In recent years, debt collectors have faced a barrage of class action lawsuits alleging FDCPA violations for failing to disclose that a debt is outside the applicable statute of limitations. But what is “the applicable statute of limitations?”
This is rarely an easy question to answer as it may depend on a number of factors – state borrowing statutes, state renewal/revival laws, the type of debt, whether the debt is subject to the UCC, contractual language, etc. Worse, this is a state-by-state issue and case law is frequently not developed, leaving the defendant debt collector in a precarious situation – if your statute of limitations analysis was right, you win; if wrong, you lose. The result is usually an expensive settlement.
But now there’s another way! In Kaiser v. Cascade Capital, LLC, the Ninth Circuit held a “mistake about the time-barred status of a debt is a mistake regarding a collateral legal element of an offense, which we treat as a mistake of fact.” Put another way, if your statute of limitations analysis is wrong, you do not necessarily lose.
The issue has its origins in a decade-old U.S. Supreme Court case. In Jerman v. Carlisle, the Supreme Court held the FDCPA’s bona fide error defense does not apply to mistakes of law. However, there has been considerable debate in district courts about whether the decision applies only to mistaken interpretations of the FDCPA, or more broadly to any mistake regarding a collateral element of an FDCPA offense if it is legal in nature.
In Kaiser, the Ninth Circuit held a mistaken interpretation of the statute of limitations may constitute a bona fide error under the FDCPA. For purposes of an FDCPA violation, the interpretation of the statute of limitations is a factual element, not legal. This is well-reasoned and consistent with the purpose of the FDCPA and, more specifically, the bona fide error defense. A debt collector who makes good-faith attempts to comply with the FDCPA should not be forced to gamble on unclear state statute of limitations laws.
Just a reminder: the FDCPA’s bona fide error defense places the burden of proof on the debt collector to produce evidence (written is best) of robust policies and procedures establishing that the error was not intentional and made notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
Need help or have questions regarding the FDCPA’s bona fide error defense – we’re here to help!
