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From Banking and Finance Law Daily, July 29, 2015

Summary judgment re-run, rate reduction didn’t violate debt collection act

By Richard A. Roth, J.D.

A consumer’s efforts to convert his disagreement over credit card account collection suit proceedings into claims under the Fair Debt Collection Practices Act have been rejected by the U.S. Court of Appeals for the Seventh Circuit. The creditor’s law firm did not violate the FDCPA by seeking summary judgment after a court-imposed deadline to initiate arbitration expired or by claiming an interest rate lower than what earlier credit card statements specified, the court said (Bentrud v. Bowman, Heintz, Boscia & Vician, P.C., July 27, 2015, Kanne, M.).

Collection suit. On behalf of a credit card company, the law firm sued the consumer over a claimed unpaid balance of nearly $11,000. The complaint alleged that the account carried interest at an annual rate of 10.65 percent, even though earlier credit card statements called for 13.9 percent.

The law firm eventually asked for summary judgment in the state court collection suit, and the consumer responded by invoking an account agreement arbitration clause. The state judge denied the firm’s summary judgment request, stayed the suit, and ordered arbitration, but gave the consumer only 30 days to initiate an arbitration proceeding. If the 30-day deadline was not met, the stay would be “automatically dissolved.”

When the consumer failed to satisfy the 30-day deadline, the firm filed a new summary judgment motion. The consumer again asked for arbitration, and the judge gave him a second chance. The appellate court noted that the arbitration was in progress.

FDCPA suit. However, the consumer then sued the firm in federal court for asserted FDCPA violations. According to the consumer, the second summary judgment request was an unfair or unconscionable collection practice. He also asserted what the appellate court called an “either-or argument” about the interest rate discrepancy: either the correct interest rate was 13.9 percent, in which case the firm had misrepresented the rate to be the lower 10.65 percent; or the correct rate was 10.65 percent, in which case the firm was attempting to collect the higher, and unauthorized, 13.9 percent noted in earlier account statements.

To be clear—the consumer, not the creditor, invoked arbitration, and the consumer was complaining about being sued for an interest rate that was lower than what he had previously been charged.

The district court judge entered summary judgment in favor of the law firm, and the consumer appealed.

Second summary judgment motion. After complaining that the FDCPA phrase “unfair or unconscionable” was vague, the appellate court decided that it did not cover the second summary judgment motion.

First, the FDCPA was not a tool to enforce rights governed by other laws, the court said. The arbitration clause was part of the account agreement, and if the consumer did not like the law firm’s effort to resume litigation he should seek a breach of contract remedy.

Second, the state judge’s original arbitration order made clear the stay ended if arbitration had not begun within 30 days. Once the deadline passed, the firm had an obligation to its client to prosecute the collection suit. Failing to do so might even have constituted malpractice, the court observed. It was not unfair or unconscionable for the firm to act in accordance with the state judge’s timeline.

Interest rate differences. There was no evidence to support the consumer’s claim that using the two different interest rates violated the FDCPA, the court then said. Preliminarily, the court noted that the account agreement gave the credit card company the right to change the interest rate, and such a change apparently accounted for the difference.

The only reference to a 13.9-percent interest rate was in an account statement provided by the consumer. This was the earliest statement provided, earlier than the complaint and an accompanying affidavit that claimed a 10.65-percent rate. No other statement given to the court claimed anything other than 10.65 percent.

The evidence presented on the summary judgment motion implied nothing other than that the credit card company had permissibly reduced the interest rate. If the consumer wanted to argue about that, he could do so in the arbitration proceeding with the company, the court said. He could not claim it was an FDCPA violation by the company’s attorneys.

The case is No. 14-2384.

Attorneys: Robert E. Duff (Indiana Consumer Law Group) for Grant E. Bentrud. David M. Schultz (Hinshaw & Culbertson LLP) for Bowman, Heintz, Boscia & Vician, P.C.

Companies: Bowman, Heintz, Boscia & Vician, P.C.

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