Supreme Court hears case on lawyers’ liability as debt collectors

January 15, 2010

 

On Wednesday, the Supreme Court heard arguments addressing the question as to whether lawyers can be held liable as debt collectors if they serve a foreclosure notice that may have been incorrect in its statement of the law.

At issue in this case is a notice sent to a woman named Karen Jerman. Jerman, who owned her home outright and had paid off her mortgage in full, was served a foreclosure notice by lawyers for Countrywide Home Loans.

In the notice, Jerman was told that she had to dispute the debt in writing. Jerman hired a lawyer to draft the written response. Countrywide later realized its mistake and withdrew its complaint.

Jerman filed a class action lawsuit against the Ohio law firm that represents Countrywide,  Carlisle, McNellie, Rini, Kramer & Ulrich, and against a particular associate attorney at the Carlisle firm.

In her lawsuit, Jerman claimed that the Carlisle firm violated the Fair Debt Collection Practices Act (FDCPA) by erroneously informing her that the FDCPA states that the debt would be presumed valid unless she disputed it in writing.

At issue is whether the lawyer’s mistake of law qualifies for the bona fife error defense under the Fair Debt Collection Practices Act.

The Fair Debt Collection Practices Act excuses debt collectors if they can prove that their wrongdoing was not intentional and was in good faith. If this can be proven, then the debt collector is shielded from civil liability.

Jerman v. Carlisle comes to the Supreme Court as an appeal from a ruling made by the Sixth Circuit. The appellate court ruled that, while the law firm violated the law in requiring Jerman to object to the foreclosure in writing, the law firm nonetheless qualified for the bona fide error defense.

The Supreme Court will be deciding whether a debt collector’s unintentional legal mistake falls under the FDCPA’s bona fide error defense, thereby shielding the debtor collector from civil liability for violating the FDCPA.

Ultimately, the court’s decision in this case will affect the recourse potential plaintiffs have when making complaints about unfair debt-collection practices. It could also have an effect on the debt-collection practices themselves.

Jerman v. Carlisle is also significant because it will likely settle a split in the federal courts as to whether a debtor collector’s mistake of law, as opposed to a clerical error, qualifies as a bona fide error under the FDCPA.

If the Supreme Court rules in favor of Carlisle, then a debt collector will be able to assert a mistake of law as a defense to civil liability as a “bona fide error.”

 

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