Banking & Finance Law Report

Archives: Consumer Law and Litigation

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7th Circuit Overrules FDCPA Bona Fide Mistake Case

In a divided en banc decision, the U.S. Circuit Court of Appeals for the Seventh Circuit has reversed (by vote of 7 to 4) a 2016 decision that a law firm when acting as a debt collector was shielded from liability under the Fair Debt Collection Practices Act when it relied on precedent that was subsequently overruled.  The prior decision was described in this blog here.

The issue is the extent of the bona fide error defense that is provided by the Fair Debt Collection Practices Act for debt collectors who make a mistake despite having procedures in place to avoid such mistakes. A 2010 U.S. Supreme Court decision holds that the defense does not protect mistakes of law.

A prior three-judge panel of the Seventh Circuit had concluded that relying on a controlling appellate court decision was not a mistake of law and that the law firm had made no legal error even though the decision was later overruled.

The new decision however concluded that the law firm had violated the statute since the firm made a mistake in interpreting applicable law. And since the error was a mistake in interpreting law, the bona fide error defense had …

Legal mistakes, Good Faith Errors and the Fair Debt Collection Practices Act

Things looked bad for an Illinois law firm in 2014 when a consumer complaint was filed in federal district court against it. It was accused of violating the Fair Debt Collection Practices Act. The firm’s purported violation: Not anticipating when an appellate court would overrule established precedent.

And an opinion of United States Supreme Court overruled the firm’s best defense: that it had made a good faith legal error.

The matter began in 2013 when the law firm filed a consumer collection action. The FDCPA requires the filing of collection actions in the “judicial district” where the debtor lives or signed the contract.  The law firm reasoned that if the debtor lived in the Cook County judicial district, filing the suit would be proper there.  Its choice of venue was the First Municipal District of the Circuit Court of Cook County.

But there was a complication. There are many municipal districts in Cook County and the consumer did not actually live in the First Municipal District (although he did live in Cook County).

So should the law firm file the suit in the municipal district where the debtor lived? Or was it enough to file in the “judicial” district of …

CFPB Releases Examination Manual

In October, the Consumer Financial Protection Bureau published its first supervision examination manual which will be of interest to bankers and other financial service executives.

On one level, the manual is fairly pedestrian and may contain little surprising in that most bankers have a fairly extensive appreciation of (and experience with) an examination process. And, of course, the Bureau has direct supervisory authority only over the roughly 100 large banks, thrifts, and credit unions that have assets more than $10 billion.

What should be interesting to many bankers, however, is the insight the Manual provides into the examination approach of the Bureau, an approach that will doubtlessly influence and inform the practices and procedures of all other financial institution regulators, large and small. Essentially, the Manual describes the Bureau’s process for risk assessment: first there will be the establishment of the inherent risk of a particular "product" line for consumers and then there will be an assessment of an entity’s set of quality controls to manage and mitigate the risks.…

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