The Court of Appeals for the Ninth Circuit has overturned a lower court’s summary judgment ruling in favor of a collection law firm that was accused of violating the Fair Debt Collection Practices Act for garnishing the plaintiff’s Social Security funds, ruling it was not entitled to the statute’s bona fide error defense. The court did affirm the lower court’s ruling in favor of the other defendant — a bank — that was accused of unjust enrichment and the intentional infliction of emotional distress.
The background: One of the defendants, a collection law firm, pursued garnishment of funds in a bank account that consisted entirely of direct deposited Social Security benefits.
- Federal law broadly exempts Social Security benefits from garnishment.
- The plaintiff alleged that the defendant violated the FDCPA by attempting to seize funds that were clearly protected.
- The defendant acknowledged that the garnishment should not have gone forward, but argued that the mistake was unintentional and the result of a bona fide error.
- A District Court judge agreed and granted summary judgment, finding the defendant was entitled to the FDCPA bona fide error defense.
The ruling: The Ninth Circuit disagreed, finding that the defendant’s conduct did not meet the standard required to invoke the bona fide error defense.
- The court emphasized that the defense has both a subjective and objective component and that an error based on a plainly incorrect understanding of settled law is not objectively reasonable.
- According to the court, by mid 2021 the defendant knew the account contained only Social Security funds, which are immune from garnishment under long standing federal law. Yet the defendant continued to defend the garnishment for months by relying on federal regulations that protect a limited “protected amount” in bank accounts.
- The court explained that those regulations do not override the broader statutory exemption for Social Security benefits and expressly preserve a consumer’s right to assert additional exemptions. As the court put it, “An error resting on a plainly incorrect view of settled law cannot qualify as bona fide within the meaning of the FDCPA.”
