The opinion of the court was delivered by: MATHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
Enrique Olvera has sued Blitt & Gaines, P.C., alleging that the law
firm has violated the Fair Debt Collection Practices Act ("FDCPA").
15 U.S.C. § 1692 et seq. Blitt & Gaines has moved to dismiss Olvera's
complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon
which relief can be granted. Although we agree with Blitt & Games'
challenge to the legal theory on which Olvera's suit is based, we must
deny its motion to dismiss, because Olvera could martial facts entitling
him to relief under Blitt & Gaines' interpretation of the relevant law.
When considering a motion to dismiss for failure to state a claim, the
Court must read the complaint liberally, granting the motion only if "it
appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley v.
Gibson, 355 U.S. 41, 45-46 (1957); First Insurance Funding Corp.
v. Federal Insurance Co., 284 F.3d 799, 804 (7th Cir. 2002). The
Court will accept as true all well pleaded facts alleged in the complaint
and draws reasonable inferences from those facts in favor of the
plaintiff. Jackson v. E.J. Brack Corp., 176 F.3d 971, 977 (7th Cir. 1999). However, the
Court "need not accept as true `conclusory statements of law or
unsupported conclusions of fact.'" First Insurance Funding Corp., 284
F.3d at 804 (citation omitted).
According to his complaint, Olvera received a credit card from Conseco
during the time when it was licensed by the Illinois Department of
Financial Institutions ("DFI").*fn1 Compl. ¶ 11. At some point,
Conseco. placed Olvera's debt in default, terminated his privileges to
obtain credit, and charged off what he owed as bad debt. Id. ¶ 12.
Cavalry SPV II, L.L.C., purchased Olvera's debt from Conseco, which has
since filed for bankruptcy. Id. ¶¶ 11-12. Cavalry is not licensed by the
DFI under either the Illinois Consumer Installment Loan Act or the
Illinois Sales Finance Agency Act. Id. ¶ 9. Cavalry has continued to
accrue interest on Olvera's account at a rate of 18.2 percent per year.
Id. ¶ 18. Cavalry hired Blitt & Gaines, P.C., to collect Olvera's debt
including the 18.2 percent interest. Id. ¶ 19. Blitt & Gaines attempted
to collect the debt sometime in the year before Olvera filed the
complaint on September 22, 2003. Id.
Olvera alleges that Blitt & Gaines has violated the FDCPA by falsely
representing the legal status of his debt and trying to collect interest
at a rate that violates the substantive law of Illinois. See
15 U.S.C. § 1692e, 1692f. Specifically, Olvera alleges that the Illinois
Interest Act prohibits Cavalry from charging Olvera more than 9 percent
interest on the debt, and any attempt by Blitt & Gaines to collect the
debt on behalf of Cavalry at a higher rate of interest than Cavalry is
allowed to receive under Illinois law violates the FDCPA. Blitt & Gaines
argues that Olvera's claim must fail because the Illinois Interest Act
does not apply to Blitt & Gaines. But this line of argument is immaterial. Olvera does not allege that
Blitt & Gaines has violated the Interest Act; rather Olvera alleges
that Cavalry has violated the Interest Act, rendering any attempt by
Blitt & Gaines to collect the debt for Cavalry a violation of the
We start our inquiry with the provisions of the FDCPA upon which Olvera
bases his claim. Section 1692e makes it unlawful for a debt collector to
make a false representation of "the character, amount, or legal status of
any debt" or to use a "false representation or deceptive means to collect
or attempt to collect any debt or to obtain information concerning a
consumer." 15 U.S.C. § 1692e(2)(A) and (10). Section 1692f makes it
unlawful to collect "any amount (including any interest, fee, charge, or
expense incidental to the principal obligation) unless such amount is
expressly authorized by the agreement creating the debt or permitted by
law." 15 U.S.C. § 1692f(1). Olvera's claim can succeed only if Cavalry is
neither "expressly authorized by the agreement creating the debt" nor
"permitted by [Illinois] law" to charge 18.2 percent interest.
Blitt & Gaines insists that the interest it seeks to collect from
Olvera on behalf of Cavalry is "expressly authorized by the agreement
creating the debt" as required by § 1692f, that is, expressly authorized
by the credit agreement between Conseco. and Olvera that was assigned to
Cavalry. The firm further argues that because § 1692f permits Cavalry to
charge the rate of interest specified in Olvera's loan origination
agreement, any statements that Blitt & Gaines have made to Olvera
regarding the 18.2 percent interest are not false representations
prohibited under § 1692e.*fn2 The parties do not dispute that under the Illinois Interest
Act, Conseco. had a right to contract with Olvera to receive interest at
a rate of 18.2 percent because it was a DFI licensee at the time it
extended credit to Olvera. Pl. Resp. at 12. The Interest Act authorizes
entities licensed by the DFI under the Consumer Installment Loan Act and
the Consumer Finance Act "to receive or contract to receive and collect
interest in any amount or at any rate agreed upon by the parties to the
revolving credit arrangement." 815 ILCS 205/4.2. The question is whether
Cavalry, the assignee of Olvera's debt, could charge a rate of interest
legally contracted for by Olvera and Conseco.
Olvera insists that under the Illinois Interest Act the answer is no.
The Act states that
No person or corporation shall directly or indirectly
accept or receive, in money, goods, discounts or thing
in action, or in any other way, any greater sum or
greater value for the loan, forbearance or discount of
any money, goods or thing in action, than is expressly
authorized by this Act or other laws of this State.
815 ILCS 205/5. Olvera reads this as meaning that the Act limits what
rate of interest can be received based on the recipient's status
regardless of whether the recipient originated the loan or credit
agreement. As discussed above, DFI licensees can charge any rate of
interest on a credit card. The same provision permits "any other lender
to receive or contract to receive and collect interest in an amount not
in excess of 1.5 percent per month" in a revolving credit arrangement
like the one involved in this case. 815 ILCS 205/4.2 (emphasis added).
Olvera argues Cavalry is not a DFI licensee or "other lender" permitted
by the Act to receive interest at a rate of 18 percent or higher. According to Olvera, Cavalry is either a creditor or an unlicensed
party to a contract. Under the Act, a creditor may receive up to 5 percent
interest per year, 815 ILCS 205/2, and "[i]n all written contracts it
shall be lawful for the parties to stipulate or agree that 9% per annum,
or any less sum of interest, shall be taken and paid upon every $100 of
money loaned or in any manner due and owing from any person to any other
person or corporation in this state, and after that rate for a greater or
less sum, or for a longer or shorter time, except as herein provided."
815 ILCS 205/4(1). Olvera argues that under no circumstances can Cavalry
receive more than 9 percent interest on any debt it owns. He argues that
when Cavalry was assigned his debt by Conseco, Conseco's right as a DFI
licensee to charge more than 9 percent interest was not transferred to
Olvera even if the original credit agreement specifically provided for
an interest rate of more than 9 percent because Conseco's DFI license
was not transferable. In support of this proposition, Olvera offers an
analogy: Driver A, who does not have a driver's license, cannot legally
drive the car he purchased from Driver B just because Driver B had a
driver's license. It is true that Conseco could not transfer its DFI
license to Cavalry. 205 ILCS 670/5. But the issue is not whether
Conseco. could transfer its license to Cavalry; it's whether Conseco.
could assign all its rights under the contract, such as the rate of
interest on the debt, to Cavalry.
Olvera essentially is asking this Court to hold that an assignee of a
debt is prohibited by law from charging the rate of interest specified in
the original credit agreement if the assignee could not have contracted
to receive that rate of interest under the Interest Act if it had been an
original party to the agreement. Olvera looks for support in a Third
Circuit case stating that "regardless of the presence of any agreement
authorizing the rates of interest and penalties" charged by the assignee, the assignee would be in violation of § 1692f(1)
if that "authorized" rate exceeded the statutory 10 percent cap. Pollice
v. National Tax Funding, L.P., 225 F.3d 379
, 408 (3d Cir. 2000).
However, Pollice actually rebuts rather than supports Olvera's theory. In
Pollice the Court held that
government entities had the power to assign their
rights relating to the tax, water and sewer claims and
liens to [the defendant], and that [the defendant] as
assignee thereby stands in the shoes of the government
entities with respect to these claims and liens.
Therefore, [the defendant] is entitled to collect
interest and penalties on the assigned claims to the
same extent as the government entities are entitled to
under relevant state and local law.
Id. at 389-90. The Court found that the municipalities could not have
charged more than 10 percent interest and, therefore, the assignee could
not exceed that cap. Pollice supports Blitt & Games' contention that as
an assignee, Cavalry is permitted by law to charge whatever rate of
interest Olvera agreed to pay the assignor.
The Court has found only one case that lends any support to Olvera's
argument. In a 1939 decision, an Illinois appellate court made a
statement that can be read to suggest that an assignee could not charge
the rate of interest that a licensed entity could charge if the assignee
was not licensed. Kraus Bond & Mortgage Organization, Inc. v. Vicari,
20 N.E.2d 865, 868 (Ill.App. 1939) ("At the time the loan was made, the
lender, Marek Kraus, was licensed and during the time the payments on the
loan were made, plaintiff was licensed. Hence, plaintiff and his
predecessor had a right to demand and receive the 3.5% interest contracted
for."). This comment, which as best as we can tell has not been
elaborated upon or developed since 1939, cannot support the weight it
would have to bear to support Olvera's claim. As we discuss below, the
court's comment contradicts more than a hundred years of Illinois
It long has been held that "[t]he assignee stands in the shoes of the
assignor." Wetherell v. Thirty-First Sreet Building & Loan Association, 153 Ill. 361, 365,
39 N.E. 143, 143 (1894). See also Plumb v. Fluid Pump Service, Inc.,
124 F.3d 849, 864 (7th Cir. 1997) ("[E]lementary contract law provides
that upon a valid and unqualified assignment the assignee stands in the
shoes of the assignor and assumes the same rights, title and interest
possessed by the assignor." (internal citation omitted)); Olson v.
Etheridge, 177 Ill.2d 396, 406-07, 686 N.E.2d 563, 567 (1997) (same). The
Illinois Interest Act regulates the origination of loans and credit
agreements by lenders and creditors. It does not deal with the interest
an assignee who was not an original party to the credit agreement can
charge on a matured debt. The Interest Act does not specifically state
that an assignee is limited to charging interest on a matured debt at the
rate it would be permitted to charge if it had originated the credit
agreement. The Court believes it would be imprudent to adopt a reading of
the statute that abandons one of the most basic tenets of the common law
when the Act does not expressly call for that result.
The Seventh Circuit has stated that "if the clear language, when read
in the context of the statute as a whole or of the commercial or other
real-world (as opposed to law-world or word-world) activity that the
statute is regulating, points to an unreasonable result, courts do not
consider themselves bound by `plain meaning,' but have recourse to other
interpretive tools in an effort to make sense of the statute." Schlosser
v. Fairbanks Capital Corp., 323 F.3d 534, 537-38 (7th Cir. 2003)
(internal quotation marks and citation omitted). Reading the Interest Act
as limiting what an assignee can receive based on the interest he could
have contracted for if he had originated the loan or credit agreement
would lead to an absurd result. Specifically, a debtor who defaults on
his debt to a licensed entity would receive a windfall if his debt was
assigned to an unlicensed entity, because the interest rate he could be
charged then would be limited to 5 or 9 percent even if he had agreed to a higher rate of interest in the
original credit agreement. The Court cannot find any legitimate public
policy reason for giving the debtor such a windfall. The Act does not
entitle the debtor to obtain a better interest rate when his debt is
assigned to a third party than he contracted for at ...