Court Opinion

ID: 5286365
Source: CourtListenerOpinion
Date Created: 2022-01-07 08:57:04.990699+00
Date Added: 2024-06-11T08:28:41.205847
License: Public Domain

VENTERS, J.,
DISSENTING:
I respectfully disagree with the majority’s conclusion that Unifund, standing in Citibank’s shoes as its assignee, has no legal right to collect prejudgment interest on Harrell’s account from the time Citibank charged off Harrell’s account to the point Unifund purchased the debt.6 With Unifund’s rights being derivative of Citibank’s, if Citibank was entitled to prejudgment interest, then so is Unifund.
The majority’s conclusion follows the error of Stratton v. Portfolio Recovery Associates, LLC, 770 F.3d 443, 447 (6th Cir. 2014) in misapplying KRS 360.010(1) for determining when prejudgment interest is awarded. This misconstruction of the applicable law, in effect, punishes banks for their compliance with federal regulations and it bestows an unearned and undeserved windfall upon delinquent debtors.
When a debtor fails to repay a debt in accordance with the contract, the principal due, including accumulated unpaid interest, becomes a liquidated claim.7 “When the damages are ‘liquidated,’ prejudgment interest follows as a matter of course.” Nucor Corporation v. General Electric Co., 812 S.W.2d 136, 141 (Ky. 1991). Interest for breach of a contract to pay a certain sum is recoverable as damages from the time the amount is due. Id. at 144. “The longstanding rule in this state is that prejudgment interest is awarded as a matter of right on a liquidated demand[.]” Hall v. Rowe, 439 S.W.3d 183, 188 (Ky. App. 2014) (quoting 3D Enterprises Contracting Corporation v. Louisville & Jefferson County Metropolitan Sewer District, 174 S.W.3d 440, 450 (Ky. 2005)).
Whether the debt is unliquidated or liquidated, “[ejquity and justice demand that one who uses money or property of another for his own benefit, particularly in a business enterprise, should at least pay interest for its use in the absence of some agreement to the contrary.” Curtis v. Campbell, 336 S.W.2d 355, 361 (Ky. 1960) (citations omitted).
Citibank issued a credit card account to Harrell with an agreed upon contractual interest rate of 26%, and a default rate of 27.24%. Approximately six months after Harrell defaulted on the account, Citibank in compliance with federal banking regulations, “charged off’ the $1,472.58 balance due, thus closing Harrell’s account, eliminating her right to use the credit card, and *33fixing the principal balance owed. Upon the closing of the account, Citibank stopped sending monthly or periodic statements to Harrell because Harrell could make no new charges on the account and interest was no longer accumulating at,the contractual rate. The amount was a liquidated sum as of the date the account was charged off and closed.
Charging off a debt is not an abandonment of the. claim against the debtor. It is simply an accounting mechanism that serves two purposes. First, federal banking regulations require banks to charge off delinquent accounts at a certain point so that the bank’s net worth cannot be unreasonably inflated by a portfolio - of assets (debts owed to the bank) that cannot be realistically collected. Second, charging off the account eliminates further use of the credit card and thus fixes the amount of the principal owed by the debtor to the bank as a liquidated debt. At that point, accrual of contractual interest terminates and the period for assessing prejudgment interest begins.
Much has been said about KRS 360.010, but KRS 360.010 governs only the contractual rate of interest, and it embodies the general rule stated in Clark v. Life & Casualty Ins. Co., 245 Ky. 579, 53 S.W.2d 968, 969 (1932): “the measure of recovery for the failure to pay money is the amount agreed to be paid with legal interest, if no other rate is agreed upon; but, where there is an agreed rate of interest, then the measure of recovery would be the amount agreed to be paid with the agreed rate of interest, if not usurious.” To be sure, KRS 360.010(1) is a usury statute and it sets limiting parameters on the contractual rate of interest, albeit fairly high ones. Nevertheless, the statute has no application here because it is recognized that Citibank’s assignee Unifund does not purport to have the right to collect the contractual rate on interest. It seeks to recover prejudgment interest on the liquidated debt.
There is no doubt that Citibank, and therefore its assignee, Unifund, could not continue to apply the contractual rate of interest after the account was.closed and periodic account statements ceased. Harrell’s counterclaim that Unifund’s demand that he pay interest on his debt violated the Fair Debt Collection Practices Act (FDCPA) was properly rejected by the trial court. The trial court correctly recognized the difference between the right to collect the contractual interest and the right to collect prejudgment interest. The forfeiture of the former does not portend the loss of the latter. The trial court correctly concluded that pursuant to 12 C.F.R. Sec. 226.5(b)(2)(i), when Citibank stopped sending periodic statements to Harrell when the account was charged off, and could no longer charge additional fees or collect the contractual interest on the account, nothing forecloses the right to collect prejudgment interest on the liquidated debt.
I see nothing in the applicable statutes or regulations that compels the forfeiture of something as solidly-established and long-recognized as a creditor’s right to prejudgment interest. The trial court in this action and the dissenting judge in Stratton correctly analyzed the situation. Unifund’s claim for prejudgment interest is a well-established remedy in securing a just resolution of an unpaid liquidated debt. Unifund’s demand for it is not deceptive, unfair, or unconscionable under the FDCPA. The trial court did not err when dismissing Harrell’s counterclaim. I would affirm the trial court.

. Pilot Receivables was Unifund’s predecessor in interest.

. "Precisely when the amount involved qualifies as liquidated' is not always clear, but in general liquidated’ means ’[m]ade certain or fixed by agreement of parties or by operation of law.’ Black’s Law Dictionary 930 (6th ed. 1990). Common examples are a bill or note past due, an amount due on an open account, or an unpaid fixed contract price.” Nucor Corporation v. General Electric Co., 812 S.W.2d 136, 141 (Ky. 1991).