On September 18, in Peters v. Financial Recovery Services, Inc., the United States District Court for the Western District of Missouri held that neither the federal Truth in Lending Act (TILA) nor the Federal Debt Collection Practices Act (FDCPA) prohibit a debt collector from charging state statutory pre-judgment interest after charge-off. In reaching that decision, the Court held as follows:
Defendant’s final basis for dismissal is that even if GE waived the right to contractual interest, it retained the right to charge Plaintiff statutory interest post charge-off. Missouri law provides for a statutory interest rate of nine percent per year when no other rate is agreed upon. Courts have held that creditors are entitled to charge post charge-off interest at a state’s statutory interest rate even if interest was waived at the contractual rate. Even assuming that TILA does prevent post charge-off interest at both the statutory and the contractual rate, TILA does not apply in this situation. Defendant, a debt collector, charged the post charge-off interest. However, TILA only applies to “creditors” which refers only to: “a person who both (1) regularly extends … consumer credit … and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable … .” 15 U.S.C. § 1602(g). Thus, Defendant does not fit within that definition and is not subject to TILA because Defendant is a debt collector and not the person to whom the debt was originally payable. Thus, Plaintiff has failed to state a claim for … which relief may be granted and her claim must be dismissed.
Thus, the court rejected the plaintiff’s attempt to claim “waiver” of the right to claim any interest by reference to actions of the original creditor and/or the provisions of TILA, and the court affirmed a debt collector’s ability to charge statutory interest at the enumerated rate. The court did not address, however, the broader issue of whether a debt collector could collect the full contractual rate of interest in a pre-judgment posture, and the decision also was specific to the contours of Missouri state law. Therefore, broader questions about debt collectors’ claims for prejudgment interest – whether statutory or contractual – remain unresolved.
TROUTMAN SANDERS LLP frequently represents debt collectors in individual and class actions, including as to claimed violations of the collection of past-due interest. We will continue to monitor the judicial treatment of this emerging issue.