Ellis Law Group


Credit Agencies: Avoiding FDCPA Litigation

The goal of every collection agency is to reduce the risk of being sued or, for that matter, the risk of being threatened with “a possible suit.” In my mind, the best way to avoid the threat of litigation is to set up your agency’s practices and procedures so that they are designed to prove your compliance with the law. Designing your policies in this way not only makes it tougher for a debtor to sue you in the first place, but it also provides you with a powerful defense –bona fide error- if you do make a mistake and are sued.one.jpg - 1153 Bytes

A good example of how an agency can set up its policies and procedures to defeat a debtor’s claim was demonstrated in a recent case wherein I defended the agency. (Mahon v. Credit Bureau of Placer County, 171 E.3d 1197 (9th Cir. 1999).) The Mahons had incurred a debt for medical services rendered in 1993. The doctor’s office continued to send monthly bills to the Mahons for more than two years with no response. Eventually, the doctor’s office assigned the collection to the Credit Bureau.

The agency used a computerized collection tracking and filing system. The computerized system automatically generated collection letters, and it also acted as an electronic filing system for each collection account, recording all collection activities, including which notices were sent, to whom, and when. Prior to mailing, the agency’s employees would invariably count the number of outgoing notices against the number of accounts assigned for mailing in that day’s outgoing “batch” of letters. The collection notices were then automatically addressed, stuffed, and posted by another machine that also noted the number of letters handled. After mailing, the agency monitored each account, routinely noting whether an envelope was returned “undelivered.”

Legal Malpractice AttorneyAuthor Mark E. Ellis is the managing partner of Ellis Law Group, LLP. Mr. Ellis is recognized nationally as one of the leading trial attorneys defending creditors and their representatives in federal and state litigation arising from collection practices. See Mark Ellis Profile for his detailed curriculum vitae.

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On September 21, 1995, the Credit Bureau’s computer software generated its first written collection letter, and the letter was mailed pursuant to the procedures outlined above. Second and third notices subsequently were mailed according to the above policies and procedures. No notation was made in the agency’s records that any of the three letters had been returned. Likewise, no notation was found in the computerized collection notes which indicated the Mahons responded to the letters, either orally or in writing. The testimony from the Credit Bureau was that if a response had been received, it would have been invariably noted in the collection notes.

In January of 1996, after receiving no response from the Mahons, the Credit Bureau reported the Mahons’ delinquent collection account to the major credit reporting agencies. This triggered a response, and on September 20, 1996, the Mahons field suit in federal court alleging violations of the FDCPA, including the Credit Bureau’s purported failure to send a written validation of debt notice. The Mahons argued, among other things, that they had not received any of the three letters and that the Credit Bureau could not prove that the Mahons had been sent the letters, much less that they had actually received them.

Based upon the information provided to me by the Credit Bureau about its policies and procedures, I moved to dismiss the Mahons’ lawsuit. I maintained that the Credit Bureau’s computerized records, as well as the sworn testimony of the employees, provided ample evidence that, under the Bureau’s regular policies and procedures, the validation had to have been mailed and it was not returned. Based upon this evidence, I argued the Mahons must have received the validation of debts letter and thus the Credit Bureau must have complied with the FDCPA.

The Mahons argued that their testimony was sufficient to prevent summary judgment in favor of the Credit Bureau, and that it created a genuine dispute as to whether the validation letter had actually been sent. The Federal District Court, however, disagreed and threw their case out of court. The Mahons appealed, but the Ninth Circuit Court of Appeals upheld the dismissal. Referencing the Credit Bureau’s standards procedures, the court wrote: “The Mahons offered no evidence that the Credit Bureau failed to follow it ordinary business procedure in sending them the Notice. They simply say they did not receive the Notice. . . We conclude there is no genuine dispute of the fact that the Credit Bureau sent the required Validation of Debt Notice to the Mahons. . .” (Mahon, at p. 1202.)

As you know, debtors often will allege anything to get out of paying their debts or as a basis for bringing a suit. Policies and procedures which faithfully are followed and faithfully documented by your agency help prove what “really” happened. While you cannot prevent anyone from suing you, your procedures and prevent them from winning. Make your agency’s policies and procedures are “seamless,” as the Credit Bureau in Mahon did, and help defeat the claim before it is even brought. Equally important, after a lawsuit is filed, your agency’s well-documented policies and procedures will give your attorney the evidence he or she needs to win your case. . . on the front line.

This article is not meant to be considered legal advice by the author, or the California Association of Collectors, Inc. You should consult your own attorney for legal matters.

This article is not to be considered legal advice by the author or Ellis Law Group LLP. Any person or agency with specific legal questions must consult with the legal counsel of their choice.


1. Under the FDCPA, the bona fide error defense is found at 15 U.S.C. 1692k(d); under California’s Rosenthal Fair Debt Collection Practices Act, the bona fide error defense is found in Civil Code §1788.30(e). Return To Text

The above article and all articles in this website are not intended to be legal advice. Readers should consult an attorney to determine how the law applies to their particular circumstances. Also, please understand that the law constantly evolves and changes. Certain of the decisions and legal propositions quoted in the above article may be out of date or superseded. Questions or comments about the above article can be directed to its author, Mark E. Ellis.

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