This article previously appeared on the Ontario Systems Blog and is republished here with permission (and with additional information from insideARM at the bottom).
Believe it or not, many creditors will not collect interest on a charged-off debt even if they have the right to do so – The compliance mandates are simply that muddy. Where do we go for guidance to decide whether interest may be charged in a situation where the creditor stopped collecting interest after charging off the debt? There’s no real single source of the truth – Certain judges have held that only a jury can decide on the issue. Predictions are difficult, to put it mildly.
Consumer lawyers scrutinize the Fair Debt Collection Practices Act (FDCPA) with great intensity. They write books about the FDCPA, they share pleadings, they mine the statute for ambiguity and they do so for one reason: They want to sue you. As Debra Ciskey, Chief Compliance Officer of Wakefield and Associates observes in her excellent article on interest disclosure cases, “While 2016 was the year of the bar code cases on collection letters, 2017 can be characterized as the year of interest accrual disclosure cases.” The trend has not abated.
If you assess interest, collect add-on fees or charge convenience fees on payments, be afraid. Be very afraid. Interest rate disclosure cases and convenience fee cases remain two of the leading causes of action for our consumer lawyer friends and the reason the BCFP – formerly CFPB – published its Guidance Bulletin on phone pay fees.
If you do collect interest in states that expressly permit the assessment of interest on outstanding balances, you may need to include one of the following disclosures in your collection notices:
- The amount of the debt stated in the letter will increase over time; or
- The holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specific 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 permit the assessment of interest, it may not be enough to simply state the amount of the interest accruing is zero or to remove any reference to interest in the collection notice. Rather, many courts have held in the states which permit the assessment of interest, you have an affirmative duty to inform the consumer that interest is not accruing on the debt.
But wait, there’s more: Still a number courts have held no disclosure is required if interest is not assessed on the outstanding balance. Included among those cases are, Krause v. Professional Bureau of Collections of Maryland, U.S.D.C., EDNY, (2017); Ozier v. Rev-1 Solutions, LLC, U.S.D.C, EDWI, (2017); Powers v. Capital Management Services, L.P., U.S.D.C, OR, (2017).
Obviously if you collect interest or assess convenience fees, you need to navigate this litigation minefield with the advice of legal counsel, or risk costly class action lawsuits based on law that is quite literally all over the map. Scrutinize state law. Review your own compliance management system. And perhaps most importantly, work to optimize your own collection tactics.
insideARM editor's note:
insideARM has published quite a few articles on this topic. You may want to augment Rozanne's article with the following:
- Court Denies Request for Re-Hearing in Taylor Interest Disclosure Case - May 2018
- BREAKING: 2nd Circuit Upholds Taylor, Big Industry Win on Interest Disclosure Issue - March 2018
- E.D.N.Y. Decides “Settlement May Have Tax Consequences” is an Acceptable 1099C Disclosure - January 2018
- Another 1099(c) Disclosure Case Moves Forward in New Jersey - October 2017
- 3 Lessons You Should Take From the Latest 1099(c) Letter Case - August 2017
- Collection Letter That Failed to State Interest or Fees No Longer Accruing Does Not Violate FDCPA - June 2017
- Another "Tax Consequence" Case, Another Decision - This One Positive for Collectors - May 2017
- Another Court Rules No FDCPA Violation For: “This settlement may have tax consequences. Please consult your tax advisor.” - March 2017
- PODCAST: Debt Collectors Sued for Not Assessing Interest . . . Seriously?!? - March 2017
- U.S. District Court in Indiana Rules 1099(c) Disclosure by Collection Agency is Not Misleading - January 2017
What would be easiest of all is to not charge any interest on debts. Interest disclosures may lead to a lawsuit of some kind. insideARM leads monthly peer calls where compliance folks have a chance to ask questions, either live on the call or through email. Interest disclosures are a regular topic, because, as Rozanne mentions, the laws around these disclosures are muddy. (Learn more here about access to these peer calls, and to our research concierge service.)
Where does this leave us as letter writers?
We have what's known as the Miller safe harbor language, which comes from Miller v. McCalla:
As of the date of this letter, you owe $[a stated amount]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check. For further information, write to the above address or call [phone number].
This language had long been thought to work for any agency collecting interest. And it did work right up until it didn't.
The Miller language covers three possibilities: interest, late charges, and other charges. So, the Miller language works well when all those possibilities are in play. In those cases, it is a safe harbor.
However, some states won't allow late charges (or the nebulous "other charges") to be added to a consumer's debt. And that's when the Miller Safe Harbor language stops being safe. For instance, in Boucher v. Fin. Sys. Of Green Bay, the collection agency used the full Miller Safe Harbor language in a letter to a Wisconsin consumer despite Wisconsin prohibiting the addition of such charges. The Miller disclosure, according to the court, is misleading in this situation because Finance System of Green Bay could not and was not attempting to collect late or other charges.
So what to do? There is no easy answer. There isn't a one-sized solution. Miller language can be useful, but it also needs to be deployed thoughtfully, with understanding of the laws and regulations in place where the debt/consumer resides.