By Jonathan Stempel
(Reuters) - A federal judge on Monday certified a class-action lawsuit accusing the big U.S. debt collector Midland Funding LLC of violating New York usury laws by charging thousands of struggling borrowers interest rates above 25 percent when trying to collect.
U.S. District Judge Cathy Seibel's decision in White Plains, New York, came eight months after the U.S. Supreme Court refused to hear an appeal by Midland Funding and Midland Credit Management Inc, which are units of Encore Capital Group Inc, seeking to halt Saliha Madden's lawsuit.
Madden had objected to the 27 percent rate that Midland charged on a roughly $5,000 debt it bought from a credit card account she had opened with Bank of America.
In a 43-page decision, Seibel said New York has a "fundamental public policy" against interest rates exceeding 25 percent, and the state's criminal usury cap "applies to prevent a creditor" from collecting a higher rate on defaulted debt.
As a result, the judge said Midland must face Madden's civil lawsuit claiming it violated the federal Fair Debt Collection Practices Act and New York's General Business Law, based on its alleged violation of the usury cap.
Madden had sued on behalf of roughly 49,780 borrowers. Class certification can lead to higher overall recoveries.
In a statement, San Diego-based Encore said it was disappointed with the decision and evaluating its options, but has "long since changed its business practices to occupy a conservative, consumer-centric stance. We remain committed to following all of the laws that govern our industry."
Daniel Schlanger, a lawyer for Madden, did not immediately respond to a request for comment.
Debt collectors typically buy debt from banks and other creditors for pennies on the dollar, and try to collect higher amounts from borrowers.
Encore said it spent about $907 million to buy $9.8 billion of receivables in 2016.
Many regulators have expressed concern that high interest rates, including on products such as "payday loans," can trap borrowers into endless debt cycles.
The class action covers New Yorkers who since November 2008 received letters from Midland seeking interest above 25 percent, and whose cardholder agreements purport to be governed by state laws such as Delaware's that lack usury caps, or "select no law other than New York."
In May 2015, the federal appeals court in New York reversed Seibel's prior dismissal of Madden's case, saying Midland was not a national bank deserving protection from Madden's claims.
The case is Madden v Midland Funding LLC et al, U.S. District Court, Southern District of New York, No. 11-08149.
(Reporting by Jonathan Stempel in New York; Editing by Alan Crosby and Jonathan Oatis)