ARM industry participants tend to be perfectionists because the reality is that they can be held accountable for nearly every mistake, whether intentional or not. Recently, however, the Third Circuit Court of Appeals found a debt collector was not responsible for an error they could not see coming…the Court’s.

In Lowe v. FBCS, Inc. (Case No. 21-3307) a New Jersey state Court entered both a dismissal and a default judgment in its records. The dismissal was reported to the consumer when the debt collector did not show up at a trial it did not think it needed to attend due to a settlement between the parties. Two years later, the debt collector was informed by the court that a default judgment had been entered.  


After the court confirmed the judgment, the collector began to contact the consumer about the debt. The consumer responded by filing a Fair Debt Collection Practices Act (FDCPA) action against the debt collector in federal court and filing a motion in the state court to have the default judgment void. The state court granted the consumer’s judgment.

Once the state court ruled the judgment was void, the consumer asked the federal Court to rule that the debt collector violated the FDCPA by using “false, deceptive, or misleading” in attempting to collect on the now-declared-void default judgment. The consumer argued that since a void judgment is treated as if it never existed, the collection attempts were not authorized by law and, therefore, must be FDCPA violations.

The Court disagreed, reasoning that because the default judgment order was in effect during collection attempts, the debt collector did not misrepresent the status of the judgment, did not threaten to take an action that it legally could not take, and did not falsely represented that there was a judgment.

InsideARM’s Perspective

This is undoubtedly a good case for the ARM industry. While it does not absolve debt collectors from their duty to refrain from false, deceptive, or misleading actions, nor eradicate the “should have known” line of reasoning, it does provide a common-sense result.  The big takeaway from this case is that debt collectors can still rely on the actions and entries of the court as they are communicated, even if the court was mistaken. 

Next Article: CFPB Proposes Significant Changes to Credit Card ...