In a recent decision, the United States District Court for the Southern District of New York found that the inclusion of a collection fee in a post-default collection letter sent by a debt collection company did not violate the Fair Debt Collection Practices Act.

In Ossipova v. Pioneer Credit Recovery, Inc., et al., No. 1:18-cv-11015-GHW (S.D.N.Y. Dec. 11, 2019), the borrower defaulted on a student loan she took out in 2008 from the U.S. Department of Education (“ED”) on her daughter’s behalf. Pioneer Credit Recovery, Inc. was assigned to collect on the debt. Pioneer sent the borrower a letter in June 2018 stating that the balance owed was $98,189.89, of which $19,221.03 was a “Collection Charge.” The borrower sued Pioneer, alleging that it had violated the FDCPA when it falsely represented that the $19,221.03 collection fee was due at the time the letter was sent even though the costs had not yet been incurred.

In its motion to dismiss, Pioneer argued that the borrower failed to adequately allege that it had engaged in an act or omission prohibited by the FDCPA, asserting that nothing in its letter was false, misleading, or unauthorized by the Master Promissory Note governing the loan. Pioneer argued that the Higher Education Act allowed for the assessment of reasonable collection costs when the borrower defaults, and ED regulations allow for collection charges of up to 24.34% of the outstanding principal and interest. The Master Promissory Note provided that “reasonable collection costs” are “immediately due and payable” upon default.

The Court agreed, finding that the collection letter did not contain any false or misleading representations. It rejected the borrower’s argument and stated that “ED regulations currently permit private collection agencies like Pioneer to assess flat rate collection costs of up to 24.34% of the outstanding principal and interest of defaulted student loans placed with them for collection.” The Master Promissory Note “obligated [Ossipova] to pay ‘reasonable collection fees and costs’ that would become ‘immediately due and payable’ upon her default and which would be governed by the HEA and applicable ED regulations.” Accordingly, the inclusion of the $19,221.03 collection charge in the letter was not false, deceptive, or misleading.

The Court also denied the borrower’s request to amend her Complaint, stating that “[t]here are no additional facts [Ossipova] could allege that could plausibly resuscitate her claims – no amendments will change the language of the Master Promissory Note, or the HEA and ED regulations.”