In Ahmed v. Richland Holdings, No. 2: 19-CV-1925 JCM (DJA) (D. Nev. February 26, 2021), the District of Nevada dismissed a pair for claims under the Fair Debt Collections Practices Act (FDCPA), alleging that ‘a debt the collector had improperly sought to recover collection costs up to 50% of the unpaid debts.
The plaintiffs, Shafique Ahmed and Mayra Munoz, each made identical agreements to purchase furniture on credit. The loan agreements included clauses allowing the seller to recover fees of 50% of the unpaid debt, interest and legal fees. When the applicants became past due on their loans, the original seller assigned the debts to Richland Holdings (Richland) in exchange for collection costs. When Richland attempted to collect the debts, the plaintiffs brought an action under the FDCPA.
The plaintiffs first alleged that Richland violated Section 1692f (1) of the FDCPA, under which a debt collector may not use unfair or unreasonable means to collect or attempt to collect a debt, including the recovery of any amount that is not “expressly authorized by the agreement.” creating debt or permitted by law. They argued that because their original contracts stated: “I [the consumer] agree to pay everything your [original seller’s] collection costs ”, they had only agreed to pay the collection costs to the original seller and that Richard did not have express authority to recover the costs. The court rejected this argument, finding that there was an express authorization because Richland, as assignee, had put himself in the shoes of the original seller.
However, the plaintiffs further argued that the 50% collection charge was unreasonable because it was unrelated to the actual costs incurred by Richland. In rejecting this request, the court held that § 1692f only applies to unreasonable means of collecting a debt. And the means Richland employed – sending collection letters and making phone calls to complainants – were routine and not unreasonable. Further, the court concluded that because the plaintiffs expressly agreed to the collection costs, the amount of the costs could not be considered unreasonable.
This ruling shows that a debt collector does not violate the FDCPA by simply attempting to recover the collection costs that the debtor agreed to in the underlying contract creating the debt.