Eighth Circuit Holds That Complaint Alleging That Law Firm Violated FDCPA by Attempting to Charge Compound Interest Should Not Be Dismissed

The United States Court of Appeals for the Eighth Circuit recently reversed a district court and held that a claim against a law firm should not be dismissed, finding that the firm may have violated the Fair Debt Collection Practices Act (the “FDCPA”) by seeking compound interest on a debt in violation of state law.  See Coyne v. Midland Funding LLC, 2018 WL 3423469 (8th Cir. July 16, 2018).  There, the defendant law firm sent plaintiff a letter claiming he owed an “account balance of $17,230.29 consist[ing] of the principal balance of $13,205.30 and interest of $3,871.39 at the rate of 6.00% plus incurred costs of $153.60” on a credit card debt.  According to plaintiff, the $13,205.30 “principal balance” was actually a combination of both principal and contractual interest.  Thus, because the letter represented that plaintiff was being charged interest on contractual interest, plaintiff brought this action alleging a violation of the FDCPA.  Under Minnesota law, a party cannot charge compound interest without a contractual authorization to do so, and plaintiff alleged that he did not agree to be charged compound interest with regard to this credit card debt.  See Minn. Stat. § 334.01.  The district court dismissed the complaint, finding that plaintiff failed to state a claim under the FDCPA.

On appeal, the Eighth Circuit reversed.  Although the Court acknowledged that defendant had attached a contract to its motion papers that purported to authorize compound interest on plaintiff’s debt, plaintiff “specifically contested the terms as ‘unauthenticated,’ noting they were ‘boilerplate’ and did not ‘identify [him] as a party’ to them. He also noted that [defendant] provided no reason to believe the terms were in any way related to the underlying credit card ‘aside from [defendant] just unilaterally stating that those are the terms . . . that applied.’”  Having found that plaintiff plausibly alleged that defendant sent a letter claiming compound interest was due and that he had not agreed to compound interest, the Court held that the FDCPA claim should not be dismissed and reversed the lower court:  “a false representation of the amount of a debt that overstates what is owed under state law materially violates 15 U.S.C. § 1692e(2)(A) as well. It is material not only because the representation violates the plain language of that subsection prohibiting the ‘false representation’ of the ‘amount’ of ‘any debt,’ but also because an overstatement of the debt’s amount necessarily misleads the debtor about the amount he owes under his agreement with the creditor.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.