While some published reports touted a win for the repossession industry in a recent case ruled on in the Third Circuit Court of Appeals, the news is not all good for repossession agents who not may have to go to court to prove whether they new the terms of a loan were lawful or not.
“More lawsuits are coming,” said Donald Maurice, the managing partner in the law firm of Maurice Wutscher. “Against repossession companies and creditors.”
The case, Heiko Goldenstein v. Repossessors Inc., claimed violations of the Fair Debt Collection Practices Act and the Racketeer Influenced and Corrupt Practices Act, more commonly known as RICO.
The appeals court tossed out the FDCPA claims, which were made because the loan was made by a consumer lending company that was owned by a Native American tribe, and the APR on the loan was 250%. Because the interest rate on the loan was above what is allowed by state law in Pennsylvania, the borrower claimed the repossession company had no right to remove the vehicle because the loan was illegal. The courts disagreed saying that the repossession company had the right to recover the vehicle because it was used as collateral for the loan.
On the RICO claims, however, the appeals court ordered the case back to the trial court.
“For repo agents, whether or not the loan turns out to be unlawful is the problem,” Maurice said. “RICO claims can be brought and can’t easily be dismissed. The plaintiffs will have more time to develop their unlawful collection theory.”
Under RICO, an attempt to collect on a debt that is otherwise unlawful is illegal. Previous court rulings had limited the definition of collection to the seizure of cash only; repossessing collateral was not considered collections. The appeals court ruled that repossessing collateral does fit within the definition of collections, thus subjecting repossession agents to more potential RICO claims. The issue is that agents usually have no idea about the terms of a loan; they do not know the interest rate or anything else about the loan itself.
And whether a loan is considered lawful extends beyond the interest rate. Title lenders, for example, that may operate in states without a license and assigning repossession orders would be doing so unlawfully, according to the ruling.
“Repossession companies may get a victory,” if they have to defend themselves against a RICO claim, Maurice said. “But it will only come after some litigation or a summary judgment.”