509 S.W.3d 25
Ky.2017Background
- 2007: Harrell opened a Citibank credit-card account with a contractual interest rate (~27%).
- 2011: Harrell defaulted; Citibank charged off the $1,472.58 balance, stopped assessing further interest per 12 C.F.R. §226.5, and later sold the debt to Pilot/Unifund.
- 2012: Unifund sued Harrell in district court seeking the charged-off principal plus statutory pre-judgment interest at 8% under KRS 360.010(1).
- Harrell counterclaimed (as a putative class action), alleging Unifund’s demand for post–charge-off statutory interest violated the FDCPA by misrepresenting the amount/collectability of the debt.
- Nelson Circuit Court dismissed Harrell’s counterclaim under CR 12.02; the Court of Appeals reversed. The Kentucky Supreme Court granted review and affirmed the Court of Appeals, remanding for reinstatement of the counterclaim.
Issues
| Issue | Plaintiff's Argument (Harrell) | Defendant's Argument (Unifund) | Held |
|---|---|---|---|
| Whether KRS 360.010(1) permits Unifund to collect statutory pre-judgment interest after Citibank charged off the account | Charge-off and Citibank’s cessation of interest meant no interest could legally accrue; Unifund (assignee) cannot collect interest the assignor waived | KRS 360.010(1) provides statutory interest as default; assignee may seek statutory pre-judgment interest despite prior charge-off | Court held: contracting for an above‑statutory rate extinguishes statutory interest; Citibank waived the contractual interest by charging off, so Unifund (assignee) has no right to collect interest |
| Whether filing suit seeking such interest violated the FDCPA (15 U.S.C. §§1692e, 1692f) | Alleged that demanding interest Unifund had no legal right to collect constituted false/misleading representation and an attempt to collect an unlawful amount | Argued that seeking statutory prejudgment interest was lawful and not deceptive; therefore no FDCPA violation | Court held: Harrell plausibly alleged FDCPA violations because Unifund sought interest it had no statutory or contractual right to collect, so counterclaim survives dismissal |
| Whether assignee can obtain greater rights than assignor | Harrell: assignee takes assignor’s rights subject to all defenses/equities | Unifund: contends assignee entitled to prejudgment interest even if assignor charged off | Court held: assignee acquires no greater rights than assignor; Unifund cannot collect interest Citibank waived |
| Proper standard on motion to dismiss | Harrell: pleadings must be construed favorably; FDCPA claim plausibly alleged | Unifund: dismissal proper because interest claim lawful | Court held: review de novo; taking pleadings as true, Harrell stated plausible FDCPA claims and dismissal was erroneous |
Key Cases Cited
- Stratton v. Portfolio Recovery Assocs., LLC, 770 F.3d 443 (6th Cir. 2014) (assignee cannot collect interest after creditor agreed not to charge it; persuasive reasoning on interplay of state usury statute and charge-off)
- Heintz v. Jenkins, 514 U.S. 291 (1995) (FDCPA applies to litigating activities of lawyers collecting debts)
- Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010) (attorney advocacy remains subject to legal constraints including FDCPA)
- Currier v. First Resolution Inv. Corp., 762 F.3d 529 (6th Cir. 2014) (least‑sophisticated-consumer standard governs FDCPA representations)
- Nucor Corp. v. Gen. Elec. Co., 812 S.W.2d 136 (Ky. 1991) (prejudgment interest is a right on liquidated claims)
- Whayne Supply Co. v. Morgan Constr. Co., 440 S.W.2d 779 (Ky. 1969) (assignee takes no greater rights than assignor)
- Fox v. Grayson, 317 S.W.3d 1 (Ky. 2010) (standard for CR 12.02 motions to dismiss)