was using the wrong start date for the interest calculation. The defendant argued that it relied on information provided by the original creditor, based on which it should be entitled to the bona fide error (BFE) defense. The district court agreed and granted summary judgment to the defendant.

The Ninth Circuit Court of Appeals reversed, holding that the district court erred in its application of the BFE test. To assert a BFE defense, the debt collector must prove that: (1) it violated the FDCPA unintentionally; (2) the violation resulted from a BFE; and (3) it maintained procedures reasonably adapted to avoid the violation. The parties did not dispute that the debt collector unintentionally violated the FDCPA in calculating interest on the plaintiff’s debt. Rather, the issue was whether the debt collector maintained procedures reasonably adopted to avoid the violation.

To support its position regarding the reasonableness of its procedures, the debt collector argued that the contract between the creditor and the debt collector required the creditor to refer outstanding debts for collection with only accurate data and that the balance reflects legitimate, enforceable obligations of the consumer. The court rejected this position as “effectively outsourc[ing]” the debt collector’s own statutory duty under the FDPCA “to maintain procedures designed to avoid discoverable errors, including, but not limited to, errors in calculation and itemization.” If this practice were sufficient, the court opined, then the FDCPA would be a “dead letter.”

The case is Urbina v. National Business Factors. A copy of the decision can be accessed by clicking here.