Filed March 3, 2006 No. 3-04-0886 ______________________________________________________________________ _____
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 2006
PRA III, LLC, ) Appeal from the Circuit Court of the ) Ninth Judicial Circuit, Plaintiff-Appellee, ) Knox County, Illinois. ) v. ) No. 03-LM-289 ) CHERYL J. HUND, ) Honorable ) Stephen C. Mathers, Defendant-Appellant. ) Judge, Presiding. ______________________________________________________________________ ________
JUSTICE McDADE delivered the opinion of the court: ______________________________________________________________________
________
Plaintiff, PRA III, LLC (PRA), is in the business of buying and collecting bad
credit card debts. Defendant, Cheryl Hund, had entered into a credit card agreement
with Associates National Bank and agreed to pay interest at 20% on unpaid balances.
PRA acquired Hund=s debt by assignment and sought to recover it, charging the same
rate of interest as had its predecessor in interest. PRA filed a complaint against Hund
to recover the debt, including interest accumulated at the original rate after PRA
acquired the debt. Hund filed a counterclaim alleging that by charging interest on the
debt it acquired in excess of 9%, PRA violated the Illinois Interest Act (815 ILCS 205/0.01 et seq. (2004)), the Consumer Fraud and Deceptive Business Practices Act
(Consumer Fraud Act) (815 ILCS 505/1 et seq. (2004)), and the Fair Debt Collection
Practices Act (FDCPA) (15 U.S.C. '1601 et seq. (1988)). The parties filed a stipulated
motion to dismiss PRA=s first-amended complaint to collect the debt, acknowledging
PRA=s statutorily-required payment of Hund=s costs (735 ILCS 5/5-114 (West 2004)). In
that motion, the parties stipulated that Hund=s counterclaim remains pending. The trial
court granted the parties= motion. Because Hund=s counterclaim is based on an
independent statutory cause of action (see, e.g., Stepney v. Outsourcing Solutions, Inc.,
No. 97 C 5288 (N.D. Ill. 1997)), we hold this appeal is not rendered moot by PRA=s
voluntary dismissal.
PRA filed a motion to dismiss Hund=s counterclaim on the grounds it was entitled
to collect interest at the rate specified in the charge account agreement between Hund
and her credit card issuer. The trial court adopted the reasoning in Olvera v. Blitt &
Gaines, 03 C 6717 (N.D. Ill. April 26, 2004). There, the court stated that "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." Olvera, slip op. at ____. The
court found that PRA was not an original party to the credit agreement and granted
PRA=s motion to dismiss Hund=s counterclaim. Hund appealed. For the reasons that
follow, we affirm.
ANALYSIS
This case requires us to construe several provisions of the Interest Act (815 ILCS
205/0.01 through 9 (West 2004)). "Construction of a statute is a matter of law, which is reviewed
-2- de novo." Hines v. Department of Public Aid, 357 Ill. App. 3d 225, 228 (2005).
"In ruling upon a motion to dismiss, a trial court accepts as true all well-pled facts,
as well as all reasonable inferences favorable to the party opposing the motion which may be
drawn from the facts. [Citation.] The court does not, however, accept as true mere
conclusions of law or fact. [Citation.] The grant of a motion to dismiss will be reviewed on
a de novo basis." Lane v. Anderson, 345 Ill. App. 3d 256, 263, 802
N.E.2d 1278, 1284 (2004).
On December 9, 2005, the United States Court of Appeals for the Seventh Circuit
affirmed the Northern District=s decision in Olvera, holding that "section 5 of the Illinois
Interest Act does not affect the common law rights of assignees." Olvera v. Blitt &
Gaines, 431 F.3d 285, 289 (7th Cir. 2005). PRA filed a motion to cite the Seventh
Circuit=s decision as additional authority to this court. We granted that motion, and in
response, Hund submitted to this court her petition for rehearing or rehearing en banc
filed with the Seventh Circuit in Olvera. "Illinois courts are generally not bound by federal court
decisions construing Illinois statutes that do not involve federal questions." SI Securities. v. Bank of
Edwardsville, No. 5-04-0651, slip op. at 16 (November 4, 2005). Although we agree
with the Seventh Circuit=s interpretation of the scope of section 5 of the Interest Act, we
note that our decision today is not reliant upon that court=s reasoning.
1. Whether PRA, as Assignee of the Original Creditor, May Collect the Same Interest as
the Assignor
Hund argues that PRA was not permitted to collect interest in excess of 5% or
9% because Illinois law requires statutory authorization before any entity may collect
interest and none of the statutory provisions authorizing the collection of greater interest
-3- apply to PRA. Hund relies on section 5 of the Interest Act (815 ILCS 205/5 (West
2002)) for her position that no entity may collect interest without express statutory authorization.
Section 5 reads as follows:
"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
(West 2002).
An " >assignment operates to transfer to the assignee all of the assignor's right, title or interest in
the thing assigned. [Citations.] The assignee, by acquiring the same rights as the assignor, stands in the
shoes of the assignor.= " Community Bank of Greater Peoria v. Carter, 283 Ill. App. 3d 505,
508, 669 N.E.2d 1317, 1319 (1996), quoting In re Estate of Martinek, 140 Ill. App.
3d 621, 629, 488 N.E.2d 1332, 1337 (1986). Despite this well-established rule,
Hund argues the phrase "[n]o person or corporation" in section 5 of the Interest Act should be given its
plain and literal meaning to include assignees. PRA would then be prohibited from collecting interest unless
"expressly authorized by [the Interest Act] or other laws of this State."
Sections 2 and 4 of the Interest Act address what interest an entity may charge. Those
sections read, in pertinent part, as follows:
"Creditors shall be allowed to receive [interest] at the rate of five (5) per centum
per annum for all moneys after they become due ***." 815 ILCS 205/2 (West
2002).
"In 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
-4- 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." (Emphasis added.) 815 ILCS 250/4(1)
Based on the foregoing, absent an agreement between the parties, Illinois law permits creditors to
collect 5% interest on unpaid debts. Parties may contract for up to 9% interest without restriction or for
a greater sum of interest than 9% subject to certain restrictions found in section 4 of the Interest Act.
Section 4 states generally that "[t]he maximum rate of interest that may lawfully be contracted for is
determined by the law applicable thereto at the time the contract is made." 815 ILCS 205/4(1)
(West 2002). Section 4.2 of the Interest Act goes on to state as follows:
"On a revolving credit *** it is lawful for any bank *** or a lender licensed under
the Consumer Finance Act, the Consumer Installment Loan Act or the Sales Finance
Agency 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 (West 2002).
But Hund argues PRA may not take advantage of section 4.2 because it is not a lender.
PRA responds that the Interest Act does not apply to it at all for the same reason: it is not a lender.
PRA cites, inter alia, Computer Sales Corp. v. Rousonelos Farms, Inc., 190 Ill. App. 3d
388, 392, 546 N.E.2d 761, 763 (1989), which stated that "the usury statute
[(quoting section 4 of the Interest Act)] applies only to those contracts which in substance involve a loan of
money or forbearance to collect money due." (Emphasis added.) Rousonelos, as did the other cases
PRA cited in support of this proposition, distinguished between credit purchases of property, goods, or
services, and credit cards which may be used to make loans or advances in lender-debtor transactions. See,
-5- e.g., Johnson v. Sears Roebuck & Co., 14 Ill. App. 3d 838, 850, 303 N.E.2d 627,
637 (1973). Those cases did not, however, address assignees of lenders that issue credit cards.
According to Hund, the argument that the Interest Act does not apply to assignees such as
PRA is belied by the legislature=s grant of limited authority to assignees to collect interest above 9%.
The first exception for assignees, according to Hund, is found in section 2 listed above. The second is in
section 4.2 of the Interest Act, which grants sales finance agencies the authority to receive and collect
interest in any amount. See 815 ILCS 205/4.2 (West 2002). Hund argues that a sales
finance agency is, by definition, an assignee. Section 2 of the Sales Finance Agency Act (205
ILCS 660/2 (West 2002)) defines a "sales finance agency" as "a person *** engaged in this
State, in whole or in part, in the business of purchasing *** retail installment contracts, retail charge
agreements or the outstanding balances under such contracts or agreements entered into in this State."
Thus, Hund concludes, because the legislature specified the circumstances under which an assignee may
collect interest above the statutory rate, under the doctrine of expressio unis est exclusio alterius, it
necessarily excluded all others.
Hund also cites Neff v. Capital Acquisitions & Management Co., 352 F.3d 1118,
1120 (7th Cir. 2003), wherein the plaintiffs alleged that the purchaser of their delinquent credit card
accounts violated the Truth in Lending Act (15 U.S.C. '1601 (2000)) by not providing monthly
statements. The court found that "[n]either Congress nor the Federal Reserve made the policy choice here
to extend the duty to send monthly statements to purchasers of delinquent accounts." Neff, 352 F.3d
at 1121. The court refused to read such a requirement into the Truth in Lending Act because, where the
statute in question "specifically address[es] the circumstances of an assignee's obligations ***, we do not look
to the >normal rule= that an assignee assumes the duties of the assigning party." Neff, 352 F.3d at
1121. Here, Hund argues that since the Interest Act specifically addresses the circumstances of an
-6- assignee=s right to collect interest, this court should not look to the normal rule that assignees stand in the
shoes of the assignor and, in this case, would be permitted to charge the same rate of interest as the
assignor.
PRA argues that, even if the Interest Act does apply to it, under section 5 it was entitled to
collect interest at the rate provided for in the original credit card agreement. (Hund does not argue that
PRA attempted to collect a greater rate of interest than provided in her original credit card agreement.)
PRA relies on the language in section 5 that states no entity may collect interest unless authorized by
"other laws of this State." See 815 ILCS 205/5 (West 2002). PRA contends that the
common law governing assignments constitutes "other laws of this State" and that under the common law of
assignments, the assignee does stand in the shoes of the assignor with respect to the assigned rights. Hund
disputes that claim, asserting that section 5's reference to "other laws of this State" does not include the
common law of assignments. Hund claims the history of section 5 "shows that the reference to >other laws
of this State= replaced a list of statutory sections which was getting excessively long, and has nothing to do
with the common law regarding assignees." In support of her position, Hund also argues that if the common
law of assignments is incorporated into section 5, the limited authority granted assignees to collect interest
found in section 2 of the Interest Act (815 ILCS 205/2 (West 2002)) would be rendered
inoperative. Section 2 of the Interest Act reads, in pertinent part, as follows:
"In the absence of an agreement between the creditor and debtor governing interes charges,
upon 30 days' written notice to the debtor, an assignee or agent of the creditor may
charge and collect interest as provided in this Section on behalf of a creditor." (Emphasis
added.) 815 ILCS 205/2 (West 2002).
Hund admits that collection agencies may take assignments of debts and sue in their own name, but asserts
that PRA "was not charging interest on behalf of anyone, so this section does not help it."
-7- We hold that the Interest Act applies to assignees of debt that wish to continue to collect interest
on those debts. Hund did not contract with PRA for the payment of interest on the debt it acquired.
Illinois courts have long held that interest "is not recoverable unless contracted for or authorized by statute."
Illinois State Toll Highway Authority v. Heritage Standard Bank & Trust Co., 250 Ill. App. 3d
665, 687, 619 N.E.2d 1321, 1335 (1993), citing Department of Transportation v.
New Century Engineering & Development Corp., 97 Ill. 2d 343, 352, 454 N.E.2d
635, 640 (1983). See also Blakeslee=s Storage Warehouses, Inc. v. City of Chicago,
369 Ill. 480, 483, 17 N.E.2d 1, 3 (1938). Accordingly, if the Interest Act contained
a limitation on the amount of interest an assignee could charge, that limitation would be enforceable against an
assignee that was not a lender as defined in the statute.
However, any limitation upon an assignee as it relates to charging interest on a matured debt at the
rate it would be permitted to charge if it had originated the credit agreement would not have to be separately
stated for assignees. This is true because if the phrase "other laws of this State" in section 5 of the
Interest Act does not include the common law of assignments, then, absent an agreement between the
debtor and the assignee, the assignee would be limited to 5% interest. Therefore, we need not determine
whether, specifically, section 4.2 applies to PRA.
PRA does not contend that it may collect the interest agreed upon in the revolving credit
arrangement in its own right. No agreement as to a revolving credit arrangement or an interest rate exists
between PRA and Hund, and therefore section 4.2 is inapplicable to this situation. Similarly, section 4
of the Interest Act is inapplicable. That section also addresses what rate of interest the parties may agree
upon. Again, PRA and Hund do not have a written agreement as to the debt in question. The only
question remaining, therefore, is, if the phrase "other laws of this State" does not include the law of
assignments, does section 5 of the Interest Act prohibit PRA from collecting the interest Hund agreed
-8- to on the debt PRA acquired?
Hund=s argument that the phrase "other laws of this State" does not include the common law of
assignments is unpersuasive. " >State law= includes common law as well as statutes and regulations."
Farner v. Brunswick Corp., 239 Ill. App. 3d 885, 891, 607 N.E.2d 562, 567
(1992) (rejecting claim, for purposes of preemption of state recreational boat safety regulations by federal
act, that a common law claim is not the equivalent of a law or regulation), citing Cipollone v. Liggett Group,
Inc., 505 U.S. 504, 522, 120 L. Ed. 2d 407, 426, 112 S. Ct. 2608,
2620 (1992) ("[W]e have recognized the phrase >state law= to include common law as well as statutes
and regulations. Indeed just last Term, the Court stated that the phrase > "all other law, including State
and municipal law" > does not admit of [a] distinction . . . between positive enactments and common-law rules
of liability= "). Nor is Hund=s argument that finding assignees may charge the same interest as their
assignors renders section 2 of the Interest Act inoperative persuasive. The purpose of section 2 is not to
vest an assignee with "limited authority" to collect interest as Hund argues. The right of the assignee to
collect interest derives from the assignment from the creditor. In addition to setting the rate of interest,
section 2 does, however, create a requirement for 30 days= written notice before an assignee may
exercise the right obtained by a valid assignment.
Moreover, the legislature recognized the assignability of a creditor=s rights in section 2 of the
Interest Act. There, creditors= assignees and agents are granted express authority to charge and collect
the same interest afforded creditors in the Act. ("[A]n assignee or agent of the creditor may charge and
collect interest as provided in this Section on behalf of a creditor." 815 ILCS 205/2 (West
2002)). Hund argues PRA was not collecting interest on behalf of the credit card issuer, but that
conclusion is (a) not relevant to the question of whether the common law of assignments is part of the
Interest Act, and (b) called into question by the legislature=s use of "assignee" and "agent" in section 2.
-9- If, as Hund suggests, this section is only applicable when the third party is collecting interest for the direct
benefit of the original lender, then "agent" would have been sufficient. However, the legislature chose to
include an "assignee" as a party that may charge and collect the interest provided in the Interest Act. The
legislature is presumed to know what an assignment is and that, as a result, the assignor would extinguish its
right to the benefits of the loan agreement, including the interest. Thus, it appears that the phrase "on behalf
of a creditor" in section 2 is mere surplusage.
Finally, Hund characterizes the trial court=s holding as creating an exception to section 5 of the
Interest Act for assignees and argues that its reasons for creating such an exception are untenable. The
court did not, however, find that section 5 contained an exception for assignees. It found that the Interest
Act simply did not apply in this case. Nonetheless, Hund argues that such an "exception" is inconsistent
with the text and history of section 5 and is in derogation of the public policy of this state. Hund=s textual
argument is that stated above; i.e., section 5 contains a broad proscription against the collection of interest
without explicit statutory authorization, no such authorization applies to PRA, and PRA may not charge
the same interest as its assignor because section 5 does not incorporate and in fact defeats the common law
of assignments. For the reasons stated above, we disagree.
Hund also claims that the court=s ruling usurps the legislature=s prohibition on the transfer or
assignment of license rights. Hund=s argument in this regard is based on the requirement that a sales finance
agency be licensed and that those licenses are expressly made nontransferable. However, while Hund argued
that a sales finance agency is a type of assignee governed by the Interest Act, her argument tacitly admits
that it is not the only assignee governed by the Interest Act. Hund does not argue, nor do we find, that
any language in the Interest Act requires the assignees referred to in section 2 to be licensed. The
Interest Act, therefore, specifically provides that an unlicensed assignee of a creditor may charge interest
as provided in the Act. Accordingly, Hund=s argument that the court=s ruling results in an impermissible
-10- transfer of the rights of a licensee to an unregulated entity in violation of public policy must also fail.
We hold that PRA was entitled to seek interest on Hund=s debt in the same amount as the original
creditor from whom PRA acquired the debt.
2. Whether PRA Violated the Fair Debt Collection Practices Act (FDCPA) or the Illinois
Consumer Fraud Act by Attempting to Collect the Same Interest Rate as the Original Issuer of
Hund=s Credit Card
Hund argues that a debt collector who attempts to collect usurious interest violates the FDCPA.
Specifically, Hund alleges PRA violated section 1692f(1) of the FDCPA (15 U.S.C.
'1692f(1) (1988)), which reads as follows:
"A debt collector may not use unfair or unconscionable means to collect or attempt
to collect any debt. Without limiting the general application of the foregoing, the following
conduct is a violation of this section:
(1) The collection of 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."
Additionally, Hund charges PRA with violating section 1692e(2) of the FDCPA (15
U.S.C. '1692e(2) (1988)) which reads as follows:
"A debt collector may not use any false, deceptive, or misleading representation or
means in connection with the collection of any debt. Without limiting the general application
of the foregoing, the following conduct is a violation of this section:
***
(2) The false representation of-- (A) the character, amount, or legal status
of any debt; or (B) any services rendered or compensation which may be
-11- lawfully received by any debt collector for the collection of a debt."
The Federal Trade Commission published staff commentary on the FDCPA. Relevant to this
appeal, the commentary stated as follows:
"A debt collector may attempt to collect a fee or charge in addition to the debt if either (a)
[sic] the charge is expressly provided for in the contract creating the debt and the charge is
not prohibited by state law, or (B) the contract is silent but the charge is otherwise
expressly permitted by state law. Conversely, a debt collector may not collect an additional
amount if either (A) state law expressly prohibits collection of the amount or (B) the
contract does not provide for collection of the amount and state law is silent." Pollice v.
National Tax Funding, L.P., 225 F.3d 379, 408 n.32, quoting 53 Fed.
Reg. 50,097, 50,108 (eff. March 20, 1978).
PRA does not allege the existence of a contract between it and Hund for the interest it sought.
However, as previously discussed, under Illinois law, PRA is permitted to charge the same interest as its
assignor. Therefore, under the staff commentary to the FDCPA, PRA may collect the interest.
Hund also argues that she is entitled to relief based on PRA=s alleged "systematic assessment,
collection, and reporting to credit bureaus of excess interest." Hund states that PRA=s action "is
contrary to public policy" and that, accordingly, she is entitled to relief under the Consumer Fraud Act. In
Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 417-18, 775 N.E.2d 951,
960 (2002), the supreme court held that recovery may be had under the Consumer Fraud Act for
"unfair" conduct. "[W]hether the [conduct]***offends public policy" is one of three factors cited with
approval in Federal Trade Comm'n v. Sperry & Hutchinson Co., 405 U.S. 233, 244 n. 5,
31 L. Ed. 2d 170, 179 n. 5, 92 S. Ct. 898, 905 n. 5 (1972), as considered by the
Federal Trade Commission in measuring unfairness. Robinson, 201 Ill. 2d at 417-18, 775
-12- N.E.2d at 960-61. The Robinson court held that > "[a]ll three criteria do not need to be satisfied to
support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the
criteria or because to a lesser extent it meets all three." > Robinson, 201 Ill. 2d at 418, 775
N.E.2d at 961, quoting Cheshire Mortgage Services, Inc. v. Montes, 223 Conn. 80,
106, 612 A. 2d 1130, 1143-44 (l992). Hund makes no argument concerning the remaining
two Sperry factors nor does she argue the "degree" to which PRA=s conduct violates public policy.
Regardless, because PRA did not collect excess interest, it did not violate public policy as stated in Illinois
law, and, consequently, this argument must fail.
CONCLUSION
We find that (1) the Interest Act does apply to assignees of debt that wish to continue to collect
interest on those debts; (2) because no agreement exists between PRA III and Hund regarding this debt
or the interest to be charged, neither section 4 nor section 4.2 is applicable in this case; and (3) the
phrase "other laws of this State" in section 5 includes the Illinois common law of assignments. We also
find no violation of the Fair Debt Collection Practices Act or the Consumer Fraud Act occurred
because of PRA III=s attempt to collect interest at the same rate as its assignor, Associates National
Bank. Accordingly, the trial court=s order granting PRA=s motion to dismiss Hund=s
counterclaim is affirmed.
Affirmed.
SCHMIDT, P.J. and O=BRIEN, J., concur.
-13-