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FDCPA - A Tale of Two Cases
By R. Glenn Knirsch

The Fair Debt Collection Practice Act is one of the most heavily litigated federal statutes today. In 2009 alone, a reported 8,374 cases alleging violations of the FDCPA were filed in U.S. District Courts. This high volume is most likely due to the stigma attached to the debt collection industry, the exponential growth of consumer accounts in default, and, likely the biggest factor, that the party who prosecutes a “successful action to enforce * * * liability” under the FDCPA is entitled, in addition to statutory and actual damages, to the costs of the action, along with reasonable attorney’s fees.

But despite this volume of cases, the fact that the Act has existed for over 34 years, and that several circuit courts have decried the language of the Act as being “as vague as they come,” the United States Supreme Court has heard just two cases interpreting the FDCPA – Heintz v. Jenkins in 1996; and more recently, Jerman v. Carlisle, McNellie, Rini, Kramer, & Ulrich in 2010. Besides sharing this common distinction, these two cases share a few other very similar traits as well – and should teach an important lesson to the debt collection community.

In Heintz, the consumer filed suit against a lawyer and his law firm under the FDCPA for allegedly attempting to collect a cost which was allegedly not authorized by the underlying contract. The law firm filed a motion to dismiss the complaint on the basis that the definition of “debt collector” did not include attorneys acting as litigators, and that the law firm was therefore not governed by the Act. The Northern District of Illinois agreed, and dismissed the case for that reason.

But the Seventh Circuit reversed, stating that no such attorney exception existed in the text of the Act. The Supreme Court granted certiorari on this limited issue, and, in agreeing with the Seventh Circuit, held that “the [FDCPA] applies to attorneys who ‘regularly’ engage in consumer-debt-collection activity, even when that activity consists of litigation.” The case was therefore remanded to the district court to be tried on the facts.

This decision dealt a major blow to the debt collection industry, and represented a major coup for the consumer bar. Now, in addition to conforming their conduct to state regulatory laws, and the governing rules of ethics – including the duty to “zealously” represent the interest of their clients – law firms specializing in the collection of consumer debt were required to reconstruct their entire operations to comply with the very technical provisions of the Act; and the potential pot of defendants which the consumer bar could sue doubled overnight.

Yet the attorneys representing Ms. Jenkins could claim no real victory – because in the end, neither Ms. Jenkins, nor her attorneys, received anything for their troubles.

On summary judgment, the law firm argued that even if its conduct did violate the FDCPA, it was insulated from liability because its error was unintentional; was the result of an innocent, bona fide error; and occurred notwithstanding the maintenance of reasonable procedures to avoid such error. The trial court agreed, and held that “[a] debt collector should be able to rely on the representation and implied warranty from its client that the amount was due under either the lease or the law. The FDCPA does not require an independent investigation of the information provided by clients when a debt collector tries to collect a debt, nor does it require the debt collector to dispute the creditor’s construction of a contract.” The Court therefore entered judgment in the law firm’s favor, which the Seventh Circuit affirmed on appeal.

In Jerman, a consumer filed a class action lawsuit against a law firm under the FDCPA for sending her a validation notice which stated that her debt would be assumed valid unless she disputed it “in writing” – a requirement, she claimed, which ran afoul of the requirements of the Act. Despite acknowledging that there was an even-Circuit split on the issue of whether those two words – “in writing” – were required by the FDCPA with regard to a consumer’s request for validation, and acknowledging that the governing Circuit had not yet spoken on the issue; the Northern District of Ohio found that the validation notice violated the FDCPA by including the requirement to make a validation request “in writing.”

However, the district court found that because the law firm based this decision on a good faith, reasoned, yet ultimately inaccurate interpretation of the FDCPA’s requirements, the firm was entitled to the protection of the bona fide error defense because the error constituted a bona fide “legal error.”

The consumer appealed to the Sixth Circuit the issue of whether a debt collector could assert bona fide “legal error” as an affirmative defense to an FDCPA claim, and the Sixth Circuit affirmed the district court’s decision. The Supreme Court granted certiorari on that issue, and reversed the Sixth Circuit, concluding, in a 7-2 decision, that the “bona fide error” defense in Section 1692k(c) does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.

Like Heintz, this decision dealt a blow to the debt collection industry – and scored yet another coup for the consumer bar. The resulting unworkable dynamic created by this decision was best summarized by Justice Kennedy in his dissenting opinion:

Today’s holding gives new impetus to this already troubling dynamic of allowing certain actors in the system to spin even good-faith, technical violations of federal law into lucrative litigation, if not for themselves then for the attorneys who conceive of the suit. See Federal Home Loan Mortgage Corp. v. Lamar, 503 F.3d 504, 513 (CA6 2007) (referring to the “cottage industry” of litigation that has arisen out of the FDCPA (internal quotation marks omitted)). It is clear that Congress, too, was troubled by this dynamic. That is precisely why it enacted a bona fide error defense. The Court’s ruling, however, endorses and drives forward this dynamic, for today’s holding leaves attorneys and their clients vulnerable to civil liability for adopting good-faith legal positions later determined to be mistaken, even if reasonable efforts were made to avoid mistakes.

But Ms. Jerman’s attorneys cannot yet claim absolute victory. On April 11, 2011, the district court found that “the frequency and persistence of noncompliance by the debt collector weighs in defendants’ favor, the nature of the noncompliance is neutral, the resources of the debt collector weigh in plaintiff’s favor, and the number of persons adversely affected as well as the extent to which the debt collector’s noncompliance was intentional weigh in defendants’ favor.” “So [b]ecause the factors tilt in defendants’ favor,” statutory damages were not awarded to the consumer, nor to the class.

Ms. Jerman’s counsel has since moved the district court for an award of attorney’s fees and costs – seeking $329,619.50 in attorney’s fees and $13,792.29 in costs – a sum which counsel believe they deserve, despite having obtained no result of value for their clients. Based on similar cases arising from similar consumer protection laws and yielding similar results, it seems likely that counsel will not be awarded any of their fees or costs. It is well established that recovering $0 for the consumer cannot rationally be considered a “successful action,” even where there is a finding of liability against the debt collector or creditor. As such, it’s likely that Ms. Jerman’s attorneys, like Ms. Jerman herself, will not receive anything for their effort.

There are important similarities between Heintz and Jerman. In each, the district court first ruled in the debt collector’s favor. And in each, the Supreme Court ultimately found against the debt collector – which findings, in a larger sense, constituted a profound victory for the consumer bar, and dealt a major blow to the debt collection industry. Yet in each, the consumer receiving no financial compensation for this “victory,” and should the petition for attorneys’ fees and costs in the Jerman case turn out as anticipated, neither did the lawyers representing those consumers.

These results seem to be based on the fact that the consumer suffered no real harm as a result of the technical FDCPA violation, and because debt collector’s procedures, and motivations driving those procedures, were based in good faith attempts to comply with the vague statute, and constituted reasonable interpretations of the law, leaving the Court to ponder the following question: “What more should they, or could they, have done?” In sum, both district courts fully took into consideration the two-pronged purpose of the FDCPA – to protect the vulnerable consumer, and likewise, to protect ethical debt collectors from limitless liability.

The lesson to be derived from these two outcomes is this: each and every debt collector, and finance company for that matter, may inadvertently violate the technical requirements of the laws that govern them. Yet if it can be shown that a mistake was truly just that – a mistake – and that the mistake occurred notwithstanding a true, good faith, and honest effort to safeguard against making that type of mistake, there is a good chance that you will run across a judge, jury, or regulator who is understanding of this, and your good-faith mistake may not end up costing you as much as you think.

R. Glenn Knirsch is an associate in the Maryland office of Hudson Cook, LLP. Glenn can be reached at 410-865-5407 or by email at

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