FDCPA Plaintiffs Aren’t Required to Plead the Debt Collector’s Knowledge of Bankruptcy

A debt collector who sends a collection letter is not required to know there is a bankruptcy to violate the federal Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. § 1692-1692p.

Although the FDCPA is a strict liability statute, the debt collector nonetheless can raise an affirmative defense that the violation was unintentional and resulted from bona fide error. However, the affirmative defense does not impose a pleading requirement on the plaintiff.

A bank had referred a delinquent account to a debt collector. The debt collector sent a demand letter after running a search showing that the debtor had not filed bankruptcy.

Two months later, the debtor filed a chapter 7 petition. Three days after filing, but without running another bankruptcy search, the debt collector sent the debtor a letter demanding payment. The debt collector received notice of the bankruptcy a day after the letter went out.

The debtor filed suit, claiming that the demand letter after bankruptcy violated the automatic stay and thus transgressed the FDCPA. The debtor contended that the demand letter after filing was a false, misleading, unfair or unconscionable means of collecting a debt, in violation of Sections 1692(e) and 1692f of the FDCPA.

The debt collector filed a motion for summary judgment, contending there was no liability because it did not know about the bankruptcy filing when it sent the collection letter. In other words, the debt collector argued that the debtor must give notice of bankruptcy before giving rise to an FDCPA claim.

In an opinion on May 29, Chief District Judge Patricia A. Gaughan of Cleveland denied the debt collector’s motion.

Judge Gaughan cited the Sixth Circuit for the proposition that the FDCPA is a “strict liability statute” where the plaintiff is not required “to prove knowledge or intent . . . and does not have to have suffered actual damages.” Stratton v. Portfolio Recovery Associates LLC, 770 F.3d 443, 449 (6th Cir. 2014).

However, the FDCPA does provide an affirmative defense. In Section 1692k(c), the debt collector will have no liability if it shows “by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”

According to Judge Gaughan, the debt collector wanted her to rule that the FDCPA imposes no duty of independent investigation, relieving it of liability if it was not notified of bankruptcy by the debtor.

Judge Gaughan declined “to read an intent or knowledge requirement into the FDCPA.” Stratton, she said, “explicitly rejects it.”

The debt collector did not raise the bona fide error defense in its motion for summary judgment, Judge Gaughan said. Since the debt collector “could have moved for summary judgment on the basis of that affirmative defense, but chose not to do so,” she denied the defendant’s summary judgment motion.

Why Bother?

Why did the debt collector move for summary judgment based on lack of notice when it could have coupled the motion with an allegation that the error was bona fide?

The answer is simple: The debt collector was hoping Judge Gaughan would establish a precedent that would fend off many FDCPA suits even before they are filed.

Had Judge Gaughan ruled the other way, plaintiffs would be required to allege in their complaints that the debt collectors had notice of bankruptcy. The absence of an allegation to that effect in the complaint would entitle a debt collector to move for dismissal for failure to state a claim without even answering the complaint.

Given how Judge Gaughan ruled, the debt collector must answer the complaint, file a motion for summary judgment, and submit an affidavit showing bona fide error. All of that extra litigation costs money.

As it stands, debt collectors will often settle, because settlement can be cheaper than hiring a lawyer to answer and file a summary judgment motion. A different ruling by Judge Gaughan would have meant that a plaintiff’s lawyer should not file suit without a good faith reason to allege that the debt collector had knowledge of bankruptcy. But that’s not the law as Judge Gaughan sees it.