Minnesota Attorney General Lori Swanson has filed a lawsuit against a junk-debt buyer, Bradstreet & Associates, accusing that firm of charging an inflated interest of 22% on debts for overdrawn bank accounts that may only charge 6% interest under Minnesota law. 

Companies have the right to collect legitimate debt.  But they shouldn’t be charging peoeple for interest they don’t owe.”  Minnesota Attorney General Lori Swanson

Bradstreet & Associates spent $646,000 to purchase $9 million of overdrawn bank accounts from U.S. Bank and Wells Fargo.  The accounts were purchased from a Florida debt buyer for 3 to 7 cents on the dollar.

Bradstreet filed lawsuits in Minnesota misrepresenting the maximum interest rate that could be charged for these debts and in most cases obtained default judgments when consummers failed to respond to the lawsuit.

How did Bradstreet & Associates decide to charge 22% interest instead of the legal maximum of 6%?  The company has refused to comment on the lawsuit so we can only speculate.

There is an attitude prevalent in the civil court system that the accounts of banks and debt buyers are generally correct that that if a person is sued for the debt they probably owe the debt.  A frequent statement made by debt collection lawyers is that the only issue at hand is whether the debt is owed or not. 

Increasingly debt collectors are turning to the legal theory of Account Stated and file lawsuits without any real proof of the debt owed but rather under the theory that the account was stated in a monthly billing statement and no objection was made by the debtor, so the debt must be owed.  Debt collectors argue that the court does not need to examine the underlying contract with the bank and that the court should issue a judgment based solely on the fact that the debtor has not objected to the billing statements.

Courts should never allow debt collectors to obtain judgments under Account Stated theories when an express written contract exists but is not presented to the court.  The billing statements of banks are frequently incorrect, and statements of debt buyers are especially questionable as the Minnesota Attorney General has revealed.

What can we take away from this?

• Billing Statements of Debt Collectors are not reliable and should not be used as a substitute for the underlying contract between a bank and its customers.
• When sued by a debt collector a person should always file a written answer to avoid a default judgment.
• Debtors can win against debt collectors if they demand proof of the debt.