A District Court judge in Michigan has denied a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case, ruling that the defendant’s attempt to impose a 5% interest rate on the debt without clear contractual or legal authorization may constitute a violation of the FDCPA.
The background: The lawsuit stems from a rental agreement dispute. The plaintiff signed a lease for a residential property, but then terminated it early with written acknowledgment from the landlord. Despite vacating the premises in December 2019, the plaintiff received communications from the property manager more than a year later suggesting that her move-out date had been recorded incorrectly.
- In 2021, the defendant attempted to collect the alleged outstanding debt from the plaintiff, which included an interest charge of 5% per annum. The plaintiff disputed the validity of the debt and requested supporting documentation. After a period of silence, the defendant resumed collection efforts in 2022, now listing additional accrued interest.
- The plaintiff subsequently filed suit, alleging violations of the FDCPA and state law in Michigan. Specifically, the complaint argued that the debt collector had no contractual or legal basis to impose the additional interest and that its attempts to collect such an amount were misleading, deceptive, and unfair under federal and state law.
The ruling: Judge F. Kay Behm of the District Court for the Eastern District of Michigan denied the defendant’s motion for judgment on the pleadings, rejecting its argument that Michigan law permits the automatic imposition of a 5% interest rate when a contract does not specify interest terms. Judge Behm found that Michigan’s usury statute, which sets a maximum interest rate of 5%, is designed as a consumer protection measure rather than a tool for debt collectors to impose interest where none was agreed upon in a contract.
- The ruling noted that Michigan law does allow for prejudgment interest in certain cases, but such interest is typically awarded by a court as part of a legal judgment — not imposed unilaterally by a debt collector in pre-litigation collection efforts.
- Judge Behm also emphasized that the FDCPA prohibits the collection of any amount not expressly authorized by the original agreement or permitted by law. Since the lease agreement provided by the defendant did not include an interest provision, the defendant’s actions could be considered a false representation of the debt’s character and amount.
- The court further reasoned that the defendant’s reliance on Michigan law was “objectively baseless” and “legally indefensible,” as no cited authority supported its interpretation that it could apply interest without a judicial determination.
