7th Cir. Holds Debt Collectors Did Not Violate FDCPA by Demanding Prejudgment Interest Under Wisconsin Law

The U.S. Court of Appeals for the Seventh Circuit recently held that two debt collectors were entitled to demand payment for both principal amounts owed and interest under Wisconsin law.

Therefore, the Court held, the debt collectors’ dunning letters demanding the principal sums owed and 5 percent per annum interest did not violate the federal Fair Debt Collection Practices Act, even where the demand was made prejudgment.

A copy of the opinion in Aker v. Collection Associates, LTD. is available at:  Link to Opinion.

After the consumer plaintiffs failed to pay their bill for medical services received, their providers referred the debts to the defendant debt collectors.

The debt collectors sent dunning letters demanding payment not only of the principal amounts owed but also of 5 percent per annum interest. The consumers argued that the letters violated the FDCPA in that Wisconsin law provides for interest only if a debt has been reduced to judgment, and any prejudgment request for interest is forbidden.

The debt collectors argued that interest under Wis. Stat. §138.04 runs automatically, and that a judgment just memorializes what state law requires.  They also argued that Wis. Stat. §426.104(4)(b), which creates a safe harbor for people who act in ways approved by the Administrator of Wisconsin’s Department of Financial Institutions applied, because the debt collectors sent the Administrator a letter asking if they were entitled to the interest, and because the Administrator did not respond within 60 days, which is the equivalence of approval.

The trial court agreed with both of the debt collectors’ arguments and granted summary judgment in their favor.

On appeal, the Seventh Circuit agreed that the Wisconsin safe harbor statute applied.  After quoting the statute, the Court held that the debt collectors were permitted to rely on the safe harbor provision, and therefore “when the defendants sent their dunning letters, they were entitled to demand payment of both the principal amounts and interest under §138.04.”  Thus, the Court held the debt collectors also did not violate the FDCPA.

In addressing the consumers’ argument that the safe harbor statute was preempted by 15 U.S.C. §1692n, which provides that states may add but not subtract from the protections that the FDCPA offers to consumers, the Seventh Circuit held that “[Section] 1692n has nothing to do with interest — or for that matter with any other component of the debt.”  Instead, the Court held, “Section 1692n deals with debt-collection practices, not how to determine the amount owed. The FDCPA itself provides that debt collectors may add interest when permitted by law.”

In addition, the Seventh Circuit held that “[t]he safe harbor, if not §138.04 itself, permits defendants to add 5% interest to plaintiffs’ debts.”  Moreover, “[u]ntil the Administrator says something more, or a state court lifts the safe harbor under §426.104(4)(b) (and in addition rules that §138.04 does not by itself allow the debt collectors’ practice), neither state nor federal law forbids dunning letters that demand 5% interest from debtors in Wisconsin.”

Accordingly, the Seventh Circuit affirmed the ruling of the trial court.

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Jeffrey Karek practices in Maurice Wutscher's Commercial Litigation, Consumer Credit Litigation, and Appellate groups. He has substantial experience in defending consumer finance lawsuits in both state and federal trial courts, and on appeal. Such litigation includes allegations brought under TILA, HOEPA, RESPA, FDCPA, TCPA, FCRA, and state consumer protection statutes, including in the defense of putative class actions. Jeff received his Juris Doctor from the University of Michigan Law School, and graduated magna cum laude with a Bachelor of Business Administration degree from Western Michigan University.