On March 19, the United States District Court for the Western District of New York granted summary judgment to a debt collector who was sued for allegedly violating the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p, by including language in a form letter that referred to the tax implications of accepting a settlement offer.

The underlying facts are that on or around July 13, 2015, debt collector Financial Recovery Services, Inc. (“FRS”) sent a form collection letter to plaintiff Mary Rozzi Church, stating that she owed $2,170.50, and offering her three separate “settlement opportunities” to pay the balance for less than what was owed. Following the details of the settlement offers, the letter stated the following:

These settlement offers may have tax consequences. We recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement. FRS is not a law firm and will not initiate any legal proceedings or provide you with legal advice. The offers of settlement in this letter are merely offers to resolve your account for less than the balance owed.

Church argued that the language contained in the letter, wherein FRS stated that “these settlement offers may have tax consequences,” was a false representation or deceptive means in connection with the collection of a debt in violation of 15 U.S.C. § 1692e because an unaccepted offer does not have any tax consequences and the least sophisticated consumer would be confused by the statement.

The Court, however, agreed with FRS and found that even the least sophisticated consumer would read the entirety of the statement and understand that any potential tax consequences attach only once the offer has been accepted and, as such, the statement was neither deceptive nor misleading in violation of the FDCPA.

A copy of the entire opinion can be found here.

This decision is part of a growing body of cases centering around similar language regarding potential tax consequences on settlement offers made by debt collectors. Debt collectors should evaluate this decision and review their policies and procedures to minimize potential liability under the FDCPA for “tax consequences” disclosures. We will continue to monitor court decisions to identify and advise on new compliance risks and strategies.