CHICAGO — A three-judge panel of the U.S. Seventh Circuit Court of Appeals has ruled federal law allows debt collectors to charge fees to the people from whom they collect.
The root case involves Joseph Bernal, who fell behind payments for his monthly membership to Six Flags. The amusement park operator hired AR Assist to recover the debt on a contract allowing it to charge Six Flags a 5% management fee, as well as an additional amount based on the length of the delinquency, which amounted to an extra 20%. AR Assist hired National Recovery Agency, based in Harrisburg, Pa., as a subcontractor.
In February 2015, NRA sent Bernal a letter indicating he owed $267.31 plus $43.28 in costs and could either pay NRA or Six Flags, either of which would pay the fee to AR Assist. Bernal instead filed a class action under the Fair Debt Collection Practices Act, saying NRA’s fee wasn’t expressly authorized by his contract with Six Flags.
U.S. Seventh Circuit Court of Appeals Judge Diane Sykes
U.S. District Judge Gary Feinerman granted class certification in August 2016. But in November 2017 Feinerman issued an opinion determining Bernal’s contract had neither the language prohibiting Six Flags from retaining a collection agency or an attorney, nor any clause limiting what constitutes “costs incurred [by Six Flags] in attempting to collect amounts due.” He said all that matters is what NRA charged Six Flags for the work, and the law allows that cost to be passed on to the party that owes the money.
The panel heard Bernal’s appeal March 28, 2019. Seventh Circuit Judge Diane Sykes wrote the opinion issued July 19, and judges Kenneth Ripple and Daniel Manion concurred.
“According to Bernal,” Sykes wrote, “the contract authorizes only ‘actual costs,’ which Bernal says include things like letterhead and postage but not collection fees. Yet the contract never uses the term ‘actual costs,’ nor does anything in the text suggest it should be read so restrictively.”
The panel explored the use of the term “any costs” and its expansive meaning, and said the $43.28 NRA is charging “is literally the sole ‘cost’” of trying to recover the debt. Sykes wrote that Bernal is correct that the word “costs” can have a narrower meaning, such as when applied to a court awarding costs to a victorious litigant but “nothing in this contract suggests that the word ‘costs’ bears that narrow meaning here.”
The panel said Black’s Law Dictionary distinguishes between court costs and the expenses associated with debt collection, and that Bernal’s contract with Six Flags specifically authorized collection of “any costs including reasonable attorney’s fees.”
Sykes said the panel disagreed with a 2000 Eighth Circuit U.S. Court of Appeals opinion in Kojetin v C.U. Recovery and a 2014 11th Circuit opinion in Bradley v. Franklin Collection Service because both “relied on a pair of assumptions we find questionable, that the contracts at issue authorized only ‘actual costs,’ and that ‘actual costs’ necessarily do not include collection fees. As we’ve seen," she added, "the contractual language never mentions ‘actual costs,’ and even if it did, it’s not obvious why that limitation excludes the fee at issue. The contract allows for ‘any costs,’ and the most reasonable reading of that term is to include fees paid in attempting to collect.”
The panel also rejected Bernal’s argument Six Flags hadn’t actually incurred the cost yet but rather a contingent liability, because he hasn’t paid the debt. Sykes wrote that the contract makes no such provision, and that use of the word any “should include costs incurred at any time, including those that will necessarily be incurred at the time of payment.”
Bernal has been represented by attorneys with the firm of Philipps & Philipps, of Palos Hills.
NRA has been represented by the Chicago firm of Rock, Fusco & Connelly, and by Olson Law Group, of Ann Arbor, Mich.