WASHINGTON - In a decision that could make it harder for financial institutions to collect bad debts, the Supreme Court ruled Tuesday that a bank's attorneys must follow rules limiting how they approach people who owe them money.
The justices said lawyers for Gainer Bank violated the Fair Debt Collection Practices Act when they tried to recoup more than $4,100 from a borrower to cover an insurance policy the bank bought.
This is the first time the court has ruled that the debt collection law applies to lawyers.
The case began when Darlene Jenkins signed a loan agreement to buy a new car. The agreement stated that the bank could purchase insurance for the car if Ms. Jenkins did not maintain a policy to cover loss and damage.
Ms. Jenkins eventually defaulted on her insurance and loan policies. The bank then bought an insurance policy for the car, and hired lawyers to collect the bill.
Ms. Jenkins, while conceding she had to pay for the loss and damage policy, refused to cover the portion providing the bank with insurance against her default.
She said this section went beyond the policy required in the loan agreement. So she sued the attorneys for trying to collect this amount, saying the law prevents debt collectors from falsely representing the balance outstanding.
The Supreme Court, in affirming a decision from the U.S. Court of Appeals for the Seventh Circuit in Chicago, agreed with Ms. Jenkins. It ruled attorneys are subject to the same standards as other debt collectors.