By Thomas G. Wolfe, J.D.
Recently, the Supreme Court of Ohio was called to address a consumer’s counterclaims against a debt buyer and law firm for alleged violations of the federal Fair Debt Collection Practices Act and the Ohio Consumer Sales Practices Act (OCSPA) in connection with their collection action on her defaulted credit card account. In Taylor v. First Resolution Invest. Corp., the court's majority plowed new ground concerning the liability exposure of debt buyers and of law firms representing debt buyers.
By way of background in the Taylor case, the consumer’s credit card account was declared delinquent and charged off by her credit card issuer. The debt was eventually purchased and owned by a debt buyer, First Resolution Investment Corporation (FRIC). On behalf of FRIC, the Cheek Law Offices, L.L.C., filed a lawsuit in Ohio state court to collect the consumer’s debt, seeking $8,765 of principal, accrued interest of $7,739, and future interest of 24 percent on the debt.
Consumer’s counterclaims. Although the Cheek law firm obtained a default judgment, the consumer successfully vacated it and raised counterclaims against FRIC and the law firm. As described by the court, the consumer’s statutory counterclaims were centered on “two theories—first, that FRIC’s claim against [the consumer] was time-barred by the statute of limitations and second, that FRIC sought interest on [the consumer’s] debt that was unavailable to FRIC by law.”
In particular, the consumer alleged that threatening to file a time-barred claim and actually filing a time-barred claim against her “constituted misleading and deceptive collection practices” as well as “unfair and unconscionable collection practices” under both the FDCPA and the OCSPA.
Statute-of-limitations. The Ohio Supreme Court determined that since FRIC’s underlying cause of action for the consumer’s default on her credit card account accrued in Delaware, the home state of the bank that issued the credit card and the state where the consumer made her payments, Delaware’s three-year statute of limitations—through operation of Ohio’s “borrowing statute”—was the applicable measuring stick, not Ohio’s six-year statute of limitations. This was significant because FRIC’s complaint against the consumer was filed “well outside” the three-year period, the court determined.
As a result, the court concluded that FRIC and the Cheek firm were potentially liable under the FDCPA and the OCSPA for “threatening to file suit and for filing suit on a time-barred debt.” The court remanded the case to the trial court for “further determinations” in that regard.
Interest-usury. As part of her counterclaims, the consumer alleged that FRIC and the Cheek firm “improperly sought 24 percent interest on her debt … purportedly under the terms of the cardholder agreement.” The consumer maintained that since FRIC could not produce the cardholder agreement or any “written contract that set forth a rate of interest higher than the statutory rate,” FRIC was limited to the Ohio statutory interest rate—“4 percent at the time of the filing of the complaint.”
Ohio’s high court determined that FRIC’s claim for 24 percent interest in its complaint was “unavailable by law” and constituted a “demand” made upon the consumer “rather than an aspirational request” made to the state trial court. As such, FRIC’s claim for interest formed the basis of an actionable counterclaim by the consumer under both the FDCPA and the OCSPA. In arriving at its holding, the court noted that: (i) the complaint filed against the consumer by FRIC and the law firm did not include a copy of the underlying credit-card agreement; and (ii) FRIC “quickly sought a default judgment” even though “it never had the necessary documentation to back up its claim."
Since the consumer established a “prima facie case” against FRIC and the law firm under the FDCPA and OCSPA in connection with her interest-usury counterclaim, the court remanded the matter to the trial court for further consideration.
No OCSPA exemption. FRIC and the Cheek firm contended that the OCSPA provided them with an exemption from its coverage. Among other things, they argued that the OCSPA did not apply to “bank assignees and their collection attorneys” because no “consumer transaction” or “supplier” was truly present under the definitional terms of the Ohio statute. The court rejected the debt buyer’s and law firm’s argument.
Noting the similarities between the respective provisions of the FDCPA and the OCSPA and characterizing these federal and state laws as “remedial statutes intended to reach a broad range of conduct,” the court ruled that debt buyers collecting on credit-card debt and their attorneys are subject to the OCSPA.
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