2nd Circuit: Zombie Debt Buyers Prohibited From Invoking Federal Shield Against State Usury Claims When Buying Delinquent Accounts From Exempt National Banks; Court: "Extending Those Protections To [Non-Exempt] Third Parties Would Create An End-Run Around Usury Laws ..."

In New York City, Reuters reports (via Public Citizen's Consumer Law & Policy Blog):

• A federal appeals court [...] made it easier for consumers to challenge interest rates in debt collection cases, as it revived a lawsuit in New York against units of Encore Capital Group Inc, one of the largest U.S. debt collectors.
  
  The 2nd U.S. Circuit Court of Appeals in New York said Encore's Midland Funding and Midland Credit Management units did not qualify as national banks, and did not deserve protections such banks get against claims brought under state usury laws.
  
  [The] decision allows the plaintiff Saliha Madden to try to win class-action status against the Midland units, on behalf of potentially 50,000 consumers.
  
  Debt collection firms typically buy debt from banks and other creditors for pennies on the dollar, and try to collect higher amounts.
  
  Madden objected to a 27 percent interest rate that Midland sought to impose on a roughly $5,000 debt it had bought, and which she had incurred on a credit card account opened years earlier at Bank of America, court papers show.
  
  Writing for the appeals court, Circuit Judge Chester Straub said the Midland units "acted solely on their own behalves, as the owners of the debt," and did not deserve protections of the federal National Bank Act, including against claims that they violated the federal Fair Debt Collection Practices Act.
  
  "Extending those protections to third parties would create an end-run around usury laws for non-national bank entities that are not acting on behalf of a national bank," Straub wrote.
  
  [The] decision reversed a dismissal of Madden's lawsuit by U.S. District Judge Cathy Seibel in White Plains, New York.
  
  The 2nd Circuit directed Seibel to consider whether Delaware law, which may allow the interest rate Midland wanted to charge, should apply, rather than New York law.
  
  Daniel Schlanger, a lawyer for Madden, said "we're obviously very pleased" with the decision, which "provides meaningful protections to New York consumers against unlawfully high interest rates." Encore and its lawyer did not immediately respond to requests for comment. The company is based in San Diego.

Source: Lawsuit revived against big debt collection firm in New York.

For the court ruling, see Madden v Midland Funding LLC, No. 14-2131 (2d Cir. May 22, 2015).