The Supreme Court’s Equitable Basis for not Extending the Bona Fide Error Defense to Mistakes of Law

In Jerman v. Carlisle, et al., 130 S.Ct. 1605 (2010), the United States Supreme Court addressed a conflict among Circuits regarding whether the Bona Fide Error Defense in the Fair Debt Collection Practices Act applies to mistakes of law.  The statutory language of the Bona Fide Error defense provides that, “a debt collector may not be held liable in any action brought under (the FDCPA) if the debt collector shows by a proponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” Section 1692k.

The District and Circuit Courts acknowledged a division of authority regarding whether a mistake of law qualified as a Bona Fide Error, and both ruled in favor of the debt collector.  The Circuit Court, in its ruling, recognized that the majority view is that the defense is available for clerical and factual errors only, but ruled to extend the Defense to mistakes of law. The Supreme Court declined to extend the protections of the Bona Fide Error defense to mistakes of law.

The Court’s decision is based on textual interpretation of the FDCPA, but the Court also discusses equitable considerations that contributed to its decision.  Following is a summary of that discussion:

The Court expresses concern that since debt collectors are normally compensated by a percentage of the amount collected that they would be motivated to push the legal limits of the FDCPA to maximize recovery; and, if the Bona Fide Error defense is extended to include mistakes of law, all debt collectors would in effect be immune from suit by merely seeking the advice of legal counsel.  Further, the Court reasons that this would give a competetive advantage to unethical debt collectors and drive ethical collectors out of business.  The Court concludes that this is at odds with the purpose of Congress in enacting the FDCPA: “to eliminate abusive debt collection practices by debt collectors, [and] to endusure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged” Sec. 1692(e).

The Court is also concerned that extending the defense to mistakes of law will necessitate examinations of the debt collectors subjective intent to violate the FDCPA, including determining what procedures are reasonably adapted to avoid legal error, as required by the statutory language.

Further, in any factual circumstance that the law is unsettled, the uncertainty will allow the debt collector to plead the Bona Fide Error defense.  This will have a chilling affect on private suits to enforce the FDCPA, which the statutory scheme established by the FDCPA is meant to encourage.

Conversely, the Court does not anticipate that its refusal to extend the defense will place an unmanagable burden on debt collectors.  And, if Congress is persuaded by the debt collectors arguments presented, the Court says, it can amend the FDCPA to account for them.

This ruling leaves debt collectors in a position of uncertainty when it comes to unanswered conflicts in the law.  The debt collector cannot rely on good faith interpretation of the decisional law to protect it from suit.  The only recourse for the debt collector seeking a reliable interpretation of unsettled law is to seek an Advisory Opinion of the Federal Trade Commission, but the Court acknowledges, based on evidence of the FTC’s ability to issue opinions in a timely manner, that this is not a practial remedy.


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