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Fight Continues Over Interest that Debt Buyers Can Charge


It may be hard to believe that a relatively obscure case from 2015 is still being debated in Washington, but that’s exactly what is currently happening. Washington regulators—who currently are somewhat anti-consumer—are trying to “fix” a pro-consumer case that came out of New York in 2015.

The Problem With Usurious Interest Rates

The case involved the interest that can be charged on credit card debts. Most credit cards or retail cards are backed by, or issued by, national banks. Because of that, the National Bank Act preempts state usury laws. That’s why so many of your credit cards can charge 20, 25, or 30% interest, even though that interest rate may violate state usury laws. The federal law that allows banks to do that takes precedence over state laws that would otherwise prohibit charging such interest rates.

But often, debt that is not paid gets sold to debt buyers. Those debt buyers are usually not federal banks, are not federally chartered, and presumably have to abide by state usury laws. However, they often do not—they often continue to add interest onto your debt at the same interest rate that the national bank (the original creditor) was charging.

New York Case Challenges Interest

In 2015, a lawsuit was brought against Midland Funding, alleging that because Midland Funding was not a nationally chartered bank, it had to comply with state usury laws, even though the original creditor was a national bank and did not have to do so. The Court agreed, restricting what debt buyers could charge as interest (at least in the federal district of New York).

Debt buyers, seeing their business model threatened and concerned they could not milk consumers for super exorbitant interest rates, took their fight to Washington, asking federal regulators to pass rules saying debt buyers could charge the same thing as federally chartered and protected national banks.

Rule May “Correct” Court’s Finding

The Office of the Comptroller of the Currency is working on rules that would clarify the rule, allowing the debt buyers to keep charging the otherwise usurious rates of interest. The logic is that when a bank assigns an otherwise legally valid contract with an otherwise legally valid interest rate, the presumption of legality travels with the assignment.

The rule, if passed, would say that permissible interest before an assignment or transfer would continue to be permissible no matter who the loan was assigned to.

This is just another example of Washington abandoning consumers in favor of big business and in favor of debt buyers. There is seemingly no reason why a private company that is not a bank and has no federal charter, should get the protections that a national bank does. These interest rates are often what make consumers file bankruptcy—as interest rates add to the total amount due, and consumers’ payments do not make a dent into the amount owed, consumer frustration sets in.

Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today for help if you are sued for a credit card debt.


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