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Bunce v. Portfolio Recovery Associates, LLC

United States District Court, D. Kansas

November 12, 2014

Janet Bunce, Plaintiff,
v.
Portfolio Recovery Associates, LLC, Defendant.

MEMORANDUM AND ORDER

J. THOMAS MARTEN, Judge.

The present Order addresses seven actions[1] brought pursuant to the Fair Debt Collection Practices Act (FDCPA) and the Kansas Consumer Protection Act (KCPA). The plaintiffs are debtors whose creditors "charged off the[ir] accounts, " and sold them to defendant Portfolio Recovery Associates (PRA). Once the original creditors sold the accounts, they stopped sending monthly billing statements to the plaintiff debtors. In April of 2013, PRA filed suit in state court against Plaintiff Janet Bunce seeking a judgment. PRA voluntarily dismissed the action with prejudice two months later.

Bunce claims that PRA violated FDCPA Section 1692e(5) by threatening, and then bringing, the state action. The other six plaintiffs allege that PRA violated the KCPA and FDCPA Sections 1692f and 169e(8) by accruing interest on the debts, and informing a credit reporting agency of the increased debts. PRA thus, according to the plaintiffs, "report[ed] that interest was due for which there was no legal basis."

The court reviews the plaintiffs claims by focusing on their factual allegations rather than conclusory generalizations or formulaic recitations, Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955 (2007), and to decide whether those factual allegations are sufficient to show the claim "is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009). In support of its motion to dismiss, PRA argues that the facts - that the original lenders stopped sending monthly statements, charged off the accounts and sold them to PRA, and that PRA later sought recovery for a facial amount higher than the charged off amount - simply do not present a plausible case of violating either the FDCPA or the KCPA. PRA agues that there is no allegation of a voluntary waiver by the original lenders of their right to interest, and in any case it was entitled to collect interest on the liquidated amounts of the loans as the prescribed statutory rate under Kansas law.

The court finds the Complaints (with the exception of Count 3 in Bunce ) should be dismissed. Waiver of further interest charges is not evidenced by the cessation of monthly statements. While such a cessation may occur when a lender waives further interest charges, it may also happen if the creditor decides the debt is uncollectible, it has commenced a delinquency action, additional statements are precluded by statute, or if it sells the debt. Neff v. Capital Acquisitions & Mgmt. Co., 352 F.3d 1118, 1121 (7th Cir. 2003) (holding periodic statements are not required once credit card debts are assigned).

Under Kansas law, waiver may be express or implied. See Iola State Bank v. Biggs, 233 Kan. 450, 662 P.2d 563, 571 (1983). If implied, it "must be manifested in some unequivocal manner by some distinct act or by inaction inconsistent with an intention to claim forfeiture of a right. Mere silence of a party is not waiver unless such silence is under circumstances requiring the party to speak." Patrons Mut. Ins. Ass'n v. Union Gas Sys., Inc., 250 Kan. 722 830 P.2d 35, 39 (Kan. 1992).

Here the plaintiffs have failed to allege that the original lenders explicitly or formally meant to waive their right to interest when they charged off the loans. Rather, they argued that waiver is implied by the facts that (1) the accounts were charged off, and (2) the original lenders stopped sending monthly statements.

The court finds that the plaintiffs' allegations fail to present a plausible basis for inferring any waiver. Charging off the delinquent accounts is a federal regulatory requirement. Uniform Retail Credit Classification and Account Management Policy, 65 FR 36903-01. Accordingly, it is not a voluntary action of the creditor. Similarly whether the original lender must send monthly statements is determined by federal law. The absence of such statements fails to suggest "in some unequivocal manner" that the lenders waived interest charges.

The plaintiffs contend that waiver may be inferred in light of the regulations defining when creditors must send monthly statements under the Truth In Lending Act. But nothing in the relevant regulation, 12 C.F.R. § 226.5, precludes an assignee of the debt from seeking to recover interest. Section 226.5 determines when a "creditor" must supply financing statements, but the obligation to send statements ends after the sale of the account. See 15 U.S.C.A. § 1602(g) (a "creditor" is "the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness"); 12 C.F.R. § 226.5(b)(1) ("creditors" must send periodic statements); Neff v. Capital Acquisitions & Mgmt. 352 F.3d 1118, 1121 (7th Cir. 2003). See Terech v. First Resolution Management, 854 F.Supp.2d 537 (N.D. Ill. 2012) (admitting that "it is difficult to see what the discontinued statements add to Plaintiff's waiver argument, " and holding that "periodic statements or (lack thereof) add nothing to the inquiry").

Plaintiffs otherwise rely on the conclusion in Terech, where the court denied the defendant's motion to dismiss. In that case, the loan was sold from the original creditor to an intermediate buyer, and then to the defendant. The original creditor charged no interest for the five months prior to the sale, and the intermediate buyer charged no interest for the two-and-a-half years it held the debt. 854 F.Supp.2d at 539. In addition to the intervening sale and the extraordinary delay, the court noted "detailed allegations" by the plaintiff about standard banking practices. Id.

Both Terech and Simkus v. Cavalry Portfolio Servs., No. 11-7425, 2012 WL 1866542 (N.D. Ill. May 22, 2012), another case cited by plaintiffs, are distinguishable. In Simkus, the original lender delayed two years after charging off the account, during which time it separately reported to credit bureau that the account value was unchanged, before selling account to defendant, again for the charged off amount. Both cases contain allegations that the original lenders took voluntary actions demonstrating an intention to waive interest charges.

The court concludes that simply because the original creditors charged off the accounts and stopped sending month statements does not preclude the assignee of the accounts from seeking to collect interest. In reaching this conclusion, the court finds persuasive recent decisions of our distinguished neighbors to the east addressing virtually identical actions. See Peters v. Northland Grp. Inc., No. 14-0488-ODS, 2014 WL 34854658, *1-2 (W.D. Mo. Sept. 30, 2014); Peters v. Finanicial Recovery Sys., No. 14-00489-GAF, 2014 WL 4723287, *2-3(W.D. Mo. Sept. 18, 2014).

Other courts have concluded reached similar conclusions. See Grochowski v. Daniel N. Gordon, P.C., No. C13-343 TSZ, 2014 WL 1516586, at *3 n.2 (W.D. Wash. Apr. 17, 2014) ("[c]ontrary to plaintiff's assertion, Capital One's decision to forego the contractual rate of interest did not relinquish its right to seek prejudgment interest at the statutory rate"; Stratton v. Portfolio Recovery Assocs., LLC, No. 5:13-147-DCR, 2013 WL 6191804, at *2-4 (E.D. Ky. Nov. 26, 2013). In the latter case, the court determined:

PRA's request for statutory prejudgment interest under KRS § 360.010 from the date that Stratton's account was charged-off was not improper. Because KRS § 360.010 operates in the absence of a contractually agreed upon rate of interest, and because a waiver must be clear and unequivocal, the fact that GE waived its right to collect contractual ...

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