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Burch v. Midland Funding, LLC

United States District Court, N.D. Illinois, Eastern Division

September 29, 2014

TONI BURCH, individually and on behalf of all others similarly situated, Plaintiff,


SARA L. ELLIS, District Judge.

Plaintiff Toni Burch brings this putative class action against Midland Funding, LLC ("Midland Funding") and Midland Credit Management, Inc. ("Midland Credit") alleging that Defendants violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., (the "FDCPA") by sending Burch a letter that misrepresented the amount of the debt Burch owed. The letter, dated January 14, 2013, indicated that Burch owed $7, 373.77, including $6.05 in accrued interest, and noted that interest would continue to accumulate at an annual rate of five percent. Burch contends that because Defendants were not entitled to charge any interest, the January 14 letter violated the FDCPA by containing false statements and constituting an unfair practice. Defendants contend that they were entitled to collect interest - both contractually and statutorily. Now before the Court is Defendants' motion to dismiss the complaint for failure to state a claim [34]. The motion to dismiss is denied because the complaint plausibly alleges that Defendants had no contractual right to assess five percent annual interest and that Defendants failed to comply with the state statute that would allow them to impose interest.


Burch opened a Bank of America Visa U.S. Airways Dividend Miles Platinum Card and used the card to accumulate consumer debt beginning in 2008. In 2009, Bank of America transferred its Visa U.S. Airways Dividend Miles Platinum Cards to Barclays Bank ("Barclays"). In January of 2013, Defendant Midland Funding bought Burch's debt from Barclays. Midland Funding is a "bad debt buyer." Doc. 1 ¶ 4. Midland Funding collects on debts by way of its affiliate, Defendant Midland Credit. Seeking to collect on Burch's debt, Midland Credit sent Burch a letter dated January 14, 2013 stating that the then-current amount of the unpaid debt was $7, 373.77. This sum was comprised of a charge-off balance of $7, 367.72 and $6.05 in interest that had accumulated since Midland Funding purchased the debt earlier that month. The collection letter further stated that interest would continue to accumulate at a rate of five percent per year. The letter provided Burch with 45 days to pay the debt, but stated that "[b]ecause of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater" than $7, 373.77. Doc. 1-3 at 2.

On July 10, 2013, the law firm of Blitt and Gaines, P.C. sent Burch a letter on behalf of its client, Midland Funding, seeking to collect on the debt. This letter indicated a "balance due" of $7, 367.72. That is, the July 10 letter did not refer to the $6.05 in interest that was included in balance stated in the January 14 letter.


A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed.R.Civ.P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678.


The complaint alleges that Defendants attempted to collect interest on a debt when they were not entitled to do so. Specifically, Burch claims that Midland Credit's January 14 letter included $6.05 in accumulated debt. In Count I, Burch alleges that this practice was deceptive or misleading in violation of 15 U.S.C. § 1692e. Count II claims that Defendants' conduct was unfair or unconscionable in violation of 15 U.S.C. § 1692f.

Defendants first contend that the complaint fails to state a claim because Midland Funding was contractually entitled to charge five percent interest. Although Midland Funding did not enter into a contract with Burch, it asserts that when it purchased Burch's debt it stepped into the shoes of the original lender and thereby obtained all rights available to Bank of America. Midland Funding contends that Bank of America and Burch must have entered a contract when the card was originally issued and that the contract must have entitled Bank of America to charge interest of at least five percent. Midland Funding does not, however, summarize any of the terms of Burch's agreement with Bank of America. Nor is it clear at this stage, whether Burch and Bank of America even entered into a written agreement. Defendants do not attach any contract to their motion. Instead, Defendants assert that Burch "does not and cannot dispute that the terms of her credit card were governed by a written agreement." Doc. 36 at 7.

In support of their argument, Defendants submit Wolfe v. Midland Funding, LLC, No. 13-cv-351-MJR-PMF, Doc. 71 (S.D. Ill. July 3, 2014) where the district court found for Midland Funding and Midland Credit on summary judgment. However, the decision in Wolfe was based on the court's conclusion that the defendants had a contractual right to charge the plaintiff five percent annual interest because Wolfe's underlying credit card agreement with Chase Bank set out interest terms as high as 15.57% and Midland Funding stood in Chase's shoes. Id. at 7. Additionally, Wolfe did not raise her argument that the defendants lacked authority to charge interest until her motion for summary judgment. Id. Here, on the other hand, Burch alleges from the start that the January 14 letter was false and unfair because Defendants had neither the contractual or statutory authority to charge interest. See Doc. 1 at 4, 5.

On the record before the Court, it is impossible to know whether Midland Funding actually had a contractual right to charge Burch interest of as much as five percent per year. Because Midland Funding did not contract directly with Burch, its contractual right would hinge on its predecessors' contract or contracts with Mrs. Burch. But the terms of any contract are a mystery at this point. Therefore, Defendants fail to persuade the Court that the Complaint must be dismissed on the basis that Midland Funding was contractually entitled to charge Burch interest at an annual rate of five percent.

Defendants also argue that they were entitled to charge five percent annual interest pursuant to the Illinois Interest Act, 815 Ill. Comp. Stat. 205. The Interest Act states, in relevant part:

Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance; on money received to the use of another and retained without the owner's knowledge; and on money withheld by an unreasonable and vexatious delay of payment. In the absence of an agreement between the creditor and debtor governing interest charges, upon 30 ...

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