By: Marc A. Rapaport, Esq.
January 29, 2017
In the case Madden v. Midland Funding, LLC, which has been pending for more than five years in United States District Court for the Southern District of New York, plaintiff Saliha Madden has courageously challenged the unlawful debt collection practices of Midland Funding, one of the largest and most unscrupulous buyers of consumer debt in the United States. Because so many Americans have been devastated both emotionally and financially by Midland's violations of the law, we are taking this opportunity to describe how one consumer has courageously fought back. You can read a copy of Ms. Madden's federal court complaint against Midland Funding here.
In 2005, Ms. Madden opened a credit card account with Bank of America. In 2008, Ms. Madden's debt of approximately $5,000 was written off as uncollectable. As many Americans have painfully learned, after banks write off consumer debts, debt buyers step in and begin aggressive collection actions to earn profits off of the accounts for which they have paid pennies on the dollar. Ms. Madden's account was purchased by Midland Funding, which sent Ms. Madden a letter demanding payment and stating that an interest rate of 27% per year applied.
In most circumstances, banks get away with charging enormous rates of interest because the National Banking Act (NBA) allows national banks to charge on any loan the rate of interest allowed by laws of the state where the bank is located. Thus, national banks do not have to be concerned about usury laws of states where consumer borrowers live. As a practical matter, banks need only incorporate in a state (such as Delaware) which has lax standards regarding interest rates chargeable to consumers.
But Ms. Madden's attorneys astutely realized that because Midland Funding was merely a debt buyer rather than a national bank, Midland Funding was not covered by the NBA, and thus it had no valid basis to charge Ms. Madden an interest rate that far exceeded the percentage allowed by New York's usury laws. In May 2015, the United States Court of Appeals for the Second Circuit issued a decision concluding that the NBA does not protect debt buyers from usury claims filed against them under state law. This decision is a huge victory for consumers. Although Ms. Madden's federal class action case against Midland Funding still continues, her victory at the Court of Appeals is a major step forward for consumers who are harassed by debt buyers.
Marc Rapaport is the founder and managing member of Rapaport Law Firm, PLLC in New York City.