FDCPA Debt Collection Ruling Appealed

A California woman is appealing a Fair Debt Collection Practices Act (FDCPA) ruling that reverses an earlier order for summary judgment. The case involves a debt collection agency’s letter seeking 10 percent interest on an alleged debt.

Plaintiff Tamara D. alleges that in May 2012, she received a debt collection letter demanding she pay an unpaid medical debt of $3,144, plus 10 percent interest. She sued Kubler Corporation under the FDCPA, claiming the demand for 10 percent interest was not permitted under her contract or California law.

Tamara alleges that the debt collection agency violated the FDCPA and California’s Rosenthal Act in seeking to collect 10 percent interest before obtaining a judgment under the state’s prejudgment interest statute.

The district court issued a summary judgment in favor of Tamara, reasoning that California Civil Code does not allow collection of prejudgment interest without first obtaining a judgment.

However, in a recent turn of events, a panel of justices on the 9th U.S. Circuit Court of Appeals disagreed and reversed the district court ruling. The 9th Circuit held that California law can entitle a creditor to interest even without a prior judgment, and found that the debt collection agency did not violate the FDCPA when it sent a debt collection letter to the consumer seeking to recover the principal amount of the debt, plus prejudgment interest calculated at the statutory rate of 10 percent.

The court reasoned that the debt collection agency would have been entitled to prejudgment under California state law because the law allows recovery of prejudgment interest on a debt that is certain or capable of being made certain, even if a judgment has not yet been obtained.

While the decision brings clarity when collecting prejudgment interest in California, it does not authorize the collection of prejudgment interest under other state statutes.

Last year, the 6th U.S. Circuit Court of Appeals found that a debt buyer’s collection of prejudgment interest under a Kentucky statute did violate the FDCPA. That decision found that the creditor who sold the debt had waived its right to collect any interest, making the debt buyer’s later effort to collect statutory interest impermissible by the waiver.

What is the Fair Debt Collection Practices Act (FDCPA)?

In 1977, in response to a growing problem with abusive debt collection practices, the Federal government enacted the Fair Debt Collection Practices Act (FDCPA). The objective of the FDCPA was to eliminate abusive debt collection practices by penalizing businesses that violated the regulations. In addition to imposing requirements on debt collectors, the FDCPA prohibited a variety of abusive collection practices.

More importantly, the FDCPA gave aggrieved consumers a legal cause-of-action to seek damages in court. Under the FDCPA, if a collector is proven to have used illegal debt collection practices, a consumer need not prove actual damages in order to recover up to $1,000 in damages plus reasonable attorney fees.

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If a lender or debt collector engaged in unfair debt collection practices, you may have a legal claim and could be owed compensation for violations of the Fair Debt Collection Practices Act (FDCPA).

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DISCLAIMER: Debt collection itself is not illegal. However, debt collection firms collecting on consumer debts must adhere to the FDCPA. Even though debt attorneys are investigating these companies, their debt collection practices may be legal.