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A federal court in Arkansas ruled that a lender could not make a valid assignment of an arbitration agreement after settling the account with the borrower because the right to arbitrate no longer existed. Accordingly, a third-party debt collector, the purported assignee, could not invoke the arbitration agreement.
In Koch v. Compucredit Corp., No. 4:06CV00660-WRW, 2007 WL 991070 (E.D. Ark. Mar. 29, 2007), Koch brought a class action against Compucredit for alleged violations of the Fair Debt Collection Practice Act. Compucredit was attempting to collect credit card debt that was originally owed to First North American National Bank (FNB), but which FNB had settled with Koch more than two years earlier.
In denying Compucredit's motion to compel arbitration, which was based on the agreement between Koch and FNB, the Court noted that FNB could only assign "present interests" in the debt, which after settling the account with Koch no longer included the right to arbitrate.
More specifically, when Koch's account with FNB was settled, FNB relinquished the agreement. Accordingly, when the assignment to Compucredit took place years later, FNB held no arbitration rights under the rescinded agreement and thus no such interest to assign. In essence, the arbitration agreement ceased to exist when Koch and FNB settled the account.
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