Usury Claims Against Midland Revived in NY

MANHATTAN (CN) - Though the debts it tries to collect may have originated with a national bank, federal law does shield Midland Funding from usury claims, the 2nd Circuit ruled.

Saliha Madden hopes to represent a class with claims that Midland wrongfully applied a "usurious" 27 percent yearly interest rate on alleged debts.

Since New York caps the annual interest rate at 25 percent, and Madden lives there, she claimed that Midland's conduct constitutes "abusive and unfair debt collection practices in violation of the Fair Debt Collection Practices Act (FDCPA)."

Midland meanwhile pointed to the National Bank Act, or NBA, a federal law that lets banks charge interest on a loan at any rate allowed by the state in which the bank is located, regardless of maximum interest rates in the consumer's home state.

In Madden's case, Midland said her credit card debt originated with the Bank of America, whose credit card program was later consolidated into Delaware-based national bank FIA Card Services.

Since Midland is located in Delaware, it denied an obligation to meet New York's interest-rate cap.

Midland said Madden received a "change in terms" document when FIA became Madden's creditor, and that this notice contained a "Delaware choice-of-law clause."

Crediting Midland's arguments, a federal judge in Manhattan denied Madden class certification and found that the NBA pre-empts her claims.

The 2nd Circuit's reversal Friday refuses, however, to put much stock in the fact that Midland Funding and Midland Credit Management are "assignees" of a national bank.

"Because neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden's claim relies would not significantly interfere with any national bank's ability to exercise its powers under the NBA, we reverse the District Court's holding that the NBA pre-empts Madden's claims and accordingly vacate the judgment of the District Court," Judge Chester Straub wrote for a three-person panel.

Midland's purchase of Madden's alleged debts ended any interest the banks had in collecting them, the court found. With Midland acting solely on its own behalf in collections attempts, it is not entitled to the protections of the NBA, according to the ruling.

Class certification may be available to Madden on remand, and the lower court must determine whether the Delaware choice-of-law clause precludes her claims.

Midland says it was still acting under Delaware law, even if its debt-collection actions are not preempted by the NBA, because Madden's creditor, FIA Card Services, is located in Delaware.

Madden is represented by attorney Daniel Schlanger in Pleasantville, N.Y.

Midland Funding is represented by Thomas Leghorn of Wilson, Elser, Moskowitz, Edelman & Dicker.

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