9th Cir. Says Debt Collector Does Not Discharge FDCPA Obligations and Trigger the Bona Fide Error Defense Merely By Contractually Requiring its Creditor Clients to Give Accurate Information

In Mercedes v. Nat’l Bus. Factors, No. 19-16055, 2020 U.S. App. LEXIS 35037, at *2-3 (9th Cir. Nov. 5, 2020), the Court of Appeals for the Ninth Circuit held that a debt collector does not discharge its FDCPA obligations and trigger the bona fide error defense by requiring its creditor/clients to give accurate information.

In this appeal, we consider whether a debt collector may invoke the “bona fide error” defense to avoid liability for violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C § 1692 et seq., by contractually obligating creditor-clients to provide only accurate information regarding delinquent accounts. . . . NBF argues that because it contractually required Urbina’s creditor to provide it with accurate information, NBF qualified for the FDCPA‘s bona fide error defense. 15 U.S.C. § 1692k(c). The district court granted summary judgment in favor of NBF, concluding that NBF was entitled to the defense because it employed a procedure reasonably adapted to avoid errors of the type that occurred in Urbina’s case. . .We conclude the FDCPA‘s bona fide error defense does not allow debt collectors to avoid liability by contractually obligating creditor-clients to provide accurate information, nor by requesting that creditor-clients provide notice of any errors in the accounts assigned for collection without waiting to receive a response before instituting collection efforts. . . . In dicta, the Seventh Circuit observed that if the bona fide error defense was asserted on remand, an agreement to provide reliable information might suffice. Notably, the trial court concluded on remand, as we do here, that the debt collector’s reliance on its clients to provide accurate information “[did] not in any way compare to the types of procedures and systems found to qualify for the bona fide error defense.” Turner v. J.V.D.B. & Assocs., Inc., 318 F. Supp. 2d 681, 686 (N.D. Ill. 2004). Neither McCullough nor Turner supports NBF’s defense.  NBF’s fallback argument is that even if its collection service contract was insufficient to qualify for the bona fide error defense, it separately qualifies because it sends its creditor-clients follow up requests seeking verification of the accuracy of their information. This is closer to the mark, but it still falls short because it is uncontested that NBF did not wait for a response from TFC before it attempted to collect from Urbina. Because NBF does not argue that it routinely waits for creditor-clients to respond before sending collection notices to debtors, NBF fails to show that its practice of requesting account verification from its clients is genuinely calculated to catch errors of the sort that occurred here. Neither of NBF’s practices qualifies for the bona fide error defense.