Tuesday, October 02, 2018

debt collection - FDCPA -false, misleading - statement about IRS

Schultz v. Midland Credit Management – 3d Cir.- September 24, 2018

A statement in a debt collection letter to the effect that forgiveness of the debt may be reported to the Internal Revenue Service constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et. seq. , particularly the threat to take any action that cannot legally be taken or that is not intended to be taken. . . . The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. §§ 1692e(5), (10).

Whether a collection letter is “false, deceptive, or misleading” under § 1692e is determined from the perspective of the “least sophisticated debtor.” Brown, 464 F.3d at 453.

Here, the reporting requirement under the Internal Revenue Code is wholly inapplicable to the Schultzes’ debts because none of them totaled $600 or more, and IRS regulations clearly state that only discharges of debt of $600 or more “must” be included on a Form 1099-C and filed with the IRS. See 26 C.F.R. § 1.6050P-1(a).   By including the reporting language on collection letters addressing debts of less than $600, we believe that the least sophisticated debtor might be persuaded into thinking that the discharge of any portion of their debt, regardless of amount discharged, may be reportable.

Based on the foregoing, we will reverse the May 8, 2017, Order of the District Court as we find that the Schultzes have pled sufficient factual allegations that state a plausible claim upon which a court may grant relief under the FDCPA. We will therefore remand for further proceedings consistent with this opinion.