PHILADELPHIA — A U.S. Third Circuit Court of Appeals ruling on a case involving the repossession of a car leaves questions unanswered about whether such actions might violate state or federal law, but makes clear that it’s not a violation of the Fair Debt Collection Practices Act to do so.
In the case, Goldenstein v. Repossessors Inc., the Third Circuit upheld a lower court’s judgment that, even when a loan is usurious, creditors or those acting on their behalf are allowed to seize what the debtor offered as collateral.
It sent the case back to U.S. District Court to consider whether the collection violated the Racketeering Influenced and Corrupt Organization (RICO) statute, the Pennsylvania Fair Credit Extension Uniformity Act (PFCEUA) or Pennsylvania’s Uniform Commercial Code (UCC).
“The Third Circuit found that the record was not ‘sufficiently developed’ for the court to consider the merits of the parties’ arguments as to the (RICO violation,” Daniel Beebe, an attorney with Dorsey and Whitney LLP told the Pennsylvania Record.
“So, the Third Circuit left those issues for the district court to consider on remand. The Third Circuit also concluded that it was an error for the district court to grant summary judgment against Mr. Goldenstein on his PFCEUA and UCC claims ‘without addressing the substance of the PFCEUA claim, without even mentioning the UCC claim, and despite the fact that Appellees did not argue those claims in their motion for summary judgment.’”
The case involved a $1,000 loan obtained online that carried a 250 percent interest rate. When an attempt to withdraw a monthly payment for the loan failed, Sovereign Lending Solutions, the company that issued the loan, had another company repossess the car that the plaintiff, Heiko Goldenstein, had put up as collateral.
Lawyers for Goldenstein argued that the because Sovereign and Premier Finance Adjusters, which repossessed the car, worked together and that because the interest rate was so high, the debt was unlawful under RICO and that there was a conspiracy.
They also claimed that when Goldenstein was forced to sign a release in order to get his car back, Premier violated both the PFCEUA and the UCC.
“The district court ruled that Mr. Goldenstein’s RICO claim failed as a matter of law because the repossession of collateral, such as his car, is ‘clearly distinguishable from the collection of unlawful debt and does not give rise to a RICO claim,’” Beebe said
“However, the Third Circuit reversed on this issue, finding that ‘[n]othing in RICO suggests that Congress intended to limit its prohibition on the ‘collection of unlawful debt’ to the seizure of cash and to exclude the forfeiture of collateral used to secure unlawful debt.’”
Usury laws and the legal remedies people can seek vary from state to state, Beebe said. In the Goldenstein case, Pennsylvania law was at issue, and a 1970 decision made it clear that just because a loan carried usurious interest, that didn’t mean it was entirely unenforceable.
“In that case, the Pennsylvania Supreme Court found that a promissory note called for a usurious rate of interest,” he said, “but that the usurious interest rate ‘rendered the note not void, but only voidable as to the interest specified beyond the lawful rate.’”