Addressing a consumer’s class-action claims against Midland Funding, LLC, which purchased the consumer’s defaulted credit card debt from a national bank, and against Midland Credit Management, Inc., which sought collection of the debt, the U.S. District Court for the District of Southern New York reached a split decision on the consumer’s claims and then certified the pertinent classes to advance the litigation. In holding that New York’s criminal usury cap applied to prevent creditors from collecting interest above 25 percent on a defaulted debt, the court denied Midland’s request for summary judgment in connection with the consumer’s claims that the debt-purchasing company and its debt-collecting affiliate violated New York’s General Business Law and the federal Fair Debt Collection Practices Act by attempting to collect interest on the outstanding debt exceeding the 25-percent criminal usury cap. However, the court granted Midland’s request for summary judgment concerning the consumer’s claim that New York’s civil and criminal usury laws entitled her to a declaration that her credit card debt was void and that she was entitled to the remedy of disgorgement (Madden v. Midland Funding, LLC, Feb. 27, 2017, Seibel, C.).
As previously reported, in the same litigation, the U.S. Court of Appeals for the Second Circuit rejected Midland’s argument that the consumer’s state-law claims based on New York’s usury laws were preempted by the National Bank Act (see Banking and Finance Law Daily, May 26, 2015). Although Midland eventually petitioned the U.S. Supreme Court to review the Second Circuit’s decision on the federal preemption issue, Midland’s petition was denied.
New York usury claims. At the outset, the court noted that the parties disputed whether Delaware or New York law should apply. The court noted that the parties did not dispute that "were Delaware law to apply, it would not prohibit Defendants from charging the interest rate in question." Consequently, the court focused its analysis on New York law.
The court examined New York’s civil usury cap of 16 percent interest annually (N.Y. Gen. Oblig. Law §5-501(1)-(2); N.Y. Banking Law § 14-a(1)) and New York’s criminal usury cap of 25 percent interest annually (N.Y. Penal Law §190.40). According to the court, since the parties agreed that New York’s civil usury cap did not apply to the type of defaulted obligation in the consumer’s class action, and New York’s criminal usury law "does not provide a private right of action," the court granted summary judgment to Midland in connection with the consumer’s claims based solely on these New York laws. As a result, the court disposed of the consumer’s claim seeking a declaration that her credit card debt was void.
FDCPA, New York GBL claims. Next, the court applied New York law, not Delaware law, in addressing the consumer’s claims under the FDCPA and New York’s General Business Law (§349). In so doing, the court commented that it agreed with the consumer "that to apply Delaware usury law would violate a fundamental public policy of the state of New York." Ultimately, in reviewing New York and federal case law, the court determined that "[b]ecause New York law applies, and Plaintiff predicates her FDCPA and GBL claims on a violation of New York’s criminal usury cap," Midland’s motion for summary judgment on those FDCPA and New York GBL claims should be denied.
Class certification. After winnowing the pertinent class-action claims in the case, the court granted but modified the consumer’s request for class certification. Accordingly, the court organized the classes into two main groups with certain subgroups in the second group. The court framed the classes as:
- "A Rule 23(b)(2) injunctive and declaratory relief class comprising all persons residing in New York who were sent a letter by Defendants attempting to collect interest in excess of 25% per annum regarding debts incurred for personal, family, or household purposes, whose cardholder agreements: (i) purport to be governed by the law of a state that, like Delaware’s, provides for no usury cap; or (ii) select no law other than New York. This class covers only claims arising out of GBL [New York General Business Law] violations from November 10, 2008 through today’s date.
- A Rule 23(b)(3) damages class comprising all persons residing in New York who were sent a letter by Defendants attempting to collect interest in excess of 25% per annum regarding debts incurred for personal, family, or household purposes, whose cardholder agreements: (i) purport to be governed by the law of a state that, like Delaware’s, provides for no usury cap; or (ii) select no law other than New York. This class comprises two subclasses: (a) for claims arising out of GBL [New York General Business Law] violations from November 10, 2008 through today’s date; and (b) for claims arising out of FDCPA violations from November 10, 2010 through today’s date."
The case is No. 11-CV-8149 (CS).
Attorneys: Daniel Adam Schlanger (Kakalec & Sclanger, LLP) for Saliha Madden. Thomas Arthur Leghorn (Wilson Elser Moskowitz Edelman & Dicker LLP) for Midland Funding, LLC and Midland Credit Management, Inc.
Companies: Midland Credit Management, Inc.; Midland Funding, LLC
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