(Adds Encore statement)
By Jonathan Stempel
Feb 27 A federal judge on Monday 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.
U.S. District Judge Cathy Seibel's decision 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.
In a statement, San Diego-based Encore said it was
disappointed with the decision and evaluating its options, but
has "long since changed its business practices to occupy a
conservative, consumer-centric stance. We remain committed to
following all of the laws that govern our industry."
Daniel Schlanger, a lawyer for Madden, did not immediately
respond to a request for comment.
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.
(Reporting by Jonathan Stempel in New York; Editing by Alan
Crosby and Jonathan Oatis)