A District Court judge in New Jersey has granted a defendant’s motion to dismiss after it was sued in a Fair Debt Collection Practices Act class action for including a disclosure about the possible tax consequences of a debt forgiveness offer, even though the amount being forgiven was $40 and for allegedly not identifying the current creditor to whom the debt was owed.
A copy of the ruling in the case of Ward v. I.C. System can be accessed by clicking here.
The plaintiff received a collection letter for a debt of $167.55. The letter offered to settle the outstanding debt for a one-time payment of $125.74, a discount of $41.81. The letter warned, “This settlement may have tax consequences. Please consult your tax advisor” even though the amount being forgiven was well under the $600 threshold for reporting forgiven debts to the Internal Revenue Service.
Saying that there “may” be tax consequences is a lot different than saying there “will” be tax consequences and even a least sophisticated consumer should be able to tell the difference, ruled Judge Kevin McNulty of the District Court for the District of New Jersey.
“I find that the permissive language used by Defendant in its collection letter does not create a deceptive scenario whereby the least sophisticated consumer would equate a statement that there may be tax consequences with a statement that there will be tax consequences and that a tax form issue,” Judge McNulty wrote. “As this Court recently held, ‘the statement that settlement ‘may have tax consequences’ is not false, deceptive, or misleading. Indeed, settlement ‘may have tax consequences,’ depending on a debtor’s individual circumstances.’ “
Similarly, just because the letter listed the “creditor” and not the “current creditor” when summarizing the account details at the top of the letter, is “irrelevant,” Judge McNulty wrote.