Protecting the Rights of Consumers
For Over 25 Years
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Edelman Combs Latturner & Goodwin LLC
Question: Recently I read that a debt buyer was not allowed to add interest on a charged off credit card. That when the original creditor charges off your account they no longer can charge fees or interest. When they sell the debt to a debt buyer they sell it as is. There is a case Mcdonald Vs Asset Acceptance that found in favor of Mcdonald saying the debt buyer could not add interest on a charged off account. If this is true would it be possible to go back on a judgment to get the interest removed? Or would you have to sue the debt buyer? I do understand a charged off account is still due and owing. I recently read a case McDonald VS Asset Acceptance where Asset purchased several charged off accounts and where trying to collect pre and post interest. The Judge said no, saying that a debt buyer that purchases a charged off account is not allowed to collect pre or post interest as the original creditor would no longer be charging interest because the account is charged off. Allowing the debt buyer to charge interest would create a windfall for the debt buyer. I was wondering if you had heard such a thing? I’m asking because I ran my credit report this weekend found I had several judgments that I was totally unaware of and I would imagine they got pre and post interest even as the accounts had been charged off. I can’t wait for Monday to see how they supposedly served me with paperwork. I find it amazing as to how these debt buyers are able to get judgments without the proper paperwork=
Answer: . We represented the plaintiff in the McDonald case, which was filed in federal court under the Fair Debt Collection Practices Act.
The case held that if the credit card issuer chose not to charge interest after it charged off the debt and before it sold it, a debt buyer could not go back and charge the interest waived by the bank. Most credit card issuers do not charge interest after chargeoff because the Truth in Lending Act requires that a credit card issuer continue to send periodic statements as long as it adds interest or fees to the account, and most credit card issuers make a business decision to not incur the expense. In addition, it increases the amount of bad debt on their books, which bank examiners do not look kindly upon.
The case was settled.
The decision did not involve an attack on a judgment. Whether a judgment could be revised to exclude interest that was improperly charged is a matter of local procedure. The problem is that you could have raised the challenge to the interest before the judgment was entered. Most laypersons would not recognize the issue, but that may not be an excuse.
Whether the ruling affects the right to collect statutory interest is an open question. The Truth in Lending Act statement requirement does not exempt any rate or type of interest. Also, note that under the statutes of some states, one can only collect statutory interest if there never was an agreement concerning interest. The applicable statute may be that of the state specified in the credit card agreement, or where the issuer is domiciled.
