Sixth Circuit: No Interest for Debt Collectors

In a decision that has far-reaching implications, the Sixth Circuit Court of Appeals has held that debt collectors are not entitled to interest on charged off credit card debt.  In Dede Stratton v. Portfolio Recovery Associates, LLC the court examined the intersection of Kentucky's usury statute, contractual vs. statutory interest, and charged off credit card debt.  Judge Stranch, writing for the court, said: "Under Kentucky law a party has no right to statutory interest if it has waived the right to collect contractual interest. And any attempt to collect statutory interest when it is 'not permitted by law' violates the FDCPA."

The basis of the ruling was that when the credit card company charged off the debt, it forfeited its right to charge contractually agreed upon interest.  The court reasoned that because Ms. Stratton had agreed to pay the contractual interest, when the credit card company charged off the debt it also forfeited the right to charge statutory interest pursuant to the Kentucky usury statute.  PRA had stated in its complaint filed in Kentucky state court that Ms. Stratton owed it 8% interest from the time of charge off.  The court disagreed and held that this was a violation of the FDCPA.

This ruling goes on to state that a debt collector could collect prejudgment interest, but only when the court awards it after a judgment is obtained.

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Charging a Percentage Fee for Medical Bills Violates FDCPA

The 11th Circuit held that a debt collector that added a percentage that was equivalent to its fee to a medical bill assigned to it for collection violated the FDCPA.  In Bradley v. Franklin Collection Services, Inc. the court held that Franklin violated 15 U.S.C. § 1692f(1), including any interest, fee, charge, or expense incidental to the principal obligation unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

Franklin added 33.33% to Bradley's bill assigned to it for collection.  This was the fee Franklin would collect for payment of the bill.  But Bradley signed an agreement with his medical provider in which he agreed to pay the costs of collection.  In reaching its decision, the court reasoned that the costs of collection do not include the fee paid to the debt collector.

The lesson is that whenever you get a bill from a debt collector for an unpaid healthcare bill, you should closely scrutinize the bill for extra fees and costs.  In addition, you should demand in writing that the collector validate the debt including itemization of the amount it seeks to collect.

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Demand Debt Validation

The very first time a debt collector contacts you in an attempt to collect a debt, you should demand in writing that the debt collector validate the debt.  You have 30 days after the first contact to do this, and the debt collector has to stop all efforts to collect the debt until it validates the debt.

Why should you do this?  First, there are times when a debt collector simply can't validate the debt.  If it can't, then it cannot sue you in court to collect the debt.  Second, if it can't, you won't hear from the debt collector again.  If you do, then contact a consumer law attorney because the debt collector has violated the Fair Debt Collection Practices Act (FDCPA).

Many times a debt collector will make a written offer to settle a debt, but the offer will expire before 30 days.  We have successfully sued several collectors for this practice because it makes it appear that the consumer would have to either take the offer or demand validation.  This is an attempt by the debt collector to skirt the validation process, and it should be a tip that the debt collector likely can't validate the debt.  If you get a settlement demand in a first contact get in touch with a consumer law attorney because this is also a violation of the FDCPA.

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866-279-9721