Source: http://updates.mwbllp.com/2014/01/fyi-11th-cir-holds-fdcpa-allows.html
Timestamp: 2019-04-25 00:05:05+00:00

Document:
Financial Services Law Developments: FYI: 11th Cir Holds FDCPA Allows Percentage-Based Collection Fee If Debt Agreement Allows "Reasonable Fee," But Not If Agreement Allows "All Costs of Collection"
FYI: 11th Cir Holds FDCPA Allows Percentage-Based Collection Fee If Debt Agreement Allows "Reasonable Fee," But Not If Agreement Allows "All Costs of Collection"
The U.S Court of Appeals for the Eleventh Circuit recently reversed a district court's order granting summary judgment in favor of a collection company and against a consumer on a claim under 15 U.S.C. § 1692f of the Fair Debt Collection Practice Act ("FDCPA"), but affirmed the district court's summary judgment ruling against another debtor on a15 U.S.C. § 1692f claim where the same collection company assessed an additional 30% collection fee.
In so ruling, the Eleventh Circuit held that where a debtor's contract with a creditor provided that, in the event of collection, the debtor agreed to pay only the actual costs of collection, collecting a fee over and above the actual cost of collection violated 15 U.S.C. § 1692f(1)'s prohibition against collecting any amount that is not "expressly authorized by the agreement creating the debt or permitted by law."
In contrast, where another debtor's contract with a creditor agreed to pay all reasonable collection fees, the Eleventh Circuit upheld summary judgment in favor of the collection company on the debtor's 15 U.S.C. § 1692f claim despite a 30% collection fee that was added to the debt.
The case concerns whether a 33 ½% collection fee that was not expressly authorized by the agreement between a debtor and creditor that created the debt violates 15 U.S.C. § 1692f.
The debtor Appellants incurred medical debts at two health care providers. The health care providers referred the debtors' accounts to a collection company. As part of the referral, the health care providers added to debtors' accounts a charge for collection fees.
Creditor A is a healthcare institution. Creditor A contracted with a collection company to collect unpaid medical bills. Creditor A's agreement with the Collection Company involved adding a 30% collection fee to all collection accounts.
In 2007, Debtor A incurred a $735 bill. Debtor A failed to pay the bill. In response, Creditor A sent the debtor three separate statements, warning that, pursuant to their agreement, if Debtor A failed to pay, Creditor A would send the account to a collection agency. The agreement Debtor A signed with Creditor A stated, in pertinent part, "I agree that if this account is not paid when due, and the hospital should retain an attorney or collection agency for collection, I agree to pay all costs of collection including reasonable interest, reasonable attorney's fees (even if suit is filed) and reasonable collection agency fees."
Debtor A never paid the debt. According to its debt collection policy, Creditor A added a 30% collection fee to the debtor's account and referred the account to the Collection Company for collection. With the 30% added collection fee, Debtor A owed Creditor A $922.25.
Creditor B is a healthcare provider that also uses the Collection Company to collect unpaid medical bills. The collection contract between Creditor B and the Collection Company stated that Creditor B would add 33-and-1/3% to a debt prior to transferring the account to the Collection Company. The contract also stipulated that the Collection Company was entitled to 30% of the total collected from each debt.
In 2009, Debtor B received medical treatment from Creditor B and incurred a bill for $861.96. Like Debtor A, Debtor B also signed an agreement, which stated: "In the event of non-payment . . . I agree to pay all costs of collection, including a reasonable attorney's fee." Also like Debtor A, Debtor B failed to pay the medical bill. As a result, Creditor B added a $293.06 collection fee to Debtor B's balance. Creditor B then sent the debtor's account to the Collection Company for collection.
Debtor B's new balance due to Creditor B was $1,155.02. To avoid being sued, Debtor B paid the $1,155.02 and reserved his right to recover overcharges.
The debtor plaintiffs brought suit against the Collection Company alleging violations of Alabama state law, the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §1692–1692p, and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961–1968.1.
The parties filed cross-motions for summary judgment. The district court denied the debtors' motion and granted the Collection Company's motion for summary judgment. This appeal followed.
The Eleventh Circuit reversed the district court's decision granting summary judgment in favor of the Collection Company on Debtor B's claim under 15 U.S.C. § 1692f of the FDCPA and affirmed the district court's decision granting the Collection Company's motion for summary judgment on all remaining claims raised in the appeal.
At issue in the appeal was Debtor B's claim under 15 U.S.C. § 1692f.
As you may recall, the FDCPA prohibits debt collectors from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt" as well as the use of "unfair or unconscionable" means of collection. 15 U.S.C. §§ 1692e, 1692f.
As you also may recall, section 1692f prohibits the "collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." 15 U.S.C. § 1692f(1). Debtor B argued that the additional collection fee violates this section of the FDCPA because the fee was really liquidated damages rather than the actual cost of collection. The Eleventh Circuit agreed.
Although the Eleventh Circuit had not previously addressed this issue, it found the Eighth Circuit's reasoning in Kojetin v. CU Recovery, Inc., 212 F.3d 1318, 1318 (8th Cir. 2000) (per curiam) persuasive. There, the Eighth Circuit held that the debt collector violated the FDCPA when it charged the debtor a collection fee based on a percentage of the principal balance of the debt due rather than the actual cost of collection. The Eleventh Circuit found that this is what happened here.
When Debtor B signed Creditor B's patient registration form, the debtor only agreed to pay "all costs of collection." In other words, Debtor B agreed to pay the actual costs of collection; his contractual agreement with Creditor B did not require him to pay a collection agency's percentage-based fee where that fee did not correlate to the actual costs of collection.
Before Creditor B handed over Debtor B's delinquent account to the Collection Company, it added a 33-and-1/3% "collection fee." The Collection Company presented no evidence that the 33-and-1/3% "collection fee"—which was assessed before the Collection Company attempted to collect the balance due—bears any correlation to the actual cost of collection. Consequently, the Eleventh Circuit found that the 33-and-1/3% fee breaches the agreement between Debtor B and Creditor B, because Debtor B was only contractu8ally obligated to pay the "costs of collection."
According to the Eleventh Circuit, Creditor B and the Collection Company cannot alter Debtor B's obligations by the terms of their subsequent agreement. Because there was no express agreement between Creditor B and Debtor B allowing for collection of the 33-and-1/3% fee, the Court held that 1/3 additional fee violated the FDCPA. See 15 U.S.C. § 1692(e); see also Kojetin, 212 F.3d at 1318.
Significantly, the Eleventh Circuit did not say that Debtor B and Creditor B could not have formed an agreement allowing for the collection of the percentage-based fee. As the Court pointed out, it is the nature of the agreement between Debtor B and Creditor B, not simply the amount of the fee that is important here.
For example, the Court further noted, Debtor A agreed to pay, inter alia, "reasonable collection agency fees." Based on this contractual language, Debtor A declined to argue on appeal that the agreement that he had with Creditor A did not cover the Collection Company's percentage-based collection fee.
Thus, according to the Eleventh Circuit, if a creditor and a collection company desired to allow for an additional percentage collection fee above and beyond the actual cost of collection, they should include this expressly and should not limit the agreement with the debtor to "actual collection costs."
Simply put, the Eleventh Circuit held that a percentage-based fee can be appropriate if the contracting parties agreed to it. For example, the Eleventh Circuit pointed to a Seventh Circuit case that suggested that the following contractual provision may allow the imposition of a percentage-based collection fee when a delinquent account was referred to a third-party collection agency: "You agree to reimburse us the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys' fees, we incur in such collection efforts." See Seeger v. AFNI, Inc., 548 F.3d 1107, 1110, 1113 (7th Cir. 2008).
Debtor B's contract with Creditor B was materially different than Debtor A's contract with Creditor A. Debtor B agreed to pay the actual costs of collection; not any percentage above the amount of his debt that was unrelated to the actual collection costs. The agreement creating the debt—the patient agreement between Creditor B and Debtor B —only allows a charge for "costs of collection." Nowhere in the agreement did Debtor B agree to an additional "collection fee."
Thus, the Eleventh Circuit held that the Collection Company violated the FDCPA when it collected a debt from Debtor B that included an additional "collection fee" above the actual cost of collection because the contract between Debtor B and Creditor B did not expressly authorize this additional collection fee.

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