Appeals Court Rules For Collectors in FDCPA Class Action Case

The United States Court of Appeals for the Ninth Circuit issued an opinion last week in favor of a collection agency that was defending itself against a class action lawsuit alleging violations of the Fair Debt Collection Practices Act (FDCPA).

The ruling upheld a previous opinion issued by a U.S. District Court judge in Washington.

The case, Donohue v. Quick Collect, Inc., was brought by a consumer that had her dental account assigned to the collection agency in the case.

In October 2007, the dental practice — Children’s Choice — assigned to Quick Collect, a collection service incorporated in Oregon, the principal and finance charges Donohue owed to Children’s Choice. Upon receipt of the assignment, Quick Collect mailed a formal demand letter to Donohue seeking $270.99 in “principal,” $24.07 in “assigned interest,” and $2.23 in “post assigned interest.” Quick Collect did not immediately receive a response from Donohue and referred the matter to attorney Gregory Nielson to commence litigation to collect the amounts due.

In January 2008, Quick Collect brought an action against Donohue and Donohue was served with a summons and complaint. The complaint stated that Quick Collect sought a judgment against Donohue for, among other amounts, “the sum of $270.99, together with interest thereon of 12% per annum…in the amount of $32.89.” In February 2008, Nielson, on behalf of Quick Collect, sent another demand letter to Donohue. The Nielsen Demand Letter stated that Donohue owed, in addition to litigation-related costs, $270.99 for “Principal,” and $35.57 for “Interest.”

In April 2008, Donohue filed a class-action lawsuit in Washington state court against Quick Collect. Donohue brought the following two federal claims: (1) Quick Collect violated the FDCPA by charging a usurious rate of interest—i.e., the Complaint and the Nielsen Demand Letter sought annual interest above 12%, the maximum permitted under Washington law; and (2) Quick Collect violated the FDCPA’s prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by “misrepresenting the amount of interest” —i.e., the Complaint incorrectly stated that $32.89 was “interest [on the principal] of 12% per annum.” Donohue also alleged violations of Washington state law arising out of the same events, and moved to certify the class.

On December 31, 2008, the district court granted summary judgment to Quick Collect dismissing Donohue’s claims. Donohue filed an appeal.

The Ninth Circuit affirmed the lower court’s decision that the collection agency had not violated the FDCPA by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action.” The Ninth Circuit found that the 90-day “grace period” in the original payment agreement between the appellant and her dental office was not a forbearance agreement.

The Ninth Circuit also concluded that the collection agency’s complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct.