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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:

  1. The amount of the debt stated in the letter will increase over time; or
  2. 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.

 

For more information from Rozanne on the hottest compliance topics, register to attend PowerUp, the Ontario Systems customer conference, this fall in Indianapolis, October 15-17.

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Disclaimer: Ontario Systems is a technology company and provides this blog article solely for general informational and marketing purposes. You should not rely on the content of this material for any other purpose or as specific guidance for your company. Ontario Systems’ advice, services, tools and products described herein do not guarantee compliance with any law or industry standard. You are ultimately responsible for your own company’s actions and compliance efforts. Because everyone’s situation is different, you must consult your own attorneys, accountants, and/or other advisors to obtain specific advice on your company’s compliance, legal, tax, regulatory and/or other business needs. Despite Ontario Systems’ efforts to provide current and up-to-date information, you need to recognize that the information contained herein may become outdated quickly and may contain errors and/or other inaccuracies.

© 2018 Ontario Systems, LLC. All rights reserved. Information contained in this document is subject to change. Reproduction of this publication is not permitted without the express permission of Ontario Systems, LLC.

Posted by Rozanne Andersen

Rozanne Andersen, J.D., serves as Ontario Systems’ Vice President and Chief Compliance Officer. She is responsible for leading Ontario Systems’ corporate efforts and response to the CFPB’s launch of compliance examinations in the ARM industry. Rozanne is a recognized thought leader in the area of compliance. Her advocacy work on behalf of the credit and collection industry has resulted in landmark legislation and regulation at both the state level and at the federal level with regard to the FDCPA, FCRA and HIPAA.
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