When a creditor charges off an account, discontinues sending
monthly statements, and stops adding interest on the account, a
debt collector that later takes on the account cannot put its own
interest onto the account for all the time the debt was charged
off.
In Stratton v. Portfolio Recovery Associates, the 6th
Circuit ruled that a collection agency is not permitted to recover
interest on a debt where the original creditor waived its rights to
it. In Stratton, the plaintiff debtor had a
delinquent
credit card debt dating back to 2008 with GE Money Bank.
When she failed to pay off the debt, GE charged off the debt amount
of $2,630.95 as uncollectable. At that time, as is common
practice when a bank or financial institution charges off an
account, GE ceased to charge the consumer additional interest on
the debt and ceased to send the consumer regular monthly
statements. Federal laws require that if a creditor is
charging monthly interest, it must send a monthly statement
detailing those charges. Thus, if the creditor wishes to save
the money on constantly preparing and sending monthly statements,
it must discontinue charging interest.
After charging off the debt,
Portfolio Recovery Associates purchased the debt from the
original creditor, and then began collection efforts against
consumer. In an effort to collect the debt, Portfolio filed a
lawsuit against the consumer and sought a judgment for the amount
of the debt plus 8% annual interest from the date of the
charge-off. The consumer argued that Portfolio was not
entitled to recover the 8% as the original contract with GE did not
allow for it – the contract actually provided for a much higher
rate. Also, GE was no longer collecting interest since it charged
off the account long before it sold the account to Portfolio.
Essentially, Stratton argued that Portfolio was collecting interest
it was not entitled to and therefore violating the Fair Debt
Collection Practices Act (“FDCPA”).
While 8% was far less than the 21.99% interest that Stratton’s
initial contract with GE provided, Stratton argued that Portfolio
could no longer collect interest on a debt that GE had waived its
right to collect. At the lower level, the trial court held
that PRA’s collection of 8% interest was not a violation of the
FDCPA and dismissed the case. However on appeal, a three
judge panel reversed the finding, holding that when an original
creditor gives up its right to collect interest, so does the
collection agency subsequently collecting on the same debt.
Essentially, Portfolio cannot have a right to collect interest when
that right to collect it was already waived.
If you believe your rights were violated by a collection agency
under the FDCPA and would like to discuss your issue in greater
detail, contact SmithMarco P.C.
for a completely free case review.