The Sixth Circuit Court of Appeals reversed a lower court decision Friday, ruling debt buyer Portfolio Recovery Associates violated the Fair Debt Collection Practices Act when it sought to collect interest charges on a credit card debt.
Stratton v. Portfolio Recovery Associates stems from Dede Stratton's delinquent credit card debt from 2008. GE Money charged off the $2,630.95 account and upon doing so it "stopped charging Stratton interest on her debt" and indeed waived its right to do so, according to the appellate court. GE Money's decision meant it could take a bad-debt tax deduction and avoid the cost of sending Stratton periodic statements on her account.
Portfolio Recovery, a Norfolk, Va.-based company now known as PRA Group, bought the debt from GE Money and two years later filed a collection action against Stratton in Kentucky. PRA sought statutory prejudgment interest of 8%, which is the default rate set by Kentucky's usury statute, starting from when the account was charged off by GE. The contract Stratton signed allowed for 21.99% interest.
Stratton fought the collection action by filing a class-action lawsuit against PRA in the Eastern District of Kentucky. She alleged that PRA's attempt to collect the 8% interest was not authorized by the agreement creating the debt or permitted by law and further stated that PRA's suit to recover interest it was not owed constituted a threat to take an action that cannot legally be taken.
A federal judge in Lexington, Ky. originally dismissed Stratton's case. The three-judge appellate panel reversed that decision on Friday and found that, as GE's assignee, PRA cannot be given a right to collect interest - contractual or statutory - that GE waived.
The ruling, however, grants PRA the right to ask the court for prejudgment interest. Judge Alice M. Batchelder disagreed with that distinction.
"Under the majority's reasoning we are either authorized to award prejudgment interest, or we are not. If not, we cannot exercise our discretion and award interest anyway," she stated.