Debt Collectors Not Protected By Usury Laws

According to a recent article in Reuters, the U.S. Supreme Court decided to decline hearing a claim concerning debt collection companies. This is good news for Chicago-area consumers who believe they may have been involved with debt collection companies in a manner that violated the Fair Debt Collection Practices Act (FDCPA). Why does the Supreme Court’s decision not to hear a case help consumers in the long run? In short, as the article clarifies, by declining to hear a debt collector’s claims, the Court has allowed a class-action lawsuit to continue.
To better understand the implications of this case, we should take a closer look at the article and the issues considered by the U.S. Supreme Court.
Class-Action Lawsuit Against Midland Funding and Midland Credit Management
This case actually began in New York with a borrower “who objected to the 27 percent annual interest rate she was being charged,” according to the article. Although the case started in New York, the outcome of the U.S. Supreme Court declining to hear the case likely will have a positive effect on residents of Oak Park, Illinois, as well as consumers across the country.
That New York borrower’s claim turned into a class-action lawsuit against Encore Capital Group Inc.’s Midland Funding and Midland Credit Management. Both Midland Funding and Midland Credit Management are units of Encore Capital Group Inc., and they are debt collection companies. As many Illinoisans know, debt collectors often “buy debt from banks and other creditors for pennies on the dollar, then try to collect higher amounts from people who owe the debt.” The initial plaintiff in the case owed $5,000 on a Bank of America credit card that she had opened a number of years beforehand. Midland bought that debt and attempted to impose a 27 percent annual interest rate on the $5,000.
In response, Encore Capital Group Inc argued that it deserved the protections of the federal National Bank Act in order to avoid the stipulations of state-specific usury laws. A usury law prevents a creditor from charging unreasonably high interest rates. For Oak Park residents, the Illinois Interest Act (815 ILCS 205/) governs permissible interest rates. The law stipulates how much creditors can receive per year on interest and what types of interest rates can be charged. In the case, Encore Capital Group Inc. wanted to avoid being held to such laws, which would not permit the debt collector to charge consumers such high interest rates on the debts it had purchased. However, in declining to hear the case, the U.S. Supreme Court prevents the debt collection company and its units from protections of the National Bank Act.
Debt Collection Companies Cannot Be Protected by the National Bank Act
As the article explains, the court of appeals—which last heard this case—concluded that “debt-collection companies did not deserve protections of the federal National Bank Act, including against claims that they violated the federal Fair Debt Collection Practices Act.” The court went on to explain that “extending those protections to third parties would create an end-run around usury laws for non-national bank entities that are not acting on behalf of a national bank.”
When the U.S. Supreme Court decides not to hear a case, the previous decision—in this case, the appeals court’s decision—will stand. As such, by declining to hear the case, the Supreme Court in effect made it so that debt collectors like Midland cannot use federal law to sidestep state usury laws. In addition, by deciding not to consider the case, the Supreme Court may have made it more likely for consumers to file successful claims against debt collectors charging exorbitant interest rates.
If you have questions about filing a lawsuit against a debt collector, an experienced consumer protection lawyer in Oak Park can help. Contact the Emerson Law Firm today.
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