On April 21, 2010, the Supreme Court held that a debt collector that makes an incorrect statement of law during certain communications with a debtor, in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq., may not invoke the FDCPA’s “bona fide error” defense, 15 U.S.C. § 1692k(c), even if the error was entirely unintentional and reasonable under the circumstances.
The case arose after a debt collector was held liable under the FDCPA for sending a notice stating that the debtor was required to raise any disputes “in writing.” At the time of the notice, several district courts had held that a dispute must be in writing to be effective, and the debt collector reasonably believed this to be a correct statement of the law. After the notice was challenged, however, the court of appeals concluded that those prior decisions were incorrect and that the FDCPA does not impose a writing requirement. (Other circuits have disagreed and held that a writing is required, but for purposes of this case, the Supreme Court assumed that the decision below was correct and that the notice therefore reflected a mistaken interpretation of the law.)
The majority opinion, written by Justice Sotomayor and joined in whole or in part by six other Justices, concluded that the FDCPA’s “bona fide error” defense is limited to clerical or factual mistakes and does not extend to mistakes of law. The Court explained that a mistake of law generally does not provide a defense to liability and that, when Congress has chosen to permit a mistake-of-law defense, it has typically done so expressly. Reviewing the text of the FDCPA, the Court found that the statute lacks any clear indication that Congress meant to exclude liability for mistakes of law. The Court concluded that this reading is consistent with the FDCPA’s role in the larger regulatory scheme, which allows additional administrative penalties to be imposed for knowing or intentional violations, and with analogous provisions in other statutes. The Court dismissed the debt collectors’ argument that this interpretation is unworkable and would subject them to devastating liability, explaining that, when an alleged violation is trivial, the amount of damages awarded should be de minimis.
Justices Scalia and Breyer each authored brief concurrences. Justice Kennedy filed a dissenting opinion, which was joined by Justice Alito. The dissent argued that the bona fide error defense is more naturally read to include mistakes of law and that Congress could not have intended the significant adverse consequences, including abusive litigation, that arise when a defendant can be punished for trivial, good faith mistakes.
As a result of the Court’s decision in Jerman, debt collectors face the threat of liability even for reasonable mistakes of law, including (as today’s decision demonstrates) on issues where the law is unclear and the lower courts are divided. As the dissent explained, moreover, FDCPA’s provisions allowing statutory damages, punitive damages, and attorney’s fees create an incentive for plaintiffs’ lawyers to bring abusive lawsuits in cases where the debtor suffered little or no actual harm, and these stakes will be further magnified in class actions. Businesses would therefore be well advised to seek legal advice before engaging in debt collection activities, and debt collectors should be prepared to face litigation over even the most technical claims.