Bethesda law firm sued over interest on debts

January 06, 1994|By James M. Coram | James M. Coram,Staff Writer

A state board charged with overseeing collection agencies sued a Bethesda law firm yesterday, alleging that the way the firm charges interest on debts is illegal.

The Maryland Collection Agency Licensing Board wants Baltimore City Circuit Court to issue a permanent injunction barring Wolpoff and Abramson from charging debtors 6 percent interest on unpaid balances without first getting a court order or entering into a contractual agreement.

It is the way the interest is charged that disturbs the licensing board. Courts routinely allow collection agencies to charge "pre-judgment interest" of 6 percent on long-standing unpaid debts.

Wolpoff and Abramson, a large firm that devotes part of its four-state practice to debt collection, charges pre-judgment interest without going to court.

Alan Fell, the state's consumer credit commissioner, says that is wrong and is asking the court to stop the practice.

George Nilson, the attorney for Wolpoff and Abramson, says that collecting pre-judgment interest without a court order is both legal and prudent.

Wolpoff and Abramson adds an interest penalty only when a person refuses to pay -- which is exactly what the court allows, Mr. Nilson said.

If a person makes regular payments to reduce the debt, the interest usually is not charged, he said. "We are far more interested in collecting the debt than collecting interest," he said.

The interest, when applied, is not hidden. By charging interest without a contract or court order, Wolpoff and Abramson is claiming a right it does not have, the suit says.

Twenty-three people have complained to the Collection Agency Licensing Board about the practice, a number Mr. Fell said is small in relation to the large volume of debt collection done by Wolpoff and Abramson.

Part of the rationale for the state's suit is that most debtors would not go to court over interest charges, Mr. Fell said. The amounts are often too small to argue about, and the court probably would allow collection agencies to charge 6 percent interest -- the maximum allowed -- for nonpayment.

Appended to the state suit is a handwritten note from an anonymous consumer who complained about $45.95 in interest being charged for nonpayment of a $760 debt.

"I began to try to pay this bill off with some money because we have a child and many other bills which often are behind -- and paying them what they are asking would put my family in jeopardy," the letter says. "As soon as I try to cooperate they start adding interest almost as fast as I can pay."

Mr. Fell advises debtors to continue to pay the interest charge until the court decides the case. If the courts rule in favor of Wolpoff and Abramson, debtors could be liable for back interest, he said.

In addition, the law firm files a negative credit report on people who refuse to pay interest, even if they repay the debt, he said. The adverse rating becomes part of the person's credit history for the next seven years, he said.

Mr. Nilson, who learned of the suit yesterday morning, said that when he was first contacted about the interest charges more than a year ago, the licensing board agreed with him that the practice was legal. Later, he said, the board began to waver and talked about getting a declaratory judgment from the court.

"They never suggested any licensing remedies. They just wanted to get the matter resolved," Mr. Nilson said.

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