Collecting statutory prejudgment interest in California did not violate the Fair Debt Collection Practices Act, under a decision earlier this month from the Ninth Circuit Court of Appeals. The decision, Diaz v Kubler, rejected the debtor’s contention that interest allowed by a California statute could not be collected unless a judgment was first entered.
Decision Has Limited Impact
While the decision brings clarity when collecting prejudgment interest in California, it does not authorize the collection of prejudgment interest under other state statutes. Last year, the Sixth Circuit Court of Appeals found that a debt buyer’s collection of prejudgment interest under a Kentucky statute did violate the FDCPA. That decision, Stratton v. Portfolio Recovery Associates, found that the creditor who sold the debt had waived its right to collect any interest, making the debt buyer’s later effort to collect statutory interest impermissible by the waiver.
A State-by-State Inquiry Means Continued FDCPA Litigation
Statutes allowing the recovery of prejudgment interest contain varying requirements and conditions under which prejudgment interest can be recovered. Some do require the entry of judgment and some limit the conditions under which prejudgment interest can be charged.
Absent a federal law controlling the imposition of statutory interest on a debt, these varying state requirements and conditions mean there is no national standard for collection of prejudgment interest. Diaz and Stratton demonstrate that courts conduct a thorough analysis of prejudgment interest statutes as well as the facts surrounding the debt in determining whether prejudgment interest is authorized. You should expect litigation to continue when prejudgment interest is sought.
June 18 Webinar Will Explore Statutory Interest
I’ve put together a webinar to help identify the risks of charging statutory prejudgment interest. In addition to looking at Diaz and Stratton, Tom Dominczyk and I will look at several trial court decisions from around the nation, explore some state statutes and take your questions.
Join us on June 18 at 2 pm Eastern, 11 am Pacific, for this one hour webinar. There is no cost for the webinar. For those seeking credit for DBA International continuing education credit, the fee is $75.