On May 12, in Tamara Diaz v. Kubler Corporation d/b/a Alternative Recovery Management, the Ninth Circuit Court of Appeals ruled 3-0 in favor of a collection agency on issues related to including interest in debt collection notices. The Court of Appeals reversed the district court and held that a collection letter seeking 10 percent interest on a debt does not violate the Fair Debt Collection Practices Act.
In Diaz, the consumer filed suit against the collection agency after it sent her a letter seeking payment of an unpaid medical debt, plus prejudgment interest at a rate of 10 percent. The consumer alleged that the inclusion of interest violated the FDCPA and the California’s Rosenthal Act because the collection agency attempted to collect interest before obtaining a judgment. The district court granted the consumer’s motion for summary judgment holding that California law does not permit a creditor without a contractual interest provision to claim and collect interest prior to a court awarding prejudgment interest.
The Ninth Circuit held that California law can entitle a creditor to interest even without a prior judgment. As a result, the Court found that the collection agency did not violate the FDCPA or Rosenthal Act when it included prejudgment interest calculated at the statutory rate of 10 percent on top of the principal amount of the debt it was seeking to collect. The court reasoned that the collection agency would have been entitled to collect prejudgment interest under the California statute that allows recovery of prejudgment interest on a debt that is certain or capable of being made certain, even if the judgment has not yet been obtained. The court stated that “ … just because prejudgment interest can be awarded if a plaintiff prevails in court does not mean the plaintiff was not entitled to prejudgment interest even before.”