WASHINGTON, D.C. — The National Creditors Bar Association (NCBA) announced on November 13, 2023 the appointment of Daniel Lipner as VP of Government Affairs at the federal level. The appointment represents an addition to NCBA’s government affairs team and comes at a time when NCBA’s impact and influence are growing.

Due to member requests for increased support on state level issues and our growing influence in Washington, we decided, with the support of the Board, to separate the Government Affairs Officer position into two distinct roles: State and Federal. Nathan Willner, as the VP of Government Affairs (State), will continue his indispensable advocacy work at the state level including working with State Creditors Bar Associations (SCBAs) and sister trade associations. The collaboration of Nathan and Dan will create an even more robust advocacy team, ensuring NCBA’s place at the legislative and regulatory tables of power.

An Emory Law graduate with over 20 years of experience as an attorney and political consultant, Daniel has experience with political and issue campaigns, lobbying, grassroots organizing, relationship building, communications, and political crisis management.  He has worked on Capitol Hill, in the White House, at the National Labor Relations Commission, for nonprofits, and at private law firms. 

“Daniel’s appointment comes at a pivotal time for NCBA as state issues ramp up, but we cannot let our guard down on the federal issues impacting our membership. Adding this position means creditors rights attorneys will have a voice and seat at the table on state and federal issues, requiring the full team and collaborative efforts of Nathan and Daniel,” said Liz Terry, Executive Director, NCBA. “We look forward to Daniel’s efforts and advocacy on the Hill. This will help us strengthen existing relationships and broaden our reach on behalf of our more than 1,700 attorneys and roughly 350-member law firms.”

“I am excited to join the team of phenomenal professionals at NCBA, and I’m already impressed by the work being done,” Daniel said on day one. “I see tremendous opportunities to expand the footprint of our organization and our membership locally and nationally to ensure that NCBA is not only at the table when decisions are made but recognized as the sought-after expert representing creditors rights attorneys.”

To increase the involvement and awareness of the creditors rights practice of law, Daniel will manage NCBA legislative and regulatory efforts at the federal level. He will also support NCBA judiciary efforts and work with sister trade associations to help advance the creditors rights industry.

As a team, Nathan and Daniel will report to Liz Terry, Executive Director, and continue to advocate and grow NCBA’s presence at the State, Federal, and Grassroots levels.

About National Creditors Bar Association (NCBA)

NCBA is the premier bar association dedicated to serving law firms engaged in the practice of creditors rights law. Currently, our membership is comprised of over 350 law firms and individual members, totaling approximately 1,700 attorneys, in the areas of creditors rights law, defense and in-house counsel. Members practice in over 20 different practice areas in the 50 states, Puerto Rico, and Canada. Our attorney members are committed to being professional, responsible, and ethical in their practice and profession. http://www.creditorsbar.org

On October 25, the CFPB released a report on credit card interest rates and fees in 2022 highlighting the impact of the cost to consumers. The report found that credit card companies charged consumers more than $105 billion in interest and $25 billion in fees, with the bulk of the fees being late fees.

According to the 175-page report, consumers are rolling balances month-to-month, falling into debt, while credit card companies’ profit margins remain high. The CFPB highlighted additional trends, including how 

1. the profits of major credit card companies have increased, surpassing pre-pandemic levels, which could indicate a lack of competition in the industry, with a few dominant players; 

2. Annual Percentage Rates (APRs) for credit cards continue to rise above the cost of offering credit (meaning cardholders are paying more in interest); 

3. many cardholders with subprime credit scores paid a significant percentage of their average balance in interest and fees; 

4. late fees charged to cardholders have risen to pre-pandemic levels, and more consumers are delinquent; 

5. credit card debt reached a record $1 trillion by the end of 2022, and annual spending on credit cards increased, returning to pre-pandemic levels; and 

6. consumers who roll debt from month to month are paying a significant portion of interest and fees but earning only a small percentage of rewards. 

The report also notes a rise in digital communication—around 80 percent of cardholders, especially those under 65, use mobile apps for card management, which exhibits a shift in how consumers and financial institutions interact in the credit card industry.

TREVOSE, Pa. — NCB Management Services, Inc., a respected national Debt Buyer and leading provider of Accounts Receivable Management (ARM) solutions, is pleased to announce the appointment of David Morton as its new Director of Business Development.  In this role, David will play a key part in driving the company’s growth strategy and fostering strategic partnerships.

With more than two decades of experience in the financial services industry, David brings a wealth of knowledge and expertise to NCB Management Services, Inc. His proven track record in business development, client relationship management, revenue generation and operational management will be instrumental in further expanding the company’s presence and driving new business opportunities.

Prior to joining NCB, David held senior positions in various reputable organizations, where he successfully led business development initiatives, managed key client relationships, and consistently exceeded sales targets. His exceptional ability to identify market trends and capitalize on emerging opportunities will be a valuable asset in NCB’s continued growth and success.

“We are thrilled to welcome David Morton to our team as our new Director of Business Development,” said Ralph Liberio, President & CEO of NCB Management Services, Inc. “David’s extensive experience and strategic mindset perfectly align with our company’s mission and vision. We are confident that his strong leadership skills and client-centric approach will further enhance our ability to deliver exceptional solutions to both our current and future business partners.”

As the Director of Business Development, David will be responsible for spearheading the company’s sales and marketing strategies, identifying new business opportunities, and nurturing relationships with key stakeholders. His primary focus will be on expanding NCB’s footprint in the market and solidifying its position as a trusted partner in the accounts receivable management industry.

“I am honored to join NCB Management Services, Inc. and be part of this dynamic and innovative team,” said David Morton. “I am excited about the opportunity to contribute to the company’s growth and success by leveraging my expertise and building strong partnerships. ”Together, we will continue to deliver outstanding results for our clients and drive sustainable business growth.”

About NCB Management Services

NCB Management Services, Inc is a customer-centric, regulatory compliant organization who is a well-respected Debt Buyer of Unsecured Consumer Credit Products and an admired, well-recognized Accounts Receivable Management (ARM) industry leader. NCB is a leading provider of accounts receivable management solutions.  With a strong commitment to compliance, ethics, and customer-centric approach and service, NCB offers comprehensive and customizable solutions to help businesses optimize their revenue cycle and improve financial performance, while meeting the needs of their customers. Through a combination of advanced technology, industry expertise, and exceptional customer care, NCB has developed a reputation as consistently being a valued business partner and performer in a wide variety of applications. Providing superior customer interaction and achieving maximum results, while protecting NCB’s and our client’s valued reputations, are among our highest priorities.

The goal of a recovery operation is to maximize profitability by efficiently recovering money lent to consumers—while maintaining consumer loyalty. This means that measuring the success of a recovery strategy goes beyond just dollars and cents and into consumer-centric metrics as well.

But how do teams measure overall portfolio performance, and what are the most important portfolio-level key performance metrics (KPIs)? Let’s take a look at a few of the top KPIs and how they can be categorized.

Key Collections Metrics

Key performance indicators for debt collection and recovery efforts:

[article_ad]

• Accounts per Employee (APE) or Accounts to Creditor Ratio (ACR): the number of delinquent accounts that can be serviced by an individual recovery agent

• Net Loss Rate or Net Charge Off Rate: measures the total percent of dollars loaned that ended up getting written off as a loss

• Delinquency Rate: total dollars that are in delinquency (starting as soon as a borrower misses a payment on a loan) as a percentage of total outstanding loans – often an early warning sign on the total volume of delinquent debt

• Promise to Pay Rate: the percentage of delinquent accounts that make a verbal or digital commitment to pay

• Promise to Pay Kept Rate: the percentage of delinquent accounts that maintain a stated commitment to pay

• Roll Rate: the percentage of delinquent dollars that “roll” from one delinquency bucket to the next over a given period of time – provides visibility into the velocity with which debts are heading into charge off

Metrics like net loss rate are the north star of a recovery program, while metrics like delinquency rate and roll rate are leading indicators of future portfolio performance. But just as critical as these traditional KPIs, today’s collection operations need to focus on implementing and measuring digital engagement.

Digital Engagement Metrics

A range of KPIs that capture how effectively digital channels are reaching and engaging consumers:

• Coverage: the percentage of users for whom we have digital contact information

• Deliverability: the percentage of digital messages that are actually reaching consumers

• Digital Opt-In: the percentage of users who have consented to receive digital communications in a particular channel

• Open Rate, Clickthrough Rate: the percentage of users who are actually opening and clicking digital communications

Following key collection and digital engagement metrics are all well and good, but how do recovery teams move the needle on those critical KPIs?

Operational metrics are the KPIs that collectively drive overall portfolio-level performance. They represent the “levers” available to change the economics of a recovery model.

Operational Metrics 

Metrics that create simple framework to explain the profitability of a recovery operation: 

• Profitability of a Collections Operation Formula: R x ResF x E

• R [Reach]: percentage of consumers in delinquency can you actually reach

• ResF [Resolution Funnel]: how effectively you can convert initial contact with a consumer into a commitment to pay – and ultimately, a payment promise kept (see Promise to Pay Rate and Promise to Pay Kept Rate)

• E [Efficiency]: calculation of what the “unit economics” of your collection are and how much it costs, on average, for every account that you rehabilitate

In the hyper-competitive financial services space, consumer experience is a source of competitive advantage. That’s why it stands to reason that alongside the “traditional” metrics of recovery economics, forward-looking businesses have pioneered a new set of KPIs that measure the value of consumer experience.

Consumer-Centric Metrics 

A new set of KPIs that measure the value of consumer experience:

• Net Promoter Score (NPS): how likely a consumer is to recommend a given brand after an experience with a brand’s collection organization

• Customer Retention Rate: how likely a consumer is to be reacquired by a given brand after his or her delinquent account is rehabilitated

Keep a Close Watch on These KPIs for Collection

As payment-driven organizations across verticals focus further into the world of recovery, it is safe to anticipate that digital engagement and consumer-centric KPIs like the ones we covered above will become even more deeply woven into the fabric of the organization.

On October 27, the Federal Trade Commission (FTC) announced a final rule amending the Standards for Safeguarding Customer Information (Safeguards Rule) under the Gramm-Leach-Bliley Act. The Safeguards Rule requires nonbanking financial institutions to develop, implement, and maintain a comprehensive information security program to keep their customers’ information safe. The amendment will require financial institutions to notify the FTC no later than 30 days after discovery of a security breach involving the information of 500 or more consumers. The amendment will go into effect 180 days after publication of the final rule in the Federal Register.

Specifically, the amendment applies to “notification events,” which are defined as the “acquisition of unencrypted customer information without the authorization of the individual to which the information pertains.” Notably, the FTC final rule requires notification where customer information has been acquired, rather than when misuse is considered likely, although the FTC agrees that notification should not be required when harm to consumers is rendered extremely unlikely because the customer information is encrypted. Although the FTC received public comments advocating for the inclusion of a “risk of harm” to consumers analysis, the FTC believes that determining whether acquisition has occurred simplifies the requirement and will enable financial institutions to more speedily determine whether a notification event has occurred.

If a notification event involves the information of 500 or more consumers, the covered entity must notify the FTC “as soon as possible, and no later than 30 days after discovery of the event” using a form on the FTC’s website. The FTC will deem a financial institution to have knowledge of a notification event if such event is known to any person, other than the person committing the breach, who is the financial institution’s employee, officer, or other agent.

The notice must include:

• The name and contact information of the reporting financial institution;

• A description of the types of information involved;

• If possible, the date or date range of the notification event;

• The number of consumers affected or potentially affected;

• A general description of the notification event; and

• If applicable, whether any law enforcement official has provided the financial institution with a written determination that notifying the public of the breach would impede a criminal investigation or cause damage to national security, and the contact information for the law enforcement official.

This is a supplemental rulemaking to the Safeguards Rule updates previously finalized on December 9, 2021.

Four Quick Steps to Take Now:

1. Incident Response Plan. Update your incident response plan in line with the requirements of the amendment and its 30-day period to notify the FTC.

2. Service provider agreements and security assessment questionnaires. Update service provider contracts, statements of work, and security diligence assessment questionnaires to make sure service providers of financial institutions (including nonbanking financial institutions): (i) have developed, implemented, and maintained a comprehensive information security program around customers’ information; and (ii) are required to promptly notify their financial institution customers given that the 30-day notification clock starts when the triggering event is known not just by a company officer or employee, but also by an agent, including service providers.

3. Update training to make sure the updated incident response plan, service provider contracting processes, and new amendment requirements are explained.

4. Update/conduct cyber simulation tabletop training exercises that include FTC notification questions and third-party service provider security incident scenarios to further provide exposure and practice to the new amendment.

Troutman Pepper will continue to monitor important developments involving the FTC and the Safeguards Rule and will provide further updates as they become available. If you need assistance with complying with the requirement of the new amendment, please reach out to the authors of this article or any member of our Privacy & Cyber or Consumer Financial Services groups.

On October 29, the Biden Administration issued a broad Executive Order (Order) on artificial intelligence (AI).  Titled “Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” the Order establishes guidelines for AI safety and security, aims to shield Americans’ data privacy, and emphasizes equity and civil rights.  As stated by the White House in its Fact Sheet about the Order, the Order “stands up for consumers and workers” while fostering innovation and competition.

Ballard Spahr has issued a legal alert that provides an overview of the Order.  In this blog post, we highlight the provisions of the Order that are most noteworthy for providers of consumer financial services that use AI.

Guidelines and Best Practices

For consumer financial services providers that use proprietary AI, the Order includes provisions directed at AI developers and designers.  It directs the Secretary of Commerce, acting through the Director of National Institute of Standards and Technology, in coordination with certain other agencies, to “establish guidelines and best practices, with the aim of promoting consensus industry standards for developing and deploying safe, secure, and trustworthy AI systems.”

AI and Civil Rights

 Last October, the White House identified a framework of five principles, also known as the “Blueprint for an AI Bill of Rights,” to guide the design, use, and deployment of automated systems and AI.  One of those principles is that automated systems should be used and designed in an equitable way to prevent algorithmic discrimination.  For instance, measures should be taken to prevent unfavorable outcomes based on protected characteristics.  In April 2023, the CFPB, FTC, Justice Department, and Equal Employment Opportunity Commission issued a joint statement about enforcement efforts “to protect the public from bias in automated systems and artificial intelligence.”  (CFPB Director Chopra has repeatedly raised concerns that the use of AI can result in unlawful discriminatory practices.)

Building on those developments, the Order encourages the CFPB Director and the Director of the Federal Housing Finance Agency, in order “to address discrimination and biases against protected groups in housing markets and consumer financial markets, to consider using their authorities, as they deem appropriate, to require their respective regulated entities, where possible,” to do the following:

• Use appropriate methodologies including AI tools to ensure compliance with federal law; 

• Evaluate their underwriting models for bias or disparities affecting protected groups; and

• Evaluate automated collateral valuation and appraisal processes in ways that minimize bias.

The Order also requires the Secretary of Housing and Urban Development and “encourage[s]” the CFPB Director, in order “to combat unlawful discrimination enabled by automated algorithmic tools used to make decisions about access to housing and in other real estate-related transactions,” to issue additional guidance within 180 days of the date of the Order that addresses:

• The use of tenant screening systems in ways that may violate the Fair Housing Act, the Fair Credit Reporting Act, or other relevant federal laws, including how the use of data, such as criminal records, eviction records, and credit information can lead to discriminatory outcomes in violation of federal law; and

• How the Fair Housing Act, the Consumer Financial Protection Act, or the Equal Credit Opportunity Act apply to the advertising of housing credit, and other real estate-related transactions through digital platforms, including those that use algorithms to facilitate advertising delivery, as well as best practices to avoid violations of federal law.

Protecting Consumers  

The Order encourages independent regulatory agencies, as they deem appropriate, to consider using the full range of their authorities to protect consumers from fraud, discrimination, and threats to privacy, and to address other risks that may arise from AI, including risks to financial stability.  The agencies are also encouraged to consider rulemaking, as well as emphasizing or clarifying where existing regulations apply to AI.  The agencies are also encouraged to clarify the responsibility of regulated entities to conduct due diligence and monitor any third-party AI services they use, and to emphasize or clarify requirements and expectations related to the transparency of AI models and regulated entities’ ability to explain their use of AI models.

The impact of AI on the consumer financial services industry has been the focus of two episodes of our Consumer Finance Monitor Podcast.  The episodes are available here and here.

CHICAGO, Ill. — Harris & Harris (“H&H” or the “Company”), a leader in accounts receivable management and customer care solutions, announced today that it has made an organizational change.  David Peters, who has successfully led the Company as Chief Operating Officer, will assume the role of Chief Executive Officer.  Salvador (“Sal”) Hazday, the former Chief Executive Officer, notified the Board of Directors that he wished to resign for personal and professional reasons. The Company is thankful for Sal’s service and wishes him well in his future endeavors.   

Prior to joining Harris & Harris, Peters spent six years at Automatic Data Processing, Inc. (“ADP”) where he held increasingly senior executive positions, including Divisional Vice President/GM Major Account Services.  In his final role, David led ADP’s mid-market business on Workforce Now through the Central US.  Prior to that role, Peters served fifteen years at Perdoceo Education.  He served in various capacities, from leading large and small businesses, building the company’s Shared Services function, and leading Mergers and Acquisitions.  

Jon Haas, a Partner with Clarion Capital Partners, commented, “We are excited to promote David Peters to CEO.  In his time at Harris & Harris, he has won the respect of our employees as a great communicator, a problem solver, and a leader.  We expect he will be terrific in working with our customers to help them manage their difficult revenue cycle challenges.  H&H has a lot of momentum right now, and we believe David is the right person to help us build for the future.” 

[article_ad]

“I am excited to take on this role at Harris & Harris and honored to work with a talented management team to take the Company forward to its next level of business success. H&H is poised to achieve the highest revenues in its history this year, and with significant recent client wins and new analytics and technology investments we are well positioned to continue our growth in the future,” said Peters.

About Harris & Harris

Harris & Harris is a leader in accounts receivable management and customer care solutions. The Company provides third party and first party debt collection, complex claims, customer care, and other complementary services through onshore call centers and employees distributed throughout the US working from home. Harris & Harris serves clients in healthcare, government, and utility end markets. For more information on Harris & Harris, visit www.harriscollect.com.   

About Clarion Capital Partners, LLC

Clarion Capital Partners is a New York based middle market private equity firm. Clarion is actively seeking investments in growing companies in a variety of industries including Business and Healthcare Services, Specialty Financial Services, Media, Entertainment and Technology, and Consumer. Additional information on Clarion can be found at www.clarion-capital.com

ROCHESTER, N.Y. — Continental Service Group, LLC d/b/a ConServe, in conjunction with the company’s “Matching Gift Program”, donated its September ConServe Cares proceeds to the Ibero-American Action League (IBERO).  The ConServe team supports and funds the efforts of numerous local non-profit agencies that strive to make a difference.  The kindness and generosity of ConServe’s employees have touched countless lives, enriching the community we all share.

ConServe is committed to doing the right thing, at the right time, in the right way.  George Huyler, Vice President of Human Resources, has said, “At ConServe, we are proud of our commitment to making a positive impact on the world around us.  We believe that doing good is not just important, but essential to our success as a company, and as individuals.” 

President and CEO, Angelica Perez-Delgado commented, “Ibero is inspired by the support of individuals and organizations committed to our mission and trusting our work.  We are grateful for the generosity of ConServe’s employees and the matched contribution received.”

About ConServe

ConServe is a top-performing accounts receivable management service provider specializing in customized recovery solutions for their Clients.  Anchored in ethics and compliance, and steadfast in their pursuit of excellence, they are a consumer-centric organization that operates as an extension of their Clients’ valued brands.  For over 38 years, they have partnered with their Clients to provide unmatched customer service while simultaneously helping them achieve their accounts receivable management goals.  Visit us online at: www.conserve-arm.com 

About Ibero American Action League, Inc.

IBERO has evolved into an agency that serves individuals and families of all ethnic backgrounds. Our unique ability to target the Latino community remains unprecedented in this region. We are committed to social justice and to addressing systemic disparities in housing, education, health care, entrepreneurship, and employment. Ibero has now offices in Rochester, Buffalo, Albany, Amsterdam, and Geneva. We remove systemic barriers by increasing access to an array of services that are person-centered, community-rooted, bi-lingual, and culturally responsive, serving the underserved, the vulnerable, and those most at-risk without regard to race, ethnicity, gender identity and expression, or age. Visit them online:  https://www.ibero.org/

NEW YORK, N.Y. — Skit.ai, the leading provider of conversational Voice AI solutions, announced today its partnership with Southwest Recovery Services, a financial services company with over 20 years of experience in debt recovery and accounts receivable management. With the Voice AI solution, Southwest Recovery plans to automate outbound and inbound interactions with consumers, tapping into large volumes of untouched accounts while enabling the live agents to focus on high-priority and revenue-generating interactions.

Skit.ai’s conversational Voice AI solutions enables lenders and collection agencies of all sizes to accelerate revenue recovery and grow their operations by automating collection calls. The solution typically achieves 100% account penetration, as it initiates thousands of compliant calls within minutes and automates crucial steps of the recovery process such as right-party contact verification.

“Before implementing Skit.ai’s Voice AI solution, we were only penetrating a small percentage of our accounts each month. We wanted to dig deeper into our portfolio in a cost-effective manner, without straining our resources. We were drawn to Skit.ai’s industry-specific expertise,” said Sawyer Dietz, Vice President at Southwest Recovery Services. “I believe that this technology is going to be paramount and highly profitable in the future, as tightening regulations continue to make the recovery process more challenging.”

Headquartered in Dallas, Texas, and with additional locations in multiple states, Southwest Recovery Services operates in multiple industries and types of debt, including medical, subprime loans, property management, B2B , and B2C. The company plans to utilize Skit.ai’s fully compliant solution across different industries and types of debt. The company’s leadership has reported that, so far, both consumers and the live agents have welcomed the change.

“We are witnessing a notable change in the account receivables industry, and organizations like Southwest Recovery Services are leading the way by adopting Generative AI-powered solutions to scale their operations, improve their efficiency, and increase revenue. Market trends and consumer expectations indicate that many more organizations will seek to replicate the success of our early adopters,” said Sourabh Gupta, Founder and CEO of Skit.ai.

Skit.ai has had notable success in the account receivables industry across the U.S., with dozens of small, medium, and large collection agencies already using its technology to streamline and automate their recovery strategy.

Schedule a meeting to learn more about how Skit.ai can help you accelerate revenue recovery with higher efficiency and at an infinite scale.

About Southwest Recovery Services:

Southwest Recovery Services, LLC is a nationally recognized leader in financial business process outsourcing (BPO) headquartered in Dallas, Texas with additional locations throughout Texas as well as Georgia, Missouri, Florida, Oklahoma, and Ohio. Southwest Recovery Services has spent 20 years building its expertise across nearly every industry and business sector. Southwest Recovery Services is nationally recognized as an ethical, professional, and diplomatic service provider in receivables management.

About Skit.ai:

Skit.ai is the accounts and receivables industry’s leading conversational Voice AI company, enabling collection agencies to streamline and accelerate revenue recovery. Skit.ai’s compliant, configurable, and easy-to-deploy solution enables enterprises to automate nearly one million weekly consumer conversations. Skit.ai has been awarded several awards and recognitions, including Stevie Gold Winner 2023 for Most Innovative Company by The International Business Awards, Disruptive Technology of the Year 2022 by CCW, and Gold Globee CEO Awards 2022. Skit.ai is headquartered in New York City, NY. Visit https://skit.ai/

For media inquiries, please contact: media@skit.ai

The Bona Fide Error (BFE) defense may be a strong shield when defending a Fair Debt Collection Practices Act (FDCPA) lawsuit, but that shield can be difficult to hold. To use the BFE defense and protect their organizations from FDCPA lawsuits, it’s crucial that debt collectors understand the defense’s nuance, intricacy, and application. Three recent cases highlight and provide insight into the important aspects, challenges, and alternative uses of the BFE defense.

The BFE defense, found here at 15 U.S.C. § 1692(k)(c), can protect debt collectors from liability if they can prove “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.” Those attempting to avail themselves of a BFE defense must show all three of the following: 

1. The violation was unintentional. 
2. The error was bona fide (made in “good faith”); and
3. That the error was made despite procedures adapted and maintained to avoid the error that occurred.

Challenges in Successfully Defending FDCPA Suits:

While the bona fide error defense offers debt collectors a valuable tool in avoiding liability, successfully using it in FDCPA suits remains challenging. Debt collectors must be prepared to meet a stringent standard of proof, demonstrating that the violation was unintentional and made in good faith. 

In Kaszko v. RSH & Assocs., Civil Action 22-2316-KHV (D. Kan. Sep 01, 2023), a district court in Kansas denied a debt collector’s bona fide error defense based on a lack of evidence submitted to establish that the violations were unintentional and on the debt collector’s failure to reasonably investigate the error. Though the debt collector argued that they believed, in good faith, that the consumer was a guarantor on the debt owed, they admitted they never bothered to check the guaranty agreement itself. The Court held that this lack of thorough investigation created a question regarding whether the debt collector acted reasonably. Consequently, the debt collector’s bona fide error defense was unsuccessful. 

The Defense is in the Details:

To effectively utilize the bona fide error defense, debt collectors must establish and implement comprehensive policies and procedures to prevent common errors that lead to FDCPA violations. These policies and procedures must be rigorous enough to withstand scrutiny. 

This issue was highlighted in the case of Sprayberry v. Portfolio Recovery Assocs., 21-36000, 21-36001 (9th Cir. Aug 28, 2023), where the Ninth Circuit Court of Appeals stated that the debt collector fell short in showing that they maintained policies and procedures created to avoid errors regarding the statute of limitations. Specifically, the Court said that the debt collector “provided no evidence of [their] legal research nor any details of the procedures used for either reviewing or updating [their] research on state statutes of limitations.” Further, the debt collector did not provide evidence that it implemented any review procedure.

————

If you’d like access to an always up-to-date Statute of Limitations Matrix, be sure to check out insideARM’s Research Assistant and sign up for a free trial by using the code “TRYRESEARCH”.

———–

Versatile Uses of the Bona Fide Error Defense

Though the BFE defense is most often used to avoid FDCPA violations, a debt collector in California recently used it to help vacate a default judgment. In Antich v. Capital Accounts, LLC, B313167 (Cal. App. Jul 26, 2023), a default judgment was entered against a debt collector on an FDCPA claim related to credit reporting. Unbeknownst to the debt collector, their in-house counsel abandoned their employment without filing a response in the case. Upon learning about the judgment, the debt collector sought to vacate it. However, to do so, the debt collector was required to show that had the case proceeded, it would have had a meritorious defense. 

The debt collector argued that had the case proceeded it would have been able to assert a bona fide error defense. In support of this argument, the debt collector provided evidence of its system and policies and procedures tailored to prevent credit reporting errors. In light of the procedures provided by the debt collector, the court agreed that the debt collector might have been able to avail himself of the BFE defense and agreed the default judgment against the debt collector should be vacated. Thus, providing the debt collector a chance to avoid a costly judgment.

Tying it all together

The bona fide error defense remains a critical protection for debt collectors, allowing them to defend against FDCPA suits arising from unintentional errors. However, as illustrated above, successfully utilizing this defense is no sure thing. The three requirements to successfully mount a BFE defense (unintentional, good faith, and that the error occurred despite policies and procedures) hinge on creating and maintaining robust policies and procedures adapted to prevent a wide variety of errors. 

It is equally important to be able to provide a court with the details necessary to show that these policies and procedures are being implemented. Companies must also be vigilant and thorough when investigating complaints and disputes. Only by taking these precautions can a bona fide error defense be a useful tool when debt collection doesn’t go as planned.