Bona Fide Error Defense Comes Through For Collector With Strong Processes

On March 23, a federal judge in Illinois granted a debt collector’s motion for summary judgment when the court determined that the debt collector had established all three elements of the bona fide error defense under § 1692k(c) of the Fair Debt Collection Practices Act (FDCPA).

Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. Summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial. 

The case is Washington v. Convergent Outsourcing, Inc., (Case No. 15-c-7043, U.S. District Court, ND. IL, Eastern Division). A copy of the court’s Memorandum Opinion and Order can be found here. 

Background 

Sometime during or before 2013, Washington opened a consumer account with Comcast. On December 5, 2013, Comcast referred an unpaid bill of $1,001 associated with Washington’s account to Convergent Outsourcing, Inc. (Convergent) for collection. In October 2014, Convergent reported an unpaid balance of $1,001 on Washington’s account to various credit reporting bureaus, including Experian, Equifax, and TransUnion. 

Around the same time, Washington met with legal aid attorneys to address potential concerns that she had with her credit report. Upon reviewing her credit report, Washington told her attorneys that she did not believe the debt Convergent had reported was accurate, because she did not recall owing any balance on her Comcast account. Accordingly, on October 17, 2014, Washington’s attorneys sent Convergent a letter stating that the amount reported on the debt was not accurate. 

After Convergent received this letter, one of its employees updated Washington’s account to reflect the letter’s contents per company policy. However, while updating the account, Convergent’s employee made an error: the employee updated Washington’s account by marking it with the code “3ACA” instead of “3DSP.”  “3ACA” denotes that a consumer is represented by an attorney, whereas “3DSP” denotes that a consumer is represented by an attorney and disputes the debt in her account. Convergent acknowledges that Washington disputed her debt and that her account should therefore have been marked with the code “3DSP.” 

On March 30, 2015, Comcast informed Convergent that Comcast would no longer be including “equipment charges” in account balances placed with Convergent for collection. Comcast also informed Convergent that all such charges would be removed from existing accounts no later than April 30, 2015. Accordingly, on April 19, 2015, Comcast removed a $680 equipment charge from Washington’s account, leaving a balance of about $321.

Later that month, Convergent communicated the updated balance amount of $321 to Experian, Equifax, and TransUnion. However, it did not, at that time, also communicate to the bureaus that the account was disputed. 

If Convergent’s employee had properly coded Washington’s account with “3DSP” rather than “3ACA,” then the information communicated to Experian, Equifax, and TransUnion in April 2015 would have reflected that Washington disputed the debt.

The Court’s Decision

The motion was heard by the Honorable Judge John Z. Lee.  Lee authored the Opinion.

Failure to Communicate Disputed Status of a Debt

Washington claims that Convergent violated 15 U.S.C. § 1692e(8) of the FDCPA by failing to inform Experian, Equifax, and TransUnion that Washington disputed her debt when Convergent reported the debt in April 2015. That section prohibits debt collectors from “[c]ommunicating . . . to any person information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.”

Judge Lee wrote:

“Under § 1692k(c) of the FDCPA, a debt collector is not liable for a violation of the FDCPA where the violation (1) was not intentional, (2) resulted from a bona fide error, and (3) occurred notwithstanding the maintenance of procedures reasonably adapted to avoid such a violation. In an FDCPA case, a debt collector is entitled to summary judgment in its favor when the undisputed evidence satisfies all three elements of the bona fide error defense. 

In this case, the undisputed evidence shows that Convergent has established the bona fide error defense.

First, Convergent asserts that its failure to report Plaintiff’s account as disputed was not intentional. It supports this assertion with a sworn declaration from its Executive Vice President of Operations, as well as with ample circumstantial evidence. 

For example, Convergent has set up an internal coding system to ensure that disputes are reflected in consumers’ accounts. Under this system, once an account is marked as disputed, all information reported to credit reporting bureaus is automatically updated to reflect the dispute. In addition, Convergent trains its employees regarding the policies governing its coding system, and it regularly performs compliance audits and tests employees on their understanding of these policies. Employees who deviate from Convergent’s policies are subject to discipline, up to and including termination. Taken together, this evidence is sufficient to establish that Convergent had no intention of violating the FDCPA by failing to report Washington’s debt as disputed.

Second, Convergent’s alleged FDCPA violation resulted from a bona fide error. An error is considered bona fide if it is a genuine mistake made in good faith, rather than a contrived mistake. Mere clerical mistakes qualify as bona fide errors. Here, Convergent’s failure to communicate the disputed status of Washington’s debt resulted from a textbook example of a clerical mistake: the Convergent employee who processed the letter from Washington’s attorneys manually updated Washington’s account with the incorrect code—“3ACA,” rather than “3DSP.” If the employee had not made this mistake, then the debt in Washington’s account would have been marked as disputed when Convergent subsequently reported it to Experian, Equifax, and TransUnion in April 2015. 

Third, Convergent has established that it maintained policies and procedures reasonably adapted to avoid the FDCPA violation at issue. As described above, Convergent developed procedures under which its employees systematically marked accounts as disputed whenever consumers raised disputes. Convergent’s employees were trained and tested on these procedures, and Convergent performed regular audits to ensure adherence to the procedures. As far as the evidence shows, these procedures were reasonably and proportionally tailored to ensure that Convergent communicated the disputed status of any disputed debts that it reported to third parties. And there is no indication that clerical mistakes like the one made in this case are a systematic problem that undermines the effectiveness of Convergent’s procedures. 

For all the foregoing reasons, the undisputed evidence shows that Convergent has established all three elements of the bona fide error defense under § 1692k(c). Convergent is thus entitled to summary judgment in its favor.” 

insideARM Perspective 

This is a case that all ARM companies should study. Policies and procedures matter. Documentation of policies and procedures matters.  Training matters.  Convergent did an excellent job of presenting to Judge Lee that it had met all 3 elements of the Bona Fide Error defense. 

insideARM contacted Convergent for a comment on the case.  Tim Collins, Convergent General Counsel, responded: 

“I have never been a fan of the bona fide error defense mainly because of the costs involved and the low probability of success. Our outside counsel, Charity Olson, from Charity A. Olson, PC, convinced me to give it a try in this case because of the strength of the facts. This was clearly a case of human error and the reason for the Bona Fide Error defense. Interestingly, the work that we have done in response to the creation of the CFPB helped us win this case. This included all the policy and procedure writing and reviews along with the training of our employees. Without these efforts, we may have seen a different outcome.  This win also wouldn’t have happened if it weren’t for the partnership we have with Charity and her willingness to honestly tell us how it is. My hope is this case helps others in deciding when to use the bona fide error defense and in winning the good fight.”