The U.S. Supreme Court on Monday allowed a class-action lawsuit against Encore Capital Group Inc. to proceed, declining to hear the debt-buying giant's claim that such companies should be protected from state laws barring money-lending at unreasonably high interest rates.
The court left a May 2015 ruling by the 2nd U.S. Circuit Court of Appeals in New York in place. That ruling found that Encore's Midland Funding and Midland Credit Management units were not national banks with legal protection against such state usury laws.
The class-action lawsuit was brought by a New York borrower named
Saliha Madden, a borrower in New York, brought the class-action lawsuit. Madden objected to the 27% interest rate that Midland sought to impose on approximately $5,000 in debt it had bought that she had incurred on a credit card account opened years earlier at Bank of America, according to court papers.
The appeals court said debt collection companies did not deserve protections of the federal National Bank Act, including against claims that they violated the federal Fair Debt Collection Practices Act.
"Extending those protections to third parties would create an end-run around usury laws for non-national bank entities that are not acting on behalf of a national bank," the court ruled.
The appeals court decision reversed a September 2013 decision by U.S. District Judge Cathy Seibel in White Plains, N.Y.
The Supreme Court’s decision arrives amid heightened concern over interest rates that borrowers are forced to pay by some lenders. For example, the U.S. agency charged with protecting consumers from financial abuse announced a proposal on June 2 to limit short-term borrowings known as "payday" loans, which can carry annual interest rates as high as 390%.