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I heard that a debt buyer cant charge interest on a charged off credit card, is this true?
Anonymous8 views5 answers
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 judgement to get the interest removed? Or would you have to sue the debt buyer?
Post judgment interest is ordered by the court and binding the debtor. If you have a judgment against you, you will not be able to back and get it removed. Additionally, if you didn't dispute the debt and follow proper procedure with the court you can't go back and ask them to remove it anyways as a time for appeal the ruling may have already passed. Settle it. That's my recommendation.
People have a misconception of the term "charge off". When a Creditor uses the term "charge off" it does not mean that the debt no longer exists, it just simply means that the Creditor is no longer actively attempting to collect on it. They can at any time revive the debt and start collecting on it again, as long as it is within applicable statute of limitations. As others have indicated, if a Creditor has obtained a judgment, it is most likely that the Court or a State Statute allows interest to continue to accrue. However, most debt buyers are in the business to make a profit. They purchase these debts for significantly less than the face value of the debt itself, so it is possible to negotiate with the current holder of the account to settle it for less than they are currently asking. But typically if you attempt to do it on your own, the Creditor will talk legal circles around you, and you will pay much more than you have to. Chances are also that this is not your only debt, so you should evaluate your entire financial circumstances to determine whether or not attacking a singular debt at a time is really going to assist you in successfully reaching your ultimate goal. You may want to talk to an Attorney dealing in options related to debt restructuring and Bankruptcy to learn what options are actually available to you.
Yes they can add interest. If they have the contract they get statutory interest plus late fees and collection costs and attorneys fees. If they do not have the contract with contract rates of interest they will still get statutory interest. If you have already been sued and a judgment entered you have only a limited time and circumstances where you could try to set aside the judgment. If you have significant debt you should consult an experience local bankruptcy attorney.
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 decision is on appeal.
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.
The law in this area is complicated.
Based on your question, I would say that the interest you are referring to (post-judgment interest) is entirely legal and binding, and that you would be wasting your time to sue on the issue.
