The purchase of distressed consumer debt is a 100-billion dollar industry in the U.S. today. Debt buyers purchase charged-off consumer debt (usually from credit cards) for pennies on the dollar and then attempt to collect the original balance plus whatever interest they charge on that principal. 

Some debt buyers and the debt collectors they hire often blur the lines between what is interest and what is principal. That was the case in the recent Fair Debt Collection Practices Act ("FDCPA") case brought by Cary Flitter and the Consumers Law team, Mushinsky v. Nelson, Watson & Associates, --- F.Supp.2d ----, 2009 WL 2487048 (E.D.Pa. Aug. 12, 2009). 

Pavel Mushinsky received a letter from Nelson, a debt collector, purporting to collect a debt owed to LVNV Funding, a debt buyer.  Mushinsky's account, it was alleged, was originally a Sears card.  While Sears charged Mushinsky principal, interest and other fees, when LVNV allegedly bought his account it considered this combined amount to be "principal" upon which it levied even more "interest". Mushinsky claimed this is deceptive and misleading in violation of the FDCPA. 

A federal court in the Eastern District of Pennsylvania agreed. Citing two dictionaries for the proposition that "principal", by definition, does not include "interest", the court found  that calling an amount containing interest "principal" is inaccurate and misleading to consumers. The court held as a matter of law that Nelson could be liable under the FDCPA for its violating letter.    

If you receive misleading debt colleciton letters or are being hounded by debt buyers seeking to collect "zombie debt", contact us - we can help.