Court Lets Debt Collector off the Hook for Demanding Interest the Bank had not Legally been Allowed to Charge.


By Attorney Briane Pagel

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from making false representations of the amount the customer owes. But that law has been undermined recently by a decision of the federal 7th Circuit Court of Appeals. That court, in a recent case, ruled that a debt collector could not be sued under federal law for demanding interest the bank was not allowed to charge.

The debt collector had purchased a charged-off credit card debt, and was demanding in excess of $6,000, about half of which was interest. If a bank is charging interest on a debt, it is required to send periodic statements, but the bank had not done so, so it was prohibited from charging interest. The debtors sued under the FDCPA, saying that the debt collector had falsely represented the amount that was actually owed.

The Court of Appeals disagreed, and said that there is a difference between errors in calculating the debt that a debt collector knows or should know before making a demand, and errors that are only learned in hindsight. The former type of error would be (for example) a debt barred by the statute of limitations; the latter includes debts like the one in this case, in which interest was illegally added to the debt but the debt collector (apparently) did not know that.

This decision highlights the need to have a lawyer work with debtors to help determine what they actually owe, and whether the debt collector has a right to demand money from them. If you have debt problems or are being bothered by debt collectors, contact Lawton & Cates and have one of our consumer protection lawyers work with you.