Appeals Court Overturns Dismissal of FDCPA Suit, But Also Says Defendant Can Invoke BFE Defense

The Ninth Circuit Court of Appeals has overturned the dismissal of a Fair Debt Collection Practices Act lawsuit, ruling that the strict liability of the statute applies when a collector threatens to file a lawsuit outside the statute of limitations window, but emphasizing that such a threat may be covered by the bona fide error defense.

A copy of the ruling in the case of Kaiser v. Cascade Capital can be accessed by clicking here.

The plaintiff financed the purchase of an automobile and then defaulted on his loan obligation. The vehicle was repossessed and sold at auction, but the proceeds from the sale did not cover the amount owed on the loan. Years later, the defendant sought to collect on the deficiency balance and hired a collection law firm to recover the unpaid debt. It sent a letter to the plaintiff saying it had “the authority to file a lawsuit” if the debt was not repaid. The plaintiff did not pay the debt and the law firm filed a collection lawsuit in state court in Oregon, where the plaintiff lived.

The plaintiff contested the collection lawsuit, arguing that it was filed outside the statute of limitations. He argued that a four-year statute of limitations for sale-of-goods applied while the law firm argued that a six-year statute of limitations for other contract claims applied instead. The state court sided with the plaintiff.

The plaintiff then sued the defendants, arguing they violated Section 1692e and 1692f of the FDCPA. A District Court judge granted a motion to dismiss, ruling that because the statute of limitations was unclear when the attempted debt collection took place, the plaintiff did not state a claim.

The Appeals Court looked at the case differently. “Suing to collect on an unenforceable debt is patently unfair to the consumer,” the Appeals Court wrote. The defendant attempted to argue that unless a collector “knew or should have known” that the debt was time-barred that threatening to sue should not be considered a violation of the FDCPA. But the Appeals Court noted the strict liability nature of the FDCPA negates the “knew or should have known” standard.

The defendant attempted to invoke the Consumer Financial Protection Bureau’s debt collection rule as a defense, but that was shot down by the Appeals Court as well.

But the Appeals Court went a step further then just overturning the lower court’s ruling; it provided a possible defense when the case goes back to the District Court. Applying a Supreme Court precedent, the Appeals Court determined that “mistakes about the time-barred debt status of a debt can be bona fide errors,” and ruled that the defendant may invoke that defense should it choose to do so.

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