On November 1, 2017, a judge from the North District of Illinois ruled that adding collection costs to the balance of a debt did not violate the Federal Debt Collection Practices Act, 15 USC 1692 et seq. (FDCPA), if such costs were permitted as part of the underlying contract. The certified putative class action case is Bernal v. NRA Group, LLC (1:16-cv-01904, U.S.D.C., Northern District of Illinois). 

You can find a copy of the decision here.


Plaintiff Joseph Bernal entered into a monthly membership agreement with Six Flags Entertainment Corporation (Six Flags). Plaintiff became delinquent on this agreement and Six Flags placed the debt with AR Assist, LLC (AR Assist), who then contracted NRA Group, LLC (NRA) to collect on the debt. In their attempts to collect the debt, NRA Group, LLC added a percentage-based charge, labeled "costs" to the principal balance. Plaintiff filed a class action lawsuit against NRA alleging FDCPA violations due to his assertions that NRA had no right to collect such "costs." 

The “costs” at issue were for collection costs. The parties agreed that the main issue in the case turned on whether Bernal’s contract with Six Flags, which provided in relevant part that if his account was not paid he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due or otherwise enforcing this agreement.” 

The plaintiff argued that the above provision allowed him to be charged only when it actually cost a debt collector to collect the amount owed. On the other hand, the defendant argued that the contract allowed the consumer to be charged what Six Flags paid a debt collector to collect the debt, even if that charge was a fixed percentage of the principal amount alleged to be owed. 

After denying both parties' motions for summary judgment, the case went to bench trial where the judge ruled on the issues. 

Editor’s note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

The Court's Decision 

The main issue in the case was the conflicting interpretations of the underlying membership agreement, specifically what constitutes a cost and if the cost was authorized by the agreement. 

The cost at issue was a percentage-based charge added to the principal balance. The court adopted NRA's interpretation of the Six Flags provision, stating that the contract allows for collection of costs incurred to collect a debt, regardless of how the cost is calculated. The provision did not prohibit Six Flags from retaining an outside debt collector to collect the debt, and the fees owed by Six Flags to a debt collector for any successful collection are “costs” incurred by Six Flags. 

Importantly, the court refused to adopt a decision from the Eighth Circuit and Eleventh Circuit that held a debt collector’s percentage-based fee is not a cost related to collection because it has no direct correlation to the actual costs of a debt collector’s collection effort. In distinguishing this line of cases, the court stated those decisions are based on the faulty premise that costs of collection were only out-of-pocket costs incurred by the collecting party, and not the creditor’s costs of collection.

Moreover, the court dismissed the notion that a collection fee could not be recovered from a consumer because it had not yet been incurred, i.e., a debt collector’s contingent fee is not recoverable at the time of collection. To quote the court: 

That cannot be right . . . Aside from being trivial or ridiculous, that distinction certainly makes no difference to a debtor. How could it possibly harm or mislead the debtor for a debt collector to set forth both amounts (the principal amount due and the collection fee) in a single letter, as opposed to first collecting the original debt and only then revealing and seeking payment of the collection fee? 

Per the contract, plaintiff could be "billed for any amounts that are due and owing plus any costs (including reasonable attorney's fees) incurred by [Six Flags] in attempting to collect amounts due or otherwise enforcing this agreement." The court found that the cost charged in this case by the debt collector was less than the amount a debt collector could have charged and as such there was no FDCPA violation. 

The class certification remains. 

insideARM Perspective

This is an important and timely decision from the Northern District, for more than the obvious reason.

For those collecting collection fees that are contingency-based, this is a good, common-sense decision but proceed with caution. There is a lot of conflicting case law on this issue. Be sure to consult with your attorney regarding how you are charging any fee other than the actual amount of the debt. 

The decision also underscores the importance of the contract underlying the debt. For creditors in any market vertical, it is absolutely critical that consumer agreements clearly articulate the costs to a consumer should their account be sent to collections, including their responsibility for any collection costs as well as transaction costs. 

Lastly, we know the CFPB is looking at the provision in the FDCPA underlying this matter. The FDCPA prohibits “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). Our understanding is that the CFPB is interpreting this provision very narrowly, and it is possible, if not likely, that the Bureau may apply its narrow interpretation in its notice of proposed rulemaking (whenever that may be released).

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