FDCPA Bona Fide Error - Putting ChatGPT 4.0 to the test
Summary
One District Court granted the plaintiff's motion for summary judgment on the issue of a bona fide error defense and a second District Court granted the defendant's motion for summary judgment. The text of these two decisions was fed to ChatGPT 4.0 along with a 7th Circuit opinion that affirmed a defendant's judgment following a bench trial and elaborated on the bona fide error defense.
As a preliminary matter, I identified a simple distinction between the two District Court summary judgment decisions and I asked ChatGPT the following question.
"Based on the three court opinions uploaded, what is the difference between an "unfounded assumption" and an "informal understanding"?"
ChatGPT's response is reproduced below.
Background
First, it is essential to know that ChatGPT 4.0 is substantially better than ChatGPT 3.5. Version 4.0 is available only through Open/AI's paid subscription ($20 / mo.) Chat 3.5 is free. I use version 4.0.
As I continue exploring practical applications for Chatbots in the practice of law, the possibility that AI can rapidly and accurately digest and summarize court decisions is at the top of my list. Since AI is no more reliable than a third-year law student, Ronald Reagan's "trust but verify" admonition takes on a new meaning.
I deployed a test for ChatGPT with three court decisions on the "bona fide error" affirmative defense provided by the Fair Debt Collection Practices Act (FDCPA 15 USC § 1692k(c)), which states:
"A debt collector may not be held liable in any action brought under this title . . . if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."
The meaning and proof of "maintenance of procedures" have been recurring sources of contention in FDCPA litigation. For example, debt collectors sometimes mistakenly attempt to collect from debtors in bankruptcy, violating the FDCPA's strict liability prohibitions. Notice of bankruptcy is typically sent to the original creditor and not to the collection agency, so the debt collector is partially reliant on the creditor for notice of a debtor's bankruptcy.
May a debt collector justifiably rely on a creditor to advise of a debtor's bankruptcy, or must the collector undertake an independent investigation? What evidence is sufficient to prove "the maintenance of procedures reasonably adapted to avoid" collection efforts directed toward a debtor in bankruptcy? These issues were the crux of the following decisions.
Turner v. JVDB Associates Inc., 318 F. Supp. 2d 681 (ND Ill. 2004)
Yu v. Kevin B. Wilson Law Offices, 919 F. Supp. 2d 661 (D. Md. 2013)
Hyman was an appeal to the 7th Circuit from the District Court's judgment after a bench trial. The standard of review is "clear error."
The debt collector's general manager (the GM) testified that three primary sources provide notice of a bankruptcy filing:
(2) a debtor's call or letter, or
(3) the creditor-client.
The GM testified that there was no formal agreement with the creditor to provide notice of bankruptcy or to refrain from referring bankruptcy debtors for collection. The debt collector understood that the bank would not forward accounts for collection where the debtor had filed for bankruptcy because "it would not be in their best business interests to do so."
The 7th Circuit concluded,
"Because forwarding bankrupt accounts was not only a bad business practice but also because Cross Country would immediately notify T K if an account in bankruptcy slipped through, the district court could reasonably conclude that the bank would not intentionally forward accounts in bankruptcy in the first instance. Moreover, the defendants presented evidence that of the accounts referred to it for collection, only .01% of those accounts were later found to have been in bankruptcy. Given this evidence, the district court did not commit clear error in concluding that T K reasonably relied on Cross Country not to forward accounts in bankruptcy . . . and as the district court found, it would not be reasonable to require T K to independently confirm that the accounts forwarded by the bank were not in bankruptcy, where the bank, in the first instance, limited the accounts forwarded to those not in bankruptcy."
In Turner, the District Court granted the plaintiff's motion for summary judgment on the issue of a bona fide error defense, basing its decision on the defendant's failure to produce evidence to support its claim of procedures reasonably adapted to avoid the error.
The court stated that relying "on its creditor-clients to provide it with the relevant, current and accurate information . . . whether a debtor has filed for bankruptcy . . . is merely an unfounded assumption that is not based on any fact or any understanding . . . ."
The debt collector never alleged that it had any understanding with its clients that they would not forward accounts in bankruptcy. It further offered no evidence that its clients would immediately notify the collector of accounts in bankruptcy or that such accounts were infrequently forwarded.
In Yu v. Wilson Law Offices, the undisputed evidence establishes that the debt collector had an understanding with its clients that they exchange information regarding accounts in bankruptcy with one another. Witnesses affirmed that such an understanding and practice was in place. Plaintiff did not dispute those facts, but characterized them as assumptions rather than a mutual understanding that would constitute a "procedure" for purposes of the FDCPA.
The court held that uncontested evidence of an informal agreement that creditors would not send accounts in bankruptcy for collection was sufficient to establish the bona fide error defense.
Having studied these three opinions myself, I put ChatGPT 4.0 to the test, uploaded the three court opinions, and asked the following:
Task
Based on the three court opinions uploaded, what is the difference between an "unfounded assumption" and an "informal understanding"?
ChatGPT 4.0 Response
The court opinions provided elucidate the distinction between an "unfounded assumption" and an "informal understanding" within the context of the Fair Debt Collection Practices Act (FDCPA) and related legal judgments.
Unfounded Assumption:
An "unfounded assumption" refers to an assumption made without any reasonable basis or substantial evidence to support it. In the legal context of the opinions reviewed, it refers to a scenario where a debt collector presumes, without verifiable evidence, that their client (usually a creditor) would not send them accounts involving debtors in bankruptcy. This assumption lacks a procedural or contractual basis and is not supported by an established or proven practice. In the case of Yu v. Kevin B. Wilson Law Offices, the court described the reliance on such an assumption as insufficient for establishing a "bona fide error" defense under the FDCPA because it does not constitute a procedure reasonably adapted to avoid the error of attempting to collect a debt that has been discharged in bankruptcy.
Informal Understanding:
An "informal understanding" refers to a non-contractual agreement or expectation between parties based on past practices or mutual acknowledgment that certain protocols will be followed. In the cases examined, this often involves a practice where creditors and debt collectors understand and operate under the mutual expectation that no accounts in bankruptcy will be forwarded for collection. For example, in Hyman v. Tate, it was established that there was an informal understanding that the creditor would not refer accounts in bankruptcy for collection, which contributed to a successful "bona fide error" defense. The understanding, while not formalized in a contract, was based on a consistent practice acknowledged by both parties.
In summary, the difference lies in the basis and reliability of the belief or practice:
An unfounded assumption is a belief without evidence or historical practice, deemed insufficient to establish procedures that avoid violations of the FDCPA.
An informal understanding is based on a history of consistent practice or mutual acknowledgment, which can be sufficient to establish a bona fide error defense if it is part of a system designed to avoid wrongful debt collection activities.
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