Opinion ID: 376995
Heading Depth: 1
Heading Rank: 3

Heading: the bona fide error defense

Text: 24 The bona fide error defense of Section 1640(c) requires the creditor to show by a preponderance of the evidence that the violation was not intentional, and resulted from a bona fide error; and second, that it occurred notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. 25 However, the first part of the defense that a bona fide error occurred has been interpreted to require a showing that the error was merely clerical. See, e. g., McGowan v. King, Inc., 569 F.2d 845, 849 (5th Cir. 1978); Ives v. W. T. Grant Co., 522 F.2d 749, 757-58 (2d Cir. 1975); Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1167 (7th Cir. 1974); Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir. 1974); Ratner v. Chemical Bank, 329 F.Supp. 270, 281-82 and n.17 (S.D.N.Y.1971). The original draft of the Act permitted no errors, but, in response to fears that simple clerical mistakes in mathematical calculations of the lease financial charge and annual percentage rate would create unavoidable liability, see Hearings on S.5 Before the Subcomm. on Financial Institutions of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess. 64ff., 226, 374, 426-27, 529, 584, 698 (1967); the affirmative defenses of Section 1640(c), as well as of Section 1640(b), were added. See Ratner v. Chemical Bank, 329 F.Supp. at 280-81 and n.17 (discussing legislative history). The present failure of the underlying agreement to conform in numerous respects to the requirements of the Act is surely not a clerical error and thus does not fall within the exemption of the Section. See Hinkle v. Rock Springs National Bank, 538 F.2d 295, 297 (10th Cir. 1976) (not allowing clerical defense where there was a complete failure to disclose in the documents provided); Palmer v. Wilson, 502 F.2d at 861 (omission of certain terms in standard agreement not type of clerical error contemplated by Section 1640(c)); Jumbo v. Nester Motors, Inc., 428 F.Supp. 1085, 1086 (D.C.Ariz.1971) (failure of the lessor to give the plaintiff a copy of the lease finance agreement on the day of the sale is not the kind of clerical error exempted from liability by 15 U.S.C. § 1640(c).) 26 Even if AZ prevailed on this point, it cannot meet the second part of the requirement that it demonstrate by a preponderance of the evidence that the error occurred notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. The requirement has been construed strictly by the courts to require that a special system be established to assure that no initial errors occur, and that a checking mechanism be maintained to catch any errors that slip through the system. Gallegos v. Stokes, 593 F.2d 372, 376 (10th Cir. 1979); Mirabal v. General Motors Acceptance Corp., 537 F.2d 871, 876-79 (7th Cir. 1976); Turner v. Firestone Tire & Rubber Co., 537 F.2d 1296, 1297-98 (5th Cir. 1976). In this case, AZ offered no evidence that it took any precautions to avoid errors. Both Lion and Gary Thomka were unfamiliar with financing consumer leases. Nor was any evidence offered to show that there were any procedures followed in this case or generally to catch any errors that were made. The review by General Motors of the original Non-Maintenance Lease Agreement was to assure only that that form was properly completed. There was no evidence that General Motors was supposed to or did check to see if a disclosure statement had been completed and the requirements of the Act met. 27