Portfolio Recovery Associates

Limits the rights of Debt Buyers in Collections Matters

Our office has worked extensively with the collectors and lawyers representing Asset Acceptance, LLC. This debt collection company was recently involved in a class action lawsuit. The Plaintiffs in the lawsuit were people like the people we often represent who had defaulted on a loan which had been sold to Asset Acceptance. In order to understand the opinion, it is critical to understand the definition of “charge-off” with respect to a debt. According to the opinion “At some point after Plaintiff’s default, the original creditor determined that these respective debts were uncollectable, and therefore decided to ‘charge-off’ the debt… Creditors charge-off debt in accordance with federal regulations that permit the creditor to remove the debt from their financial records. See Victoria J. Haneman, The Ethical Exploitation of the Unrepresented Consumer, 73 Mo. L. Rev 707, 713-14 (2008) … These accounts are treated as a loss wherein the creditor receives a tax deduction under the Internal Revenue Code[1]. Id. at 714. Asset purchased Plaintiff’s charged-off accounts for pennies on the dollar and began its own collection efforts.” At this time the Defendant Asset Acceptance began to charge interest on the notes which had already been charged-off by the original creditors.

The issue in this case is whether the original creditor can continue to charge interest on the debts once they are charged off. The Plaintiff’s argue that since Asset Acceptance, as assignees of the note, stand in the shoes of the original creditor with no greater rights. As such, interest could not be collected without violating the Fair Debt Collection Act. The court sided with the Plaintiffs holding that “Because [the original creditors] waived the interest, Asset could not retroactively impose interest for the period in which it did not own the accounts.” McDonald v. Asset Acceptance, LLC, United States District Court, E.D. Michigan, Southern Division. Aug 7 2013. Slip. Op.

So, what does this mean for you? The holding is relatively narrow as applied to most debtors. However, if you believe that interest was accrued between the time your note was charged off, and purchased by the collections company, you may be entitled to a reduction in total balance.

For clarification of this, or other debt collection matters, contact Garmo & Kiste, PLC, at (248) 398-7100 for a free consultation or contact us with a private message. We are experienced Michigan attorneys with offices in Troy, MI.

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[1] Footnote mine: Additionally, in many cases the original creditor has insurance to cover bad debts and will receive a pay out on these charged-off notes. (McDonald v. Asset Acceptance LLC Michigan Debt Defense)

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