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Third Circuit Allows FDCPA Claim Based on Misleading IRS Language

Link: Schultz v. Midland Credit Management, Inc., Case No. 17-2244 (3d. Cir. 2018).

In Schultz, a debt collector sent letters to collect debts less than $600 to consumers that contained the following letter:

“We are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case.”

The district court found that as a matter of law this could not be misleading or deceptive to a consumer under See 15 U.S.C. § 1692e, and dismissed the putative class action.

The Third Circuit reversed, finding that:

Midland argues that, in order to conclude that a consumer would be misled by this statement, one would have to read the first sentence in isolation while paying no attention to the second qualifying statement—i.e., that “[r]eporting is not required every time a debt is canceled or settled, and might not be required in your case.” (App. 17). However, even with this qualifying statement, the least sophisticated debtor could be left with the impression that reporting could occur. Indeed, this is precisely what happened in the Schultzes’ case—there was no possibility of IRS reporting in light of the fact that the debt was less than $600, but use of the conditional “might” suggested that reporting was a possibility.

The Third Circuit gave a hat-tip to the Seventh in discussing what might qualify as deceptive or misleading to state a claim under 1692e:

The Seventh Circuit has held that “a dunning letter is false and misleading if it `impl[ies] that certain outcomes might befall a delinquent debtor, when legally, those outcomes cannot come to pass.'” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 367 (7th Cir. 2018) (quoting Lox v. CDA Ltd., 689 F.3d 818, 825 (7th Cir. 2012)). Thus, it is not merely the inclusion of a lie but also incomplete or inapplicable language in a collection letter that may form the basis for a potential FDCPA violation.

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