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Bona Fide Error Defense Requires Reasonable, but not Foolproof, Policies and Procedures

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Lauren M. BurnetteMs. Burnette joins Barron & Newburger with a strong background in consumer credit litigation, compliance and appellate practice representing creditors, collection agencies, debt purchasers and law firms.

New Jersey’s federal district court has provided a measure of comfort under circumstances that will be familiar to most debt collectors.   In Gebhardt v. LJ Ross Assocs., the plaintiff’s attorney sent the defendant a certified letter stating that the plaintiff had retained counsel, and that all communications should be directed to counsel. (The letter also “SERVE[D] AS NOTICE TO IMMEDIATELY CEASE AND DESIST CONTACTING OUR CLIENT.”)   One of LJR’s employees signed for the letter at the post office at 9:58 a.m.  That same day, at 10:10 a.m., LJR placed a collection call to the plaintiff. LJR made no further contact with Plaintiff after that call.

Section 1692c(a) of the FDCPA generally prohibits communicating with a consumer in connection with debt collection:

(2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer.

Section 1692c(c) allows a consumer to request in writing that a debt collector cease its communications with the consumer.  Gebhardt alleged that the call, placed 12 minutes after LJR’s employee signed for the letter at the post office, violated both sections of the Act.  LJR, in turn, asserted that the call was the product of a bona fide error.  Both sides moved for summary judgment, with the plaintiff arguing: (a) that the defendant had the requisite statutory knowledge at the time of the call; and (b) that the defendant had not met its burden of proof on the FDCPA’s bona fide error defense.

Gebhardt argued that knowledge of attorney representation should be imputed under the law of agency: that once an employee saw that a letter was received from an attorney, the debt collector should be charged with knowledge of the representation. LJR argued that imputed knowledge is insufficient to give rise to liability under Section 1692c(a)(2), and that the FDCPA requires a plaintiff to show actual knowledge of attorney representation.

The court held that, as a matter of law, the FDCPA requires the debt collector to have actual knowledge of a consumer’s representation by an attorney before liability can arise under Section 1692c(2)(a).  The court further found that there was no evidence that counsel’s letter to LJR was actually read by any employee prior to the call at issue.  The court declined to hold that the defendant was charged with knowledge of the contents of a received, but not-yet-opened letter.

With regard to the bona fide error defense, both parties’ arguments focused on the adequacy of LJR’s procedures.  Gebhardt submitted policies and procedures that he argued LJR could have adapted to have prevented making the communication at issue.  LJR, in turn, presented evidence of policies and procedures that it actually employed, which specifically addressed the processing of legal representation and cease and desist notifications.

Finding that the defendant had “demonstrated that it had procedures reasonably adapted to prevent an error from occurring”, the court held:

The phone call—made twelve minutes after the letter was received at the off-site P.O. Box (dkt. 34-1 at 2-3; dkt. 34-8 at 1; dkt. 35 at 1; dkt. 39-1 at 3)—was a “plausible and reasonable” error because it was made during the processing time between the receipt of letter and entry of the content into the computer system to remove the consumer from communications.

Processing delays are a problem for every debt collector, and industry members may find refuge in the district court’s recognition that such a delay “between receipt of a cease all communications letter and entry of that information into the computer system does not necessarily mean that the debt collector did not have in place ‘procedures reasonably adapted to avoid an erroneous communication with consumers.’”  Granting summary judgment to the defendant, the district court noted:

Although Plaintiff argues that Defendant could have done more to prevent the communication, the FDCPA “only requires collectors to adopt reasonable procedures” and it would not be reasonable to require Defendant to immediately open and process all mail or to cease all collection calls until all mail is processed, as Plaintiff suggests.

The court’s opinion serves as a much-needed reminder that while debt collectors need to have reasonable policies and procedures in place, those policies and procedures need not be failsafe.  When reasonable policies and procedures exist, the absence of a perfect solution should not bar application of the bona fide error defense.