Ninth Circuit Says Debt Collection Letter for Prejudgment Interest Does Not Violate FDCPA or Rosenthal ActOn May 12, 2015, the U.S. Court of Appeals for the Ninth Circuit ruled that a debt collection firm that sent a letter seeking 10 percent interest on a debt for which it had not yet obtained a judgment did not violate the Fair Debt Collection Practices Act (“FDCPA”) or California’s Rosenthal Act.

In Diaz v. Kubler Corporation, plaintiff Tamara Diaz was in debt to Parkway Dental Group, which referred her debt to Kubler Corporation, a debt collection agency. Kubler sent Diaz a demand letter requiring her to pay the principal amount plus 10 percent interest.

Diaz filed suit against Kubler, claiming that the company violated the FDCPA and the Rosenthal Act by attempting to collect an amount not “expressly authorized by the agreement creating the debt or permitted by law.” In addition, Diaz claimed that California law does not allow for the collection of interest unless there is a prior judgment or the interest is pursuant to a judgment.

The federal district court found for Diaz, ruling that under California law, Kubler would first have to obtain a judgment awarding prejudgment interest before being able to collect.

On appeal, the Ninth Circuit reversed the district court, citing California Civil Code §3287(a) that states:

“A person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day, except when the debtor is prevented by law, or by the act of the creditor from paying the debt.”

In addition, the court noted that under §3289, if a contract does not specifically state a rate of interest, “the obligation shall bear interest at a rate of 10 percent per annum after a breach.”

The court found that the federal district court had erred in its interpretation of §3287(a), that Kubler was entitled to prejudgment interest and that it did not violate the FDCPA or the Rosenthal Act. The court remanded the action for further proceedings.

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