Opinion ID: 182440
Heading Depth: 2
Heading Rank: 3

Heading: ICS's Procedures

Text: Until now, this Court has not specifically addressed the third element of the bona fide error defense: that the debt collector maintained procedures reasonably adapted to avoid errors. In fact, in Edwards we expressly declined to decide whether the debt collector met this third requirement because the collector already failed to demonstrate that the FDCPA violation was unintentional and a bona fide error. [14] 584 F.3d at 1354. In LeBlanc, meanwhile, we held that the debt collector's entitlement to the bona fide error defense was not properly before the Court, since the issue was never raised in the district court. 601 F.3d at 1199. Accordingly, this appeal presents an issue of first impression: what procedures are sufficient to show that a debt collector maintained procedures reasonably adapted to avoid errors that violate the FDCPA? At the outset, we agree with the Tenth Circuit that the procedures component of the bona fide error defense involves a two-step inquiry. Johnson v. Riddle, 443 F.3d 723, 729 (10th Cir.2006); see also Reichert v. Nat'l Credit Sys. Inc., 531 F.3d 1002, 1006 (9th Cir.2008) (quoting same). The first step is whether the debt collector `maintained' i.e., actually employed or implementedprocedures to avoid errors. Johnson, 443 F.3d at 729; Reichert, 531 F.3d at 1006. The second step is whether the procedures were `reasonably adapted' to avoid the specific error at issue. Johnson, 443 F.3d at 729; Reichert, 531 F.3d at 1006. We also agree with other circuits that this is a fact-intensive inquiry. Wilhelm v. Credico, Inc., 519 F.3d 416, 421 (8th Cir.2008); see also Reichert, 531 F.3d at 1006 (quoting same). Despite surveying the case law, we have located no definitive list of procedures, or even universally applicable parameters, by which to assess the third element. Rather, the legal analysis has proceeded on a case-by-case basis and depended upon the particular facts and circumstances of each case. [15] Accordingly, we turn to the particular errors and procedures involved here. ICS identifies three procedures it posits are reasonably adapted to avoid the erroneous interest charges here: (1) ICS contractually obligated AAA to present only accurate information on debts, which must be validly due and owing; (2) after Owen contested the debt, ICS suspended collection efforts, obtained verification documents from AAA, and provided these documents to Owen; and (3) in the May 9, 2007 letter enclosing these AAA documents, ICS requested that Owen contact ICS's office if she continued to contest the debt. [16] Regarding the above two-step inquiry, ICS has met the low threshold required by the first step because the evidence shows ICS has maintained these two procedures: ICS introduced the contract signed by AAA and the letters ICS sent to Owen. However, for several reasons, ICS fails the second step. First, ICS's suspension of collection efforts once Owen contested the debt, along with its subsequent receipt and delivery of debt verification materials to Owen, do not constitute procedures reasonably adapted to avoid interest errors. Rather, they are statutory requirements. See 15 U.S.C. § 1692g(b) (mandating debt collectors, upon debtor disputing debt, to cease collection, obtain verification of the debt, and provide verification to debtor). If debt collectors could meet their bona fide error defense burden by fulfilling their other statutory duties, the third element of § 1692k(c) would be mere surplusage. Such an interpretation would allow debt collectors to violate some provisions of the FDCPA so long as they complied with the rest of the Act, a result clearly at odds with Congress's intent. See Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir.1993) (stating that a single violation of an FDCPA provision is sufficient to establish civil liability). Second, the May 9, 2007 letterrequesting Owen to contact ICS's office if she continued to dispute her debtis not a procedure reasonably adapted to avoid errors, as ICS's March 28, 2007 letter already had sought collection of the improper charges. At best, this after-the-fact procedure is adapted to prevent the error from occurring again. Yet, Congress designed the FDCPA to prevent debt collection abuses, not to furnish debt collectors with a free pass as to errors in their first collection attempts. See Reichert, 531 F.3d at 1007 (stating debt collectors are not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence). Third, ICS's contract with AAA  that AAA [p]lace only amounts over $25 that are validly due and owingis a form contract that was signed four years before the Owen debt was sent to ICS for collection in 2007. Employing a one-time form contract with AAA four years prior and blindly relying on creditors to send only valid debts is a procedure, but it is not one reasonably adapted to avoid the type of erroneous interest charges at issue here. ICS's own contract with AAA makes this point because it provides that ICS may limit the rate of interest or other charges you [AAA] have added to an account or refuse to add any if we believe we need to do so to operate lawfully. In other words, ICS's contract anticipates that the creditor AAA may potentially place erroneous interest charges on accounts and gives ICS the explicit right not to collect any improper interest AAA has added. Importantly too, the errors here were not errors requiring ICS to further investigate the validity of AAA's listed charges. Rather, the errors were discernible on the face of AAA's documents forwarded to ICS and therefore readily discoverable by ICS. For instance, a cursory review of just two documents supplied to ICSAAA's three-page account statement for Owen and one-page agreement with Owenwould have revealed that AAA (1) combined principal and interest in Owen's running balance column, thereby charging monthly compound interest and (2) included an extra 7% Interest fee on Owen's account that was not included in Owen's written agreement with AAA. Earlier we listed the entries on Owen's account statement which readily show, for example, that AAA on March 27, 2007 placed both a 1.5% monthly finance charge on the running balance and a 7% Interest fee on Owen's account. We recognize that the record is unclear regarding exactly what information AAA relayed to ICS when it first placed Owen's account for collection, aside from the amount of the debt. On appeal, ICS does not argue that it did not have access to Owen's account statement when it sent its initial March 28, 2007 letter. Even if ICS did not have this statement until May 9, 2007when it undisputably had copies of Owen's agreement and account statementICS continued to collect these same compound interest charges and the 7% Interest fee in letters on May 9, May 24, June 6, July 6, and August 7, 2007. Fourth, and most notably, ICS has not indicated any internal, error-correction procedures to avoid miscalculations of debt amounts, such as interest on past-due interest or extra fees beyond the debtor's unambiguous written agreement. ICS has not offered evidence of any training techniques it employs to foster FDCPA compliance. [17] For example, ICS cited no evidence that it trains its employees to examine principal and interest to avoid compound interest errors, much less any internal procedures to segregate principal and interest to avoid collection errors. Cf. Wilhelm, 519 F.3d at 421 (upholding bona fide error defense when debt collector trained employees to segregate principal and interest to avoid interest-on-interest errors). ICS cited no internal procedures it employed to compare, even briefly, the interest charges permitted by Owen's agreement with AAA versus the multiple types of interest placed on Owen's account ledger. In sum, ICS cited no internal controls it employs to reduce the incidence of improper debt collection. Rather, ICS's procedure is to outsource its oversight task to its creditor AAA, which must report only debts that are validly due and owing. In reaching our conclusion that ICS's procedures (as presented in the limited record here) are not sufficient under the third element of the bona fide error defense, we also recognize that debt collectors operate under time and resource constraints. Moreover, we agree with ICS that the FDCPA does not require debt collectors to independently investigate and verify the validity of a debt to qualify for the bona fide error defense. See 15 U.S.C. § 1692k(c); see also Hyman v. Tate, 362 F.3d 965, 968 (7th Cir.2004); Jenkins v. Heintz, 124 F.3d 824, 834-35 (7th Cir. 1997); Smith v. Transworld Sys., Inc., 953 F.2d 1025, 1032 (6th Cir.1992). [18] However, to qualify for the bona fide error defense, the debt collector has an affirmative statutory obligation to maintain procedures reasonably adapted to avoid readily discoverable errors, such as the interest errors here. See 15 U.S.C. § 1692e(2)(A) (prohibiting the false representation of the character, amount, or legal status of any debt); id. § 1692f(1) (prohibiting [t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law). A debt collector does not fulfill this affirmative obligation by delegating it entirely to creditors, such as AAA, whose actions are not even regulated by the FDCPA. See 15 U.S.C. § 1692k(a) (subjecting debt collectors to civil liability for FDCPA violations). [19] A contrary conclusion would portend consequences not intended by Congress when it enacted the FDCPA. In listing the statutory purposes of the FDCPA, Congress identified the need to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged. 15 U.S.C. § 1692(e). This purpose would be completely frustrated were we to accept ICS's argument that its one-time instruction to AAAto refer only debts validly due and owingshields it from liability. Such reasoning would allow debt collectors to make an end-run around statutory provisions that ensure accurate collection practices merely by inserting boilerplate language in its contracts with creditors. Debt collectors who presently maintain internal procedures to avoid FDCPA errors would be incentivized to scrap these measures altogether, since full immunity could be guaranteed by placing the onus of accuracy on creditors. [20] This would precipitate a race to the bottom among debt collectors, rendering the FDCPA a dead letter. Lastly, we reiterate that the third element of the bona fide error defense is a uniquely fact-bound inquiry susceptible of few broad, generally applicable rules of law. Thus, in concluding that ICS is not entitled to § 1692k(c)'s bona fide error defense under the particular factual circumstances in this case, we refrain from volunteering sweeping generalizations about what procedures would be enough for a debt collector to effectively assert that defense. Such matters are better resolved on a case-by-case basis. We hold only that ICS's limited procedures placed in this record were not reasonably adapted to avoid the type of interest errors here.