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Media Alerts - Askew v. HRFC, LLC -- Fourth Circuit
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February 23, 2016
  Askew v. HRFC, LLC -- Fourth Circuit
1000% Interest Rate Listed in Your Loan Agreement? No Problem! - Fourth Circuit Says No Violation As Long As Creditor Charges Less than Statutory Maximum

Areas of Law: Consumer Protection

Issues Presented: Whether the lower court erred in holding that Hampton Roads Finance Company was not liable for (1) violating the Maryland Credit Grantor Closed End Provisions, (2) breach of contract, and (3) violating the Maryland Consumer Debt Collection Act.

Brief Summary: The Fourth Circuit affirmed the district court's order granting Hampton Roads Finance Company (HRFC) summary judgment on the Maryland Credit Grantor Closed End Provisions (CLEC) and breach of contract claims, but reversed and remanded the district court's order granting HRFC summary judgment on the Maryland Consumer Debt Collection Act (MCDCA) claim.

Detailed Summary: Dante Askew entered into a retail installment sales contract with a car dealership to finance Askew's purchase of a used car in 2008. Eventually, the car dealership transferred the contract to HRFC. The contract charged a 26.99% interest rate, which was over the CLEC maximum interest rate of 24%. HRFC realized the error in August 2010, and within a month sent a letter notifying Askew that the applied interest rate was an error and that HRFC had credited Askew's account $845.40. Subsequently, Askew fell behind on his payments and HRFC took action to collect on his account. HRFC contacted Askew five times between July 2011 and December 2012, and Askew alleged that HRFC threatened him in order to induce payment of the debt. In a law suit challenging HRFC's conduct, Askew specifically alleged that HRFC threatened that (1) it would report him to authorities for fraud, (2) a replevin warrant had been prepared, and (3) his current complaint in this case had been dismissed. HRFC moved for summary judgment, which the district court granted on all three of the claims. The United States Court of Appeals for the Fourth Circuit reviewed each claim independently and ruled on each.

The Fourth Circuit explained that under CLEC provisions creditors in Maryland may choose to make a loan governed under the CLEC if the creditor provides written notice. If CLEC applies, §12-1003(a) sets a maximum interest rate of 24% and requires that "[t]he rate of interest chargeable on a loan must be expressed in the agreement as a simple interest rate or rates." CLEC § 12-1018(a)(2) states that a violating creditor may collect on the principal of the loan, and not any other charges. Additionally, CLEC § 12-1018(b) states that a creditor who knowingly violates CLEC must forfeit to the debtor 3 times the amount of interest, fees, and other charges that were collected in excess. Although CLEC provides ample protection for the unknowing lender, CLEC also includes two safe-harbor provisions, one of which is crucial to the instant case. CLEC § 12-1020 allows a creditor to avoid liability "if, within 60 days after discovering an error and prior to institution of an action under [CLEC] or the receipt of written notice from the borrower, the credit grantor notifies the borrower of the error and makes whatever adjustments are necessary to correct the error." CLEC § 12-1020.

First, Askew claimed that under CLEC § 12-1003(a) HRFC needed to expressly provide in the contract that the interest rate was less than 24% and the number itself must be written on the contract. However, the Fourth Circuit interpreted CLEC § 12-1003(a) to require only that creditors charge less than a 24% interest rate and provide text that explains the interest rate is a simple interest rate. The Fourth Circuit found that even if an agreement states a 1000% interest rate, if in actuality the creditor charges the debtor less than 24% there is not a viable reason to impose liability on that creditor because a debtor "would be pleased to pay a rate 976 percentage points lower than what they agreed to in a contract."

Second, Askew argued that the safe harbor provision ought to begin at the time he entered the contract with HRFC, which would mean the discovery of the error was well past the 60-day period provided to fix the error. The Fourth Circuit delved into the meaning of "discovery" of an error and concluded that the phrase meant when the Defendant actually knew about a mistake. In the instant case, therefore, the 60-day period began to run from the point where HRFC actually knew about charging an interest rate above CLEC's maximum limit.

Askew next argued that HRFC's notice was cryptic and vague because the September 2010 letter did not explicitly identify the CLEC violation and HRFC's cure did not cover the amount CLEC mandates. The Fourth Circuit disagreed and explained the letter was sufficient and HRFC properly re-credited Askew the excess interest rate that amounted to $845.40.

Askew also argued that HRFC violated the MCDCA provisions, and the district court improperly granted HRFC summary judgment without Askew having an opportunity for proper discovery regarding the claim. The Fourth Circuit found that MCDCA § 14-202(6) provides a debtor protection from a debt collector who contacts the debtor in frequency, at unusual hours, or other manners that can be seen as abuse or harassment. Askew identified three particular circumstances in which he alleged HRFC violated MCDCA. The Fourth Circuit agreed with Askew and explained there is a line between truthful or future threats of legal action and false representations that legal action has already been taken against a debtor. Here, the Fourth Circuit ruled that HRFC had informed Askew that it had already taken legal action when in fact it had not. The Fourth Circuit also explained that a reasonable jury could find HRFC liable under MCDCA for abuse or harassment and therefore reversed the district court's order granting summary judgment to HRFC on the MCDCA claim.

Finally, the Fourth Circuit affirmed the district court's grant of summary judgment to HRFC on the breach of contract claim.

To read the full text of this opinion, please click here.

For further information regarding filing a MCDCA claim, please click here.

Panel: Judges Wynn, Diaz, and Davis

Argument Date: 09/15/2015

Date of Issued Opinion: 01/11/2016

Docket Number: No. 14-1384

Decided: Affirmed in part, reversed in part, and remanded by published opinion

Case Alert Author: Chaitra Gowda, Univ. of Maryland Carey School of Law

Counsel: Cory Lev Zajdel, Z LAW, LLC, Reisterstown, Maryland for Appellant. Kelly Marie Lippincott, CARR MALONEY P.C., Washington, D.C., for Appellee.

Author of Opinion: Judge Diaz

Case Alert Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 02/23/2016 06:54 PM     4th Circuit  

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