Judge certifies NY class action over big debt collector’s high rates

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By Jonathan Stempel

<span class="articleLocation”>A federal judge has certified a class-action
lawsuit accusing the big U.S. debt collector Midland Funding LLC
of violating New York usury laws by charging thousands of
struggling borrowers interest rates above 25 percent when trying
to collect.

Monday’s decision by U.S. District Judge Cathy Seibel in
White Plains, New York came eight months after the U.S. Supreme
Court refused to hear an appeal by Midland Funding and Midland
Credit Management Inc, which are units of Encore Capital Group
Inc, seeking to halt Saliha Madden’s lawsuit.

Madden had objected to the 27 percent rate that Midland
charged on a roughly $5,000 debt it bought from a credit card
account she had opened with Bank of America.

In a 43-page decision, Seibel said New York has a “fundamental public policy” against interest rates exceeding 25
percent, and the state’s criminal usury cap “applies to prevent
a creditor” from collecting a higher rate on defaulted debt.

As a result, the judge said Midland must face Madden’s civil
lawsuit claiming it violated the federal Fair Debt Collection
Practices Act and New York’s General Business Law, based on its
alleged violation of the usury cap.

Madden had sued on behalf of roughly 49,780 borrowers. Class
certification can lead to higher overall recoveries.

Thomas Leghorn, a lawyer for Midland, had no immediate
comment. Encore, based in San Diego, did not immediately respond
to a request for comment. Daniel Schlanger, a lawyer for Madden,
did not immediately respond to a similar request.

Debt collectors typically buy debt from banks and other
creditors for pennies on the dollar, and try to collect higher
amounts from borrowers.

Encore said it spent about $907 million to buy $9.8 billion
of receivables in 2016.

Many regulators have expressed concern that high interest
rates, including on products such as “payday loans,” can trap
borrowers into endless debt cycles.

The class action covers New Yorkers who since November 2008
received letters from Midland seeking interest above 25 percent,
and whose cardholder agreements purport to be governed by state
laws such as Delaware’s that lack usury caps, or “select no law
other than New York.”

In May 2015, the federal appeals court in New York reversed
Seibel’s prior dismissal of Madden’s case, saying Midland was
not a national bank deserving protection from Madden’s claims.

The case is Madden v Midland Funding LLC et al, U.S.
District Court, Southern District of New York, No. 11-08149.

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