Debt collectors that followed a procedure offered by Wisconsin state law to obtain a review of their practices could demand that consumers pay interest on debts without a court judgment, according to the U.S. Court of Appeals for the Seventh Circuit. The debt collectors adequately stated the amount of the debt, as required by the Fair Debt Collection Practices Act, by stating a principal amount and interest rate (Aker v. Americollect, Inc., April 13, 2017).
The court’s opinion stated the facts simply, saying that the consumers had failed to pay for medical services, and the debt collectors hired by the service providers demanded interest at a 5-percent rate. The consumers claimed that Wisconsin law allows interest only if a contract permitted interest or a judgment has been entered by a court. Since neither was the case, the interest demand was illegal.
The debt collectors offered a different interpretation of the state law. They asserted that the 5-percent interest rate is automatic under state law and that a judgment “just memorializes what law requires.” The appellate court, however, preferred to base its decision on the companies’ second argument.
Safe harbor. Wisconsin law allows financial service providers to request approval of their practices from the state’s Department of Financial Institutions. If the department gives its express approval, or simply fails to disapprove within 60 days, the company can implement its desired practices and be deemed to be in compliance with relevant state laws.
The debt collectors had followed this procedure, submitting all of the required information to the department and receiving no objection to their intent to demand interest. That meant that they could demand the 5 percent interest and be deemed to have complied with state law.
No preemption. The FDCPA did not preempt Wisconsin’s law, the court explained, because state law determines when interest can be charged on a debt owed under state law. The obligation to pay for medical services arose under Wisconsin contract law, so Wisconsin law specified whether interest was due. Under the safe harbor, the debt collectors were deemed to have complied with the state’s law.
Another theory? The opinion explicitly analyzed only whether the debt collectors’ dunning letters properly stated the amount of the debt as required by 15 U.S.C. §1692g(a). The court’s analysis seems to have been more appropriate to whether the interest demand violated the 15 U.S.C. §1692f(1) ban on attempting to collect interest that was not permitted by law or contract. That section was not mentioned, although the court observed in passing that the safe harbor meant the debt collectors had not misrepresented the amount of the debt in violation of 15 U.S.C. §1692e.
For more information about fair debt collections, subscribe to the Banking and Finance Law Daily.
