On September 28, 2017, the District of New Jersey denied a debt collector’s motion to dismiss a Fair Debt Collection Practices Act (“FDCPA”) claim based on 1099C language contained in a collection letter. This decision continues a recent trend, particularly within the courts of the Third Circuit, in denying motions to dismiss on this issue.
In this putative class action, plaintiff claims Viking Client Services, Inc. violated the FDCPA when it sent her a collection letter with the following language:
The Internal Revenue Service (IRS) requires financial institutions to annually report to the IRS discharges of debt in the amount of $600 or greater. If the Settlement amount that you agreed to pay results in a discharge of $600 or more the account principal balance due on the account, the creditor may be required to report that amount to the IRS via IRS Form 1099C. A copy of this will be provided by the creditor.
Plaintiff claimed that the language above was deceptive because it had two interpretations: (1) that the entire amount discharged will be reported to the IRS; and (2) that only the stated principal balance could be reported to the IRS. Plaintiff further argued that the first and second sentences conflict with each other.
Viking moved to dismiss the complaint on two theories: (1) her suit was barred by the one year statute of limitations because she failed to file suit before the anniversary of the alleged violation; and (2) she failed to allege sufficient facts to plead a cause of action under the FDCPA.
The court rejected both arguments. First, the court clarified that the “within one year” language in the FDCPA meant that “suit must be filed on or before the anniversary date of the event, not the day before the anniversary.” Next, the court held plaintiff stated a plausible claim for relief under the FDCPA because the IRS reporting language in the collection letter could be confusing to the least sophisticated consumer. The court held that the first sentence could be read as a definitive reporting requirement, while the second sentence could be read as a permissive reporting requirement. The court further noted that the IRS reporting language failed to explain whether the entire forgiven amount would be reported to the IRS or if just the forgiven portion of the principal balance would be forgiven.