A district court judge certified a new class-action lawsuit against Midland
Funding LLC. The suit alleges that Midland violated New York usury laws
by charging thousands of struggling borrowers interest rates above 25
percent when trying to collect on debts owed. Midland Funding LLC is in
the business of purchasing defaulted debts and is owned by Encore Capital
Group, Inc one of the biggest debt buyers in the country.
Plaintiff, Saliha Madden, received a cardholder agreement for her Bank
of America card in 2005, which provided that it was governed by applicable
Arizona and federal law. This agreement was replaced by a Change in Terms
in 2006 that provided that “This Agreement is governed by the laws
of the State of Delaware and by any applicable federal laws. The debt
owed was sold to Midland Funding LLC in November 2010. Midland sued Ms.
Madden in 2011, which has subsequently been dismissed.
In her decision, the federal judge noted that there was a “heavy
burden” on the plaintiffs to demonstrate that the foreign law is
offensive to New York’s public policy stating that “it must
be demonstrated that the applicable foreign law would violate some fundamental
principle of justice, some prevalent conception of good morals.”
She concluded here that New York has a “fundamental public policy”
against interest rates exceeding 25 percent. She further stated that the
state’s usury laws purposefully prevent creditors from collecting
a higher rate on defaulted debts. High interest rates are a topic of concern
among regulators in the debt collection business. Many have argued that
high interest rates can trap borrowers in endless debt cycles.
The Court certified injunctive and declaratory relief to a class comprising
of all persons residing in New York who were sent a letter by the Defendants
attempting to collect interest in excess of 25% and whose cardholder agreements
purported to be governed by the law of a state, like Delaware’s,
provides for no usury cap; or select no law other than New York.