A hot issue in debt-collection litigation is whether debt buyers can charge pre-judgment interest. The answer depends upon the facts of your case, but it seems difficult for debt buyers to argue that it retained the right to collect interest after the creditor's charge-off.
Asset Acceptance lost this issue, and a class of injured consumers has been certified.
Case In Point: McDonald Vs. Asset Acceptance (Class Action)
The facts of McDonald vs. Asset Acceptance, LLC are fairly common. McDonald defaulted on a loan. The original creditor chose not to collect further interest and simply wrote the debt off.
Enter Asset Acceptance, LLC (Asset). This large debt buyer purchased McDonald's defaulted loan and then tried to collect from him. However, in addition to the loan amount, Asset decided to
also charge pre-judgment interest before it even owned the debt. McDonald protested the additional interest and the case landed in court in the form of a class action. Here's what each side argued:
McDonald: Asset is merely an assignee of the debt and cannot charge pre-judgment interest when the original creditor "waived" such interest by charging off the debt. Allowing it would violate the
Fair Debt Collection Practices Act (FDCPA).
Asset: Since the original creditor
could have charged interest (even though it decided
not to), Asset should be able to have the same rights as the original creditor.
The court sided with McDonald and ruled that "because [the original creditors] waived the interest, Asset could not retroactively impose interest for the period it did not own the accounts."
How This Case Might Have Been Decided Differently
Would the court have held differently if the original creditor had not waived the interest? The answer – likely yes. However, whether an original creditor can charge interest in the first place depends upon the facts and circumstances of your situation. According to the
Consumer Financial Protection Bureau (CFPB):
A debt collector may not collect any interest or fee not authorized by the agreement or by law. The interest rate or fees charged on your debt may be raised if your original loan or credit agreement permits it. Some state laws and some contracts allow interest to be charged and costs to be added. If you still have the contract, it may say what interest rate can be charged or how much it can increase. State law may also limit the amount of interest charged.
Basically, the CFPB is saying that "it depends." It appears that many banks do not add post charge-off interest to avoid the expense of sending required periodic statements to consumers. Worth noting is the fact that contracts of sale between banks and debt buyers may exclude such interest from enforcement. Add in the fact that the banks also obtained the tax benefit of writing off the debt, the court ruled that all these facts demonstrated that the banks waived their right to collect post charge-off/prejudgment interest. As such, a debt buyer such as Asset Acceptance may not collect it either.
If you've been sued by Asset Acceptance, or any other debt buyer, contact us right way to determine if you're being over-charged.