Charging interest on a written off debt requires careful consideration
This article was previously published on the Ontario Systems Blog and is republished here with permission (and with additional insideARM info below).
Believe it or not, many creditors will not charge interest on a debt written off even if they are entitled to it – Compliance mandates are just so confusing. Where can we go to decide if interest can be charged in a situation where the creditor has stopped collecting interest after writing off the debt? There really is no single source of truth – Some judges have argued that only a jury can decide the issue. Predictions are difficult, to put it mildly.
Consumer advocates scrutinize the Fair Debt Collection Practices Act (FDCPA) with great intensity. They write books about the FDCPA, they share pleadings, they undermine the ambiguity of the law, and they do it for a reason: they want to sue you. As Debra Ciskey, Chief Compliance Officer of Wakefield and Associates, observes in her excellent article on disclosure of interests, “While 2016 was the year of barcode cases on collection letters, 2017 can be characterized as the year of accrued interest disclosure cases. The trend has not weakened.
If you’re evaluating interest, collecting extra fees, or charging convenience fees on payments, be scared. Be very afraid. The interest rate disclosure cases and the convenience fee cases remain two of the main causes of action for our consumer advocate friends and why the BCFP – formerly CFPB – published his Orientation Bulletin over the phone pay a fee.
If you earn interest in states that expressly allow the assessment of interest on unpaid balances, you may need to include any of the following information in your collection notices:
- The amount of debt indicated in the letter will increase over time; Where
- The debt holder will accept payment of the amount provided for in full settlement of the debt if payment is made on a specified date; See, Avila v. Riexinger & Associates, LLC, 2nd Circuit, (2016); Miller v. McCalla, 7th Circuit, (2000).
If you do not collect interest in states that expressly allow the valuation of interest, it may not be sufficient to simply state that the amount of accrued interest is zero or to remove any reference to interest. in the collection notice. On the contrary, many courts have held that in states which allow the assessment of interest, you have a duty to inform the consumer that interest does not accrue on the debt.
But wait, there’s more: still a number of courts have ruled that no disclosure is required if interest is not assessed on the outstanding balance. Among these cases are, Krause v. Maryland Professional Collections Office, USDC, EDNY, (2017); Ozier v. Rev-1 Solutions, LLC, USDC, EDWI, (2017); Powers v. Capital Management Services, LP, USDC, OR, (2017).
Obviously, if you are collecting interest or assessing a convenience fee, you have to navigate this minefield of litigation with the guidance of legal counsel, or risk costly class actions based on a law that is literally all over the map. . Examine state law. Review your own compliance management system. And perhaps more importantly, work to optimize your own fundraising tactics.
Editor’s Note insideARM:
insideARM has published quite a few articles on this topic. You may want to supplement Rozanne’s article with the following:
The easiest way would be to charge no interest on the debts. Disclosures of interest can lead to any legal action. insideARM hosts monthly peer-to-peer calls where compliance officers have the opportunity to ask questions, either live during the call or via email. Disclosures of interest are a regular topic because, as Rozanne mentions, the laws surrounding these disclosures are muddy. (Learn more here on accessing these peer-to-peer calls and our research concierge service.)
Where does that leave us as writers?
We have what is called the Miller language of the Safe Harbor, which comes from Miller vs. McCalla:
As of the date of this letter, you owe $[a stated amount]. Due to interest, late fees and other charges which may vary from day to day, the amount due on the day of payment may be higher. Therefore, if you pay the amount stated above, an adjustment may be required after receipt of your check. For more information write to the above address or call [phone number].
It was long thought that this language worked for any agency collecting interest. And it worked until it didn’t.
Miller’s language covers three possibilities: interest, late fees, and other charges. Therefore the Miller the language works well when all these possibilities are at stake. In these cases, it is a refuge.
However, some states do not allow the addition of late fees (or the nebulous “other fees”) to a consumer’s debt. And that’s when the Miller The Safe Harbor language ceases to be safe. For example, in Butcher c. End. Sys. From Baie Verte, the collection agency used all Miller Safe Harbor language in letter to Wisconsin consumer despite Wisconsin ban on adding such charges. The Miller the disclosure, according to the court, is misleading in this situation because the Green Bay financial system was unable and did not attempt to collect late fees or the like.
So what to do? There is no easy answer. There is no one-size-fits-all solution. Miller the language can be helpful, but it also needs to be deployed in a thoughtful way, with an understanding of the laws and regulations in place where the debt / consumer resides.