Creditor Can Not Claim Mistake Defense Without Precautions

When a debt collector tried to collect an unjustified legal fee from a tenant and was caught in the act, it claimed it had made a bona fide error in defense. The 9th Circuit Court of Appeals, in Reichert v. National Credit Systems, Inc., just recently upheld the federal district court in denying use of the defense when the debt collector failed to prove it had established reasonable procedures to prevent the “mistake” from happening in the first place.

The appeals court made it clear that a mistake is only made in good faith, with respect to a strict liability statute such as the FDCPA, when care is taken in advance to avoid it.

“If the bona fide error defense is to have any meaning in the context of a strict liability statute, then a showing of “procedures reasonably adapted to avoid any such error” must require more than a mere assertion to that effect. The procedures themselves must be explained, along with the manner in which they were adapted to avoid the error. See Wilhelm, 519 F.3d at 421. Only then is the mistake entitled to be treated as one made in good faith.

Because NCS submitted only a conclusory declaration stating that it maintained procedures, we hold that it failed to establish a bona fide error defense under the FDCPA.” Wilhelm v. Credico, Inc., 519 F.3d 416, 421 (8th Cir. 2008).

This decision may be helpful in the context of other strict liability statutes when the creditor claims it just “made a mistake” as is so often claimed when they are caught in the act.