Debt Collector Failed to Prove Billing Goof Defense

ATLANTA (CN) - A woman can sue a collections agency for seeking unfair interest fees on veterinary bills because the debt collector failed to prove that the fees resulted from an unavoidable "clerical mistake," the 11th Circuit ruled.

Kendra Owen had racked up more than $820 in medical treatments for her cat at All About Animals Veterinary Services in July and September 2006. Under the terms of her account with the clinic, Owen agreed to pay interest at 1.5 percent per month or 18 percent per year and "reasonable collection fees" if she missed payments.

When Owen's account went into default in 2006, the clinic started adding 1.5 percent interest charges every month.

"The unpaid interest charges were added to the running balance due, resulting in Owen being charged interest on previous interest due," the ruling states, meaning that Owen we being charged compounded interest.

In March 2007, when the clinic referred Owen's account to the I.C. System collections agency, the clinic inexplicably added a 33 percent collection charge and a 7 percent interest fee on top of months of finance charges.

Owen disputed the charges and filed suit in March 2008 when the unauthorized charges had not been removed.

ICS filed a motion for summary judgment, admitting that the charges were not entirely proper but that it was not liable because the veterinary office had cause the error through a "clerical mistake."

The company argued that it does not have to independently investigate the accuracy of the charges it collects and was entitled to rely on the clinic's representations under the "bona fide error" affirmative defense.

A Georgia federal judge agreed, awarding summary judgment to I.C. System in September 2009.

Owen appealed to the 11th Circuit, contending that the debt collector can only claim bona fide error if it has procedures in place that should have caught the unfair charges.

Though declining to "volunteer sweeping generalizations about what procedures would be enough for a debt collector to effectively assert that defense," the three-judge appellate panel agreed with Owen and reversed the lower court's decision.

"We hold only that ICS's limited procedures placed in this record were not reasonably adapted to avoid the type of interest errors here," Judge Frank Hull wrote for the court.

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