On Friday, May 22, 2015 the New York Court of Appeals for the 2nd Circuit issued an order effectively reviving a potential class action case against Midland Credit LLC (Midland), a unit of Encore Capital Group, Inc. (Nasdaq: ECPG). The case is Madden v Midland Funding LLC et al, 2nd U.S. Circuit Court of Appeals, No. 14-02131.
Madden had opened a credit card account through Bank of America, a national bank. Bank of America later consolidated its credit card program with FIA Card Services, also a national bank. In 2010, Midland purchased Madden’s charged-off credit card account of approximately $5000. Midland, however, is not a national bank.
In November of 2010 Midland sent Madden a letter seeking to collect payment of the debt and stating that an interest of 27% per year applied.
The original lawsuit was filed by Madden in 2011. Madden claimed, on behalf of herself and a putative class, that Midland had engaged in abusive and unfair debt collection practices and had charged a usurious rate of interest under New York law that proscribed interest from being charged at a rate exceeding 25% per year.
The National Bank Act permits the higher interest rate above. The 29 page decision hinges on a holding by the court that a non-national bank entity (such as Midland) is not entitled to protection under the National Bank Act from state-law usury claims just because they are assignees of an account from a national bank.
A lower court had previously ruled that the original agreement between Madden and a national bank permitted the interest rate applied to the account and, as an assignee from a National Bank, Midland was allowed to charge that rate.
The case was remanded back to the lower court to decide whether New York or Delaware law is applicable in the case.
The potential class exposure is almost 50,000 individuals. However, the most interesting part of the opinion is this: The court noted that “the parties appear to agree that if Delaware law applies, the interest rate charged was permissible.”