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Supreme Court Agrees: Ignorance of the Law Is No Excuse

The Supreme Court agrees with AARP that ignorance of the law does not excuse a debt collector for violating the federal fair debt collection laws. AARP joined with other advocates in filing a "friend of the court" brief on behalf of consumers challenging abusive and illegal debt collection practices, and was gratified by the ruling that debt collectors can not hide behind a mistaken understanding of the law in the face of statutory language protecting consumers from abusive collection practices.

The Dispute

In 2006, the law firm of Carlisle, McNellie, Rini, Kramer & Ulrich filed a complaint on behalf of Countrywide Home Loans to foreclose on Karen Jerman's home in Ohio. The paperwork the law firm forwarded explained that Carlisle would assume the debt to be valid unless Jerman disputed the debt in writing within 30 days of receipt of the notice. Jerman responded within that period that her mortgage had in fact been paid off, and once Countrywide confirmed that, the foreclosure complaint was dismissed.

But Jerman sued the law firm, alleging that the law firm had violated federal law by requiring her to dispute the debt in writing, despite clear language to the contrary under the federal Fair Debt Collections Practices Act (FDCPA). A trial court found that while clearly in error, the demand for a written dispute was not an intentional violation and resulted from a bona fide error about the law. Jerman appealed, arguing that a law firm's legal mistake about consumer rights under a law that is designed to protect people from harassment does not shield it from liability.

The appeals court upheld the trial court's ruling, and ruled against Jerman. This left a split in the Circuits, with federal courts ruling both ways on the issue of mistake of law under FDCPA. Jerman v. Carlisle was appealed to the U.S. Supreme Court, where AARP Foundation Litigation attorneys filed AARP's brief.

AARP's Brief

Congress enacted the FDCPA to protect consumers by prohibiting abusive debt collections practices such as harassment, abuse of legal process, onerous dispute burdens, and other unscrupulous practices that effectively extort money from desperate people who may not understand their rights or be too frightened to defend themselves. If aggressive debt collectors can escape liability simply by claiming they did not know the law, they would be free to plead ignorance rather than actually complying with the law — gutting the very principles that protect people from the practices they use.

AARP's brief made these points and noted that allowing them to escape liability for a "mistake of law" turns the venerable legal principle that "ignorance of the law is no excuse" on its head. The brief pointed out that allowing mistake of law defense in debt collection is particularly troubling since debt collectors — unlike virtually every other private business that interacts with consumers — are by the nature of their business unconcerned with consumer goodwill and have every incentive to maximize collections at the expense of consumer protection. In fact, under the lower court's approach, debt collectors who actually learn about the law will leave themselves at a competitive disadvantage (in the words of the brief, "a race to the bottom" that will reward illegality, allow creditors to hire the least scrupulous collectors and drive ethical collectors out of business).

The brief also examined the legislative history of the FDCPA and points out to the court that mistake of law defenses were actually considered and explicitly rejected by Congress during enactment of the law.

The Ruling

The Court began by discussing the underlying principles of the FDCPA: consumer protection against abusive collection practices. It then carefully dissected the language and legislative history of the FDCSPA, compared it to other consumer or borrower protection statutes, and distinguished any FDCCPA bona-fide error provisions from those allowing escape from liability in other statutes. The Court noted distinctions between mistakes of fact and those of law, finding that Congress did not give debt collectors a shield for bona-fide errors of law.

Rejecting the collectors' argument that the ruling would open the floodgates of litigation and damage claims, the court found:"Congress enacted the FDCPA … to eliminate abusive debt collection practices, to ensure that debt collectors who abstain from such practices are not competitively disadvantaged, and to promote consistent state action to protect consumers," wrote the Court. "We do not foresee that our decision today will place unmanageable burdens on lawyers practicing in the debt collection industry."

The issue is important to AARP because older people are particularly vulnerable to the abuses of debt collectors. Collectors attempt to secure payment for debts that can be years old and forgotten (or never incurred at all, but the transactions took place so long ago the consumer is unsure). The effects of debt collection practices are more keenly felt on people on fixed or limited incomes, such as retirees, and current economic conditions, growing debt burdens, and the rising rate of home foreclosures put older people at greater risk. An AARP report notes that more than 684,000 homeowners over age 50 were either delinquent or in foreclosure in December 2007, and that same age group is experiencing the sharpest increase in bankruptcy filings since 1991.