In a very disturbing case, the 7th Circuit has ruled in favor of debt buyers by upholding a lower court decision that MCM Capital Group did not violate the Fair Debt Collections Practices Act (FDCPA). In Wahl vs. Midland Credit Management, the court decided that by referencing the total amount of debt purchased as the “principle” amount the debt buyer did not violate FDCPA’s requirement that interest and principle be itemized.
The basic story is that Ms. Wahl charged less than $70 to a BP credit card in the 80′s. Due to a stroke, she was unable to pay the balance, so interest and fees started accruing at about $40 per month. After Ms. Wahl’s $70 in gas debt had grown to $1,149 in debt, BP decided to sell the debt to a debt buyer. The debt buyer then began adding it’s own interest, but reported the $1,149 as the “principle” balance and it’s own interest as the interest.
So, what the court affirmed is that if a debt buyer purchases the debt, they are under no obligation to provide the consumer with any information on how a $70 debt turned into $1,149 and can in fact report that debt as the principle balance.
From the 7th Circuit Court’s Decision:
The starting or original amount owed, she would say, was what she actually charged on the BP card. It follows that none of the interest, whether tacked on by BP or Midland, is part of the “principal balance.” And since Midland included the BP interest within the “principal balance” figure, it uttered a falsehood. But this logic ignores Midland’s role in the process entirely. The interest charged by BP was very much part of the principal balance in Midland’s eyes.
Midland obtained the entire BP debt,3 including interest, so the starting or original amount owed, as far as it was concerned, was indeed $1,149.09.
Regardless of the legal merits, this is certainly a very bad decision for the consumer or debtor. Basically, a creditor can rack up all kinds of usurious fees and interest, in this case over $1000 for $70 borrowed, and then sell the balance to a debt buyer. At that point, the debt buyer has no obligation to demonstrate how $70 turned into $1,149 and can refer to $1,149 as “principle.”
This sounds like a great decision for payday lenders operating illegally out of Costa Rica or Grenada, banks hiding behind “fees” to charge usurious rates and collection agencies that want to pursue old inflated debts.
A former JP Morgan and Chase employee is reportedly blowing the whistle on Chase Bank’s credit card collection and debt sale practices, among other things. Linda Almonte is a former Chase mid-level manager, who was fired by Chase. She is currently pursuing a lawsuit against Chase relating to her firing.
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