Pretending to be a Lawyer by the Light of a Full Moon

There's a full moon today in a few hours, and if you doubt that a full moon has psychological effects, hold that thought and try to follow this logic.

1. Credit card lenders commonly charge interest in excess of 30% per year.
2. Kentucky law, KRS §286.3-740, authorizes banks to charge no more than 21% interest per year (1.75% per month x 12) on revolving credit plans.
3. Most National Banks are organized in states without interest rate limits (Nevada, Delaware, etc.).
4. Federal law preempts state law and federal law allows National Banks to operate nationally under the rules of the bank's home state.
5. Therefore, National Banks doing business in Kentucky are not limited by Kentucky laws limiting the amount of interest that can be charged for credit card debt.
6. When a credit card debtor defaults, the unpaid balance is accelerated and the debt is sold to a third party, it stops being a revolving credit plan, by definition, and it stops being a debt owned by a National Bank enjoying the supremacy of federal law.
7. In the hands of a junk debt collector, the debt is just an ordinary unsecured debt.
8. In Kentucky, ordinary unsecured debts which are not owned by banks or National banks are subject to Kentucky's general usury statute, KRS §360.010, which limits interest to 8% per year.
9. If the junk debt collector attempts "taking, receiving, reserving, or charging a rate of interest greater than is allowed by KRS 360.010," (8%) for any period after assignment of the debt from the National Bank, the debt collector runs afoul KRS §360.020 and the civil forfeiture provisions therein.

I've gone down this road before, See: Washington Mutual (WaMu) credit cards

  

Grit In My Grits: A Tuesday Complaint About Kentucky Practice

In Kentucky civil procedure there is a general distinction between a default judgment on a claim for liquidated damages and on a claim for indefinite damages.

Kentucky Rules of Civil Procedure, CR 8.04 - Effect of Failure to Deny - provides, in part:

" . . . . Averments in a pleading to which a responsive pleading is required are admitted when not denied  . . . except that the following allegations must be proved:
(a) . . .
(b) . . .
(c) Those concerning value or amount of damages which are not for a sum certain or for a sum which may by computation be made certain." [emphasis added]

K. R. C. P., CR 8.01 - Claims For Relief

"(1) A pleading which sets forth a claim for relief . . . shall contain . . . a demand for judgment for the relief to which he deems himself entitled. . .
(2) In any action for unliquidated damages the prayer for damages in any pleading shall not recite any sum as alleged damages . . . . " [emphasis added]

With a complaint on a credit card debt, for example, simple logic would indicate the amount of damages claimed by the plaintiff is for, "a sum certain or for a sum which may by computation be made certain." which must be specified in the complaint. Yes?

When a defendant is in default for failure to appear and defend in such an action, the allegations in the plaintiff's complaint are not denied and the dollar amount claimed in the complaint is deemed admitted by CR 8.04.

Thus, in an action on a consumer loan transaction, it seems obvious no hearing to determine the amount of damages is required. It's just a simple "computation". But, was life and consumer lending ever really all that simple?

CR 55.01 - Judgment

". . . . If, in order to enable the court to enter [default] judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court, without a jury, shall conduct such hearings or order such references as it deems necessary and proper . . . . " [emphasis added]

With the assignment of consumer loans to junk debt collectors, possibly unwarranted claims for exorbitant prejudgment interest rates and a wide variety of added-on fees and charges, simple computations may turn out to be mind boggling complex.   Clearly a trial judge would be authorized by CR 55.01 to conduct a hearing to establish damages in a consumer loan debt collection action in default for defendant's failure to appear and defend, should he or she feel the urge. However, it is likely unreasonable to require it.

The simplest solution to this problem is probably the best solution. For a consumer debtor being sued who takes the position, "Yep, I owe them something, but not as much as they are asking," the thing to do is to appear and defend the action, and to not allow a default judgment to be entered.

OK. Now I feel better. Thanks for listening.

Rage Against Junk Debt Collectors

I awoke this morning in a feisty mood with the intent to guzzle coffee and to conceive a monkey wrench. Here is the outline for my monkey wrench: Throw with caution.

1. Credit card companies avoid state usury laws by operating as National Banks or other federally chartered institutions.
2. Federal law preempts state law for National Banks, etc. Thus, state usury laws do not apply to most credit card transactions.
3. Upon a credit card debtor's default, these debts are frequently sold to junk debt collectors for a fraction of the amount owed.
4. Upon the assignment of the debt from a National Bank, etc., to a junk debt collector that is not a National Bank, state usury laws become applicable to the debt in the hands of the junk debt collector.
5. In the event a junk debt collector attempts to claim prejudgment interest at the prior credit card interest rate, which sometimes happens, the mere attempt may result in the forfeiture of all interest on the debt, and other civil penalties.
6. KRS § 360.020 provides, in part, "The taking, receiving, reserving, or charging a rate of interest greater than is allowed by KRS 360.010, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it . . . . "

It's something to think about on a cold Saturday morning.