by Joseph D. DeGiorgio, Esq.
Throughout the first nine months of 2009, Ohio courts issued several decisions with a significant impact on the laws governing banking operations and debt collection. Courts in Ohio have decided cases involving issues such as what proof is required for a bank to recover pre-judgment interest, what party or parties may bring an action on a purchased debt, and what rate of interest should be applied to judgments rendered as a result of a default on a retail installment contract. Following is a general summary of two of the most noteworthy recent decisions in Ohio; WWR clients seeking a more detailed analysis of any of the following decisions or advice on future strategy changes as a result of these holdings should, as a general rule, contact a WWR attorney directly.
On June 1, 2009, the Fifth District Court of Appeals in Richland County, Ohio, decided the case of John Soliday Financial Group, LLC v. Jason Starcher. The Fifth District heard the case on appeal from a decision of the Common Pleas Court; the Common Pleas case, involving an automobile purchase, was filed by John Soliday Financial Group, LLC, and was based on a retail installment credit contract originally signed in 2004. After Starcher defaulted on the car loan, the car was repossessed and sold, leaving more than $3,000.00 owing under the terms of the contract. The Common Pleas court granted judgment for John Soliday Financial Group, LLC on the principal amount, along with accrued interest at the rate specified in the contract, but granted all post-judgment interest at the statutory rate in effect at the time, rather than the rate specified in the contract between the parties. The plaintiff appealed, arguing that it was entitled to the interest rate set forth in the contract, a rate higher than the statutory rate.
The Court of Appeals, citing Ohio Revised Code Section 1343.03, held that since, “[t]he contract set forth the annual percentage rate in bold-faced type and boxed in at 24.95% . . . [and because the defendant] agreed to an annual percentage rate of 24.95% . . . the trial court erred in not awarding [John Soliday] interest [of] 24.95% per the terms of the contract.” The Court’s decision, therefore, stated that when parties to a retail installment contract agree to a specific rate of interest – and the evidence before the court shows the existence of that agreement – then courts should not grant post-judgment interest at any rate other than that specified in the contract (assuming no issue as to usurious interest is at stake), including any statutory rate of interest set by state statute. The decision may seem obvious – that the rate of interest on a judgment will be the rate the parties agreed to – but the fact that the case had to be appealed shows that not all courts apply the law uniformly.
In another important decision, the Eighth District Court of Appeals in Cuyahoga County, Ohio, decided the case of Capital One Bank vs. Linda D. Brown on June 25, 2009. At issue in the case was whether a party (here, Capital One Bank) was entitled to pre-judgment interest on a judgment that stemmed from a credit card debt. The Eighth District case was heard on appeal from a municipal court in Cuyahoga County; the municipal court’s decision granted default judgment in favor of Capital One, along with interest from the date of judgment, but did not grant Capital One the pre-judgment interest it requested in its Complaint. Capital One appealed the decision from the municipal court, arguing that it was entitled to judgment for the principal balance it was owed, interest from the date of judgment, and pre-judgment interest.
On appeal, the Eighth District partially agreed with Capital One, holding that, “when [a] credit card holder uses a card, he or she is then bound to the terms of the credit card agreement.” Therefore, the Court went on to state, since “[t]he agreement in the instant case set interest at 25 percent . . . the court erred in failing to award prejudgment interest at the contract rate.” The Court ultimately remanded the case back to the municipal court, ordering it to, “determine the date on which Brown’s debt became due and payable and . . . calculate and award prejudgment and post-judgment interest at the contract rate.” In sum, therefore, the Court of Appeals disagreed with and reversed the lower court’s decision to deny pre-judgment interest.
While the facts of any individual case may be different from any other, one thing is clear: not all Ohio courts agree on how to apply the laws regarding debt collection. All WWR clients should be aware that the state of the law – and the interpretation of the laws by various courts – are in constant flux, and all financial institutions and WWR clients should proceed with the understanding that a strategy for debt collection should evolve along with the laws.
Moreover, and this may be hard for a lender to imagine, despite these two very clear cases from the appeals courts, county and municipal courts may continue to award both pre- and post- judgment interest as they see fit instead of following precedence. In other words, if a municipal or county judge feels that a lender should not get the benefit of its bargain, precedence is not going to be a barrier to the judge to act according to his or her desire instead of adhering to the contract agreed to by the parties. The only remedy is to appeal and this costs money. Most lenders will find that it is cheaper to accept the lower interest rate and move on.
Joe DeGiorgio is an associate in the Collection Services department located in the Grove City, Ohio office. He can be reached directly at 614.801.2658 or via e-mail at firstname.lastname@example.org.