ENRIQUE OLVERA and JEFFREY DAWSON v. Blitt & Gaines , P.c.

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 04-3734, 04-4273
E NRIQUE O LVERA and J EFFREY D AWSON ,
Plaintiffs-Appellants,
v.
B LITT & G AINES , P.C., et al.,
Defendants-Appellees.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 03 C 6717, 04 C 1911—Matthew F. Kennelly, Judge;
Charles P. Kocoras, Chief Judge.
____________
A RGUED S EPTEMBER 12, 2005—D ECIDED D ECEMBER 9, 2005
____________
Before POSNER , R OVNER , and W ILLIAMS , Circuit Judges.
P OSNER , Circuit Judge. The question presented by these
consolidated appeals is whether the assignee of a debt in
Illinois is free to charge the same interest rate that the
assignor—the original creditor—charged the debtor, rather
than the lower, statutory rate, even if the assignee does
not have a license that expressly permits the charging of
a higher rate. The interest rates that the credit card com-
panies that are the assignors in this case charged delinquent
borrowers had been 22.99 percent to Dawson and the

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2 Nos. 04-3734, 04-4273
greater of either 20.95 percent, or 18.2 percent plus the
prime rate, to Olvera. The companies assigned the plaintiffs’
debts to companies that specialize in collecting bad debts.
(Actually, Olvera owed the credit card company nothing,
but that is not the basis of his suit.) These “bad-debt buyers”
claim the right to charge debtors, during the interval
between the buyers’ purchase of the bad debts and either
their collection or their abandonment, the same interest
rates that the assignors had charged. In fact the bad-debt
buyers charged only 19.7 percent to Dawson and 18.2
percent to Olvera, but the plaintiffs explain that “debt
buyers often do this because they have so little information
about the debt that the application of complex variable rate
formulas is impossible.”
Section 5 of the Illinois Interest Act forbids anyone to
charge a higher interest rate “than is expressly authorized
by this Act or other laws of this State.” 815 ILCS 205/5. A
creditor not licensed by the state’s Department of Financial
and Professional Regulation, unless it’s a bank or is extend-
ing credit under a revolving credit arrangement, is forbid-
den to charge an interest rate of more than 5 or 9 percent,
depending on factors irrelevant to these appeals. 815 ILCS
205/2, 205/4. One of the credit card companies in this case
was licensed and the other was a bank, so they violated no
law by charging higher interest rates. 815 ILCS 205/4.2. It is
unclear which slot for nonexempt creditors our bad-debt
buyers belong in—the 5 percent or the 9 percent—but all
that matters to the plaintiffs is that the bad-debt buyers are
not licensed. This means, the plaintiffs argue, that the
interest rates charged by the bad-debt buyers to them,
though no higher (actually lower) than the original, lawful
interest rates, violate the Fair Debt Collection Practices Act,
15 U.S.C. §§ 1692 et seq.

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Nos. 04-3734, 04-4273 3
How does a violation of state law become a violation of
the federal Act? A provision of the Act forbids a debt
collector to collect “any amount (including any interest, fee,
charge, or expense incidental to the principal obligation)
unless such amount is expressly authorized by the agree-
ment creating the debt or permitted by law.” § 1692f(1);
Pollice v. National Tax Funding, L.P., 225 F.3d 379, 407-08
(3d Cir. 2000). There was express authorization in the
credit agreements, but the plaintiffs argue that, despite the
disjunctive wording of the statute, “if state law expressly
prohibits service charges, a service charge cannot be
imposed even if the contract allows it.” Id. (dictum); Tuttle
v. Equifax Check, 190 F.3d 9, 13 (2d Cir. 1999) (dictum);
accord, “FTC Staff Commentary on the FDCPA,” 53 Fed.
Reg. 50,097, 50,108 (1988). This is a stretch, and not merely
semantically; it makes the federal statute a vehicle for
enforcing a state law, and why would Congress want to
do that? But the plaintiffs have another string to their
bow: the bad-debt buyers, they argue, misrepresented the
legal status of their debts, in violation of another provi-
sion of the Fair Debt Collection Practices Act, 15 U.S.C.
§ 1692e(2)(A), by representing that the interest rates they
were charging were lawful when they were not.
Both theories depend on whether Illinois law prohibits the
interest charges levied by the bad-debt buyers, and
we can confine our analysis to that issue. Both district
judges answered the question in the negative.
No appellate court has had occasion to decide whether
section 5 of the Illinois Interest Act imposes the stat-
utory interest ceilings on assignees of creditors who are
authorized to charge interest rates higher than those
ceilings. The plaintiffs argue that the only interest rates that
nonexempt entities are authorized to charge are the stat-

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4 Nos. 04-3734, 04-4273
utory rates, and these assignees—the bad-debt buyers— are
nonexempt. Q.E.D. This is a semantically unexceptionable
reading, but it produces a senseless result. If the credit card
company hires a lawyer to collect a debt from one of its
customers, the debt will until paid or abandoned accrue
interest at the rate originally charged by the company. Why
should the interest rate be lower if instead of collecting the
debt directly the credit card company assigns (sells) the debt
to another company, which hires the lawyer to collect it?
The plaintiffs argue that the original creditor, because to be
exempt from the statutory interest-rate ceilings it must be
either licensed or a bank, is subject to regulatory controls
designed (at least in the case of the licensed company, 38 Ill.
Admin. Code § 160.220) to prevent it from engaging in
abusive collection practices; the debt buyers are not subject
to those controls. But their collection practices are regulated
by the Fair Debt Collection Practices Act, on which this suit
is founded; and if that is not enough, the state regulatory
agency’s control over the licensed creditors enables it to
prevent them from evading controls over collection prac-
tices by assigning debts to unlicensed entities. See 205 ILCS
660/8.2, 13, 670/9, 22; South 51 Development Corp. v. Vega,
781 N.E.2d 528, 535-39 (Ill. App. 2002). Were there a regula-
tory gap, we would expect that agency to adopt
the statutory interpretation for which the plaintiffs contend.
It has never done so.
Adopting the plaintiffs’ interpretation of the Illinois
Interest Act would push the debt buyers out of the debt
collection market and force the original creditors to do
their own debt collection. Borrowers would not benefit
on average, because creditors, being deprived of the assign-
ment option as a practical matter (the statutory rates being
far below the market interest rates for delinquent borrow-
ers), would face higher costs of collection and would pass

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Nos. 04-3734, 04-4273 5
much of the higher expense on to their customers in the
form of even higher interest rates. It might be thought that
assignees, since the debtors are not their customers, are
more ruthless in collection than the original creditors, who
might not wish to offend their customers, would be. But
once a customer defaults, he is no longer a valued customer
that the creditor is likely to want to coddle. And if the
creditor does want to coddle his defaulting custom-
ers—maybe to reassure his other customers—he will either
not assign the debt or assign it to a coddler.
There is an innocent reason that creditors assign collection
to other firms rather than doing it themselves. It is the same
reason that most manufacturers sell to consumers through
independent distributors and dealers rather than doing their
own distribution. Outsourcing phases of the total produc-
tion process facilitates specialization, with resulting econo-
mies. Specialists in debt collection are likely to be better at
it than specialists in creating credit card debt in the first
place.
Because, as far as we can see, the only effect of interpret-
ing section 5 to reach assignees would be to make the
credit market operate less efficiently, we are reluctant to
adopt the interpretation urged by the plaintiffs. The inter-
pretation is not compelled. Since the phrase “or other laws
of this State” was added to the Illinois statute in 1963—long
after Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938), dispelled
the notion that the common law enforced in a state’s courts
is not a state “law”—the phrase can be read to include the
common law of assignments, whereby the assignee steps
into the shoes of the assignor, assuming his rights as well as
his duties. E.g., Collins Co. v. Carboline Co., 532 N.E.2d 834,
839 (Ill. 1988); John O. Schofield, Inc. v. Nikkel, 731 N.E.2d 915,
925 (Ill. App. 2000). That was the law in Illinois in the 1960s,
when the statute was amended, just as it is today. Buck v.

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6 Nos. 04-3734, 04-4273
Illinois Nat’l Bank & Trust Co., 223 N.E.2d 167, 169 (Ill. App.
1967). Not that the common law of assignment authorized
assignees to charge interest as such. “[I]nterest was not
allowed at common law, and its recovery depends entirely
upon our statute.” Pieser v. Minkota Milling Co., 94 Ill. App.
595, 597 (1901). But once assignors were authorized to
charge interest, the common law kicked in and gave the
assignees the same right, because the common law puts the
assignee in the assignor’s shoes, whatever the shoe size.
Granted, it is a little odd to think of common law as
“expressly authorizing” anything, since it is (compared to
statutory law) unwritten law; the phrase “other laws” in
section 5 of the Interest Act may have been intended to refer
just to statutes that authorize the charging of interest, such
as 205 ILCS 670/15(a); 735 ILCS 5/2-1303, 5/12-109; 625
ILCS 5/2-12(e), and 810 ILCS 5/4A-506. But a statute’s
primary reference need not exhaust its meaning, when the
legislature has chosen a broad term. R.G. Johnson Co. v.
Marchiando, 184 F.2d 377, 381 (7th Cir. 1950); Carolin Corp. v.
Miller, 886 F.2d 693, 699 (4th Cir. 1989); Aqua Bar & Lounge,
Inc. v. United States, 539 F.2d 935, 938 (3d Cir. 1976); cf.
Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 396
(1951) (Jackson, J., concurring). Furthermore, while it is easy
to see why consumer-protection concerns would lead a state
to want to license firms that charge very high interest rates
to consumers, assignees do not deal with consumers. It was
the assignors who persuaded the plaintiffs to pay high
interest rates; the plaintiffs could hardly have supposed that
the rates would plummet if they defaulted!
And finally the fact that the agency entrusted with
enforcing the licensing requirement has never adopted the
plaintiffs’ interpretation—no one until now had thought
to advocate such an interpretation—is practical evidence

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Nos. 04-3734, 04-4273 7
that the interpretation does not advance a legislative
purpose.
So even if the plaintiffs have a decent technical argument
for their preferred interpretation, its unreasonable conse-
quences weigh heavily against it, even as a matter of
interpretation, as the Illinois cases make clear, In re D.F., 802
N.E.2d 800, 806 (Ill. 2003); People v. Hanna, 800 N.E.2d 1201,
1207-09 (Ill. 2003); see also Krzalic v. Republic Title Co., 314
F.3d 875, 879-80 (7th Cir. 2002), and as even formalists
concede. See references in AM International, Inc. v. Graphic
Management Associates, Inc., 44 F.3d 572, 577 (7th Cir. 1995).
We conclude that section 5 of the Illinois Interest Act does
not affect the common law rights of assignees, and the
judgments of the district court in these two cases are
therefore
A FFIRMED .
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-9-05

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