Judge Rules Unintentional Violation of Policies and Procedures Permits Debt Collector to invoke 'Bona Fide Error' Defense

On September 29, 2017, in an FDCPA lawsuit, a federal judge in Utah ruled that a debt collector’s actions fell within the “Bona Fide Error” defense in the FDCPA, 15 U.S.C. § 1692k(c) and granted summary judgment to the debt collector. The case is Berry v. Van Ru Credit, (Case No. 2:15-cv-150, U.S.D.C, District of Utah).

The court issued a Memorandum Decision and Order Adopting the prior Report and Recommendation of a U.S. Magistrate. A copy of that decision can be found here. The Magistrate’s original Report and Recommendation can be found here. 

Background 

In August 2014, the United States Department of Education (ED) placed plaintiff Douglas Berry’s defaulted student loans with Van Ru Credit (Van Ru) for collection. On August 19, 2014, Van Ru sent correspondence to Mr. Berry informing him that his loans had been referred to Van Ru for collection. That same day, Mr. Berry spoke with a Van Ru representative, who informed Mr. Berry that his student loans were in federal default, and that ED had the right to pursue an involuntary administrative wage garnishment or a federal tax offset against him should his student loans remain in default. The representative further notified Mr. Berry that if he pursued a voluntary rehabilitation program and made nine consecutive monthly payments, his student loan would no longer be in federal default. In that initial conversation, however, the Van Ru Representative did not advise Mr. Berry that he worked for Van Ru; he only named ED, Van Ru’s client. 

During the course of that conversation and at least one other conversation with a Van Ru representative, the plaintiff agreed to enter into a monthly payment “Rehabilitation” program. The record reflects some initial confusion regarding the amount of the monthly payment for the rehabilitation, but ultimately, once Mr. Berry submitted all the financial paperwork to Van Ru, including the Financial Information Statement (FIS) Disclosure Form, he was indeed eligible for a $5.00 per month rehabilitation agreement, and he began making monthly payments of $5.00. Mr. Berry completed the program and returned to school. 

On March 6, 2015 Mr. Berry filed suit against Van Ru alleging that the defendant had violated the FDCPA (15 U.S.C. §§ 1692 to 1692p) in its attempts to collect on Mr. Berry’s defaulted student loans. 

Mr. Berry alleged that Van Ru violated the FDCPA by: (1) consenting to a rehabilitation agreement for $5.00 per month, and then reneging on the agreement and demanding more money; (2) threatening garnishment when it did not intend to actually garnish Mr. Berry’s wages; (3) placing “telephone calls without meaningful disclosure of the caller’s identity”; (4) overshadowing the required disclosures by “threatening immediate garnishment” in the first call; (5) falsely stating in the initial call that “all [rehabilitation] agreements have to be verbal” even though Mr. Berry was eventually given and signed a written agreement; and (6) initially stating that Mr. Berry would be required to make monthly payments of $900, but then explaining that as of July 1, 2014 the policy changed even though rehabilitation agreements have always been based on the ability to pay. 

Both parties filed motions for summary judgment.

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. The 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 Magistrate’s Report and Recommendation 

As noted above, the matter was originally referred to the District Court’s Chief Magistrate Judge, Paul M. Warner. On September 11, 2017 Magistrate Judge Warner issued his Report and Recommendation. 

The Magistrate Judge discussed each of the alleged violations. Since this was a summary judgment motion and not a motion for judgment on the pleadings, the court had access to a full record that included deposition transcripts and call recordings. 

The Magistrate Judge determined: 

• That the representative never “threatened” Mr. Berry with garnishment. Rather, the representative informed Mr. Berry that if his loans stay in default, he faced the possibility of involuntary enforcement in the form “of either the administrative wage garnishment or a federal tax offset." Thus, Van Ru’s representation with respect to garnishment was not false.
• There was also no evidence to suggest that Mr. Berry was threatened with imprisonment. As the call recordings reflect, at no time did the representative threaten Mr. Berry with imprisonment for his defaulted loans or even insinuated that was a possibility.
• That there was no “overshadowing” of Mr. Berry’s 30-day validation right to dispute the debt.
• That there was no “false, deceptive, or misleading representation or deceptive means" to collect or obtain information from Mr. Berry.
• That the failure of the representative to identify the company was a Bona Fide Error.

 On the last issue, Judge Warner discussed the Van Ru policies and procedures in detail:

“As a debt collection business, Van Ru has written policies and procedures regarding live telephone calls with consumers. When a Van Ru representative contacts a consumer over the phone they are specifically required to disclose (1) the representative’s identity, (2) that the representative is calling from Van Ru Credit Corporation, and (3) that the call is being made on behalf of Van Ru’s client. Further, when a representative contacts a consumer over the phone, the representative is prohibited from making any false or misleading statements to the consumer, including any false representation regarding the representative’s identity or where they are calling from. Representatives have online access to the written procedures, which serve as a reference throughout their employment with Van Ru, and all representatives are trained on Van Ru’s policies. 

Van Ru’s representatives are provided initial and ongoing training with respect to FDCPA and Van Ru’s procedures regarding telephone calls with consumers. Initial training includes a three-week training program, in which the first two weeks of training are performed in a classroom environment, with the third week of training set aside to help transition new hires from the classroom to the floor. During the initial two-week classroom training sessions, the emphasis is on company policy and the laws and regulations governing collection activities. At the end of this training phase, an exam of the FDCPA is administered, which new hires must pass in order to continue training activities. Each missed item is reviewed with new hires to ensure a complete understanding of the pertinent portions of the FDCPA. Once a representative is released to the floor, the representative receives consistent and individualized ongoing training for the next seven weeks, including side-by-side coaching, system navigation, and work effort reviews. During this training process, representatives are repeatedly and specifically trained to conduct collection calls in the manner described in the written procedures. Upon completion of the representatives first ten weeks of training, Van Ru conducts refresher training on a monthly and as needed basis.45 Workshops are periodically scheduled to refresh what was taught in the initial classroom training sessions in addition to new and remedial training sessions to ensure the latest techniques and information is available and communicated.46 Every January and July, mandatory retraining and testing also occurs, and if a passing score is not received, refresher training is conducted and a new examination is administered prior to resumption of correspondence activities. Representatives may take the examination three times; a third failing score results in termination.” 

However, in regard to the August 19, 2014 call, the Van Ru representative failed to follow the policies and procedures of Van Ru. While the representative had online access at all times to the written procedures and received all of the training described above, he nevertheless failed to identify that he was calling from Van Ru on behalf of the Department of Education. Still, the Magistrate granted Van Ru’s motion for summary judgment on all alleged FDCPA violations, relying on the Bona Fide Error defense for the final item. 

The District Court’s Decision 

Plaintiff objected to the Magistrate Judge’s findings and conclusions, specifically, the finding of that Van Ru was entitled to the Bona Fide Error defense. The District Court’s decision is short and concise. It is a mere four pages.  The court wrote: 

“Plaintiff objects to these findings and conclusions and contends that [T]here is a genuine dispute of fact with regard to whether the evidence on the record makes it impossible for a reasonable trier of fact to find either that: (1) Defendant’s employee intentionally withheld the identity of his employer in the telephone call in order to gain the benefit of seeming to be a direct federal employee; or (2) that Defendant failed to meet its burden of proving that it maintained reasonably adapted procedures for avoiding such violations. 

Neither of these contentions is well-founded. Plaintiff does not point to competing material allegations of fact that would appropriately preclude entering summary judgment for the Defendant. Instead, Plaintiff attempts to read differing interpretations into the provided undisputed facts. This represents a disagreement over the legal effect and consequences of the facts and not the material facts themselves. This does not create a material dispute. The objection is overruled. The analysis and conclusion of the Magistrate Judge are correct.” 

insideARM Perspective 

insideARM suggests that compliance professionals review this case for the discussion of the proof provided by Van Ru on their policies and procedures. Van Ru was able to convince the court that the violation was unintentional and a “Bona Fide Error.” 

At the end of the day the ARM industry employs ordinary people. Ordinary people make innocent mistakes, regardless of the amount of training and the safeguards in place to limit or prevent.  It is a positive story for the industry to see a court recognize the efforts to train and supervise. 

The depth of the record presented to the court, including the call recordings, contributed to the successful defense.