The U.S. Court of Appeals for the Ninth Circuit, in Urbina v. National Business Factors Inc., ruled that a debt collector could not rely on the FDCPA's bona fide error defense by contractually obligating its creditor clients to provide accurate information.
The collection services contract that National Business Factors (NBF) had entered into with a medical clinic contained a provision pursuant to which the clinic agreed that it would assign debts for collection "'with only accurate data and that the balances reflect legitimate, enforceable obligations of the consumer.'" NBF also had a routine practice of requesting its clients to notify NBF if they recognize errors in any accounts listed in the automatic response it generated when clients referred accounts for collection.
After the clinic referred the plaintiff's account to NBF for collection, NBF sent a letter to the clinic requesting that it verify the amount due. The following day, without receiving a response from the clinic, NBF sent a collection letter to the plaintiff seeking the balance owed plus interest. The plaintiff filed a complaint alleging violations of the FDCPA and moved for summary judgment. In opposing the motion, NBF admitted that it received an incorrect payment history from the clinic and had mistakenly calculated interest. Because NBF had charged too much interest and attempted to collect more than the plaintiff owed, it was undisputed that NBF had violated the FDCPA. However, NBF argued that it was entitled to the benefit of the FDCPA's bona fide error defense and, as a result, summary judgment should be entered in its favor.
The bona fide error defense requires a showing that the debt collector violated the FDCPA unintentionally, the violation resulted from a bona fide error, and the collector maintained procedures "reasonably adapted to avoid the violation." The district court agreed that NBF qualified for the bona fide error defense and entered summary judgment in NBF's favor.
In reversing the district court, the Ninth Circuit observed that "[t]he procedures that have qualified for the bona fide error defense [in cases decided by the Ninth Circuit and other circuits] were consistently applied by collectors on a debt-by-debt basis; they do not include one-time agreements committing creditor-clients to provide accurate information that are later acted upon without question."
As a fallback position, NBF argued that even if its collection service contract was insufficient to qualify for the bona fide error defense, it still qualified because it sends its clients follow up requests seeking verification of the accuracy of their information. While calling this "closer to the mark," the Ninth Circuit found that it still fell short because it was uncontested that NBF did not wait for a response from the clinic before attempting to collect from the plaintiff. The Ninth Circuit stated that because NBF did not argue that it routinely waits for clients to respond before sending collection letters to debtors, NBF had failed to show that its practice of requesting account verification "was genuinely calculated to catch errors of the sort that occurred here."
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