Third Circuit Holds Statement That a Forgiveness of Debt Might Be Reported to the IRS May Have Violated the FDCPA

The United States Court of Appeals for the Third Circuit recently reversed a lower court and held that a dunning letter stating that the forgiveness of debt might be reported to the IRS may violate the Fair Debt Collection Practices Act (“FDCPA”) when there is no chance of such a reporting.  See Schultz v. Midland Credit Mgmt., Inc., 2018 WL 4558595 (3d Cir. Sept. 24, 2018).  In the case, the defendant debt collector sent letters to the plaintiffs—a husband and wife—regarding four outstanding debts, none of which exceeded $600.  Each letter offered to settle the debt for a discounted amount and stated, “[w]e 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.”  Plaintiffs then filed a putative class action, arguing that this language was “false, deceptive and misleading” because the Department of the Treasury only requires the reporting of a discharge of indebtedness of $600 or more.  The District Court dismissed the action, finding that the statement that the debt forgiveness may be reported did not violate the FDCPA.

On appeal, the Third Circuit reversed the lower court’s decision.  Using the standard of whether the least sophisticated consumer might be misled by the statement, the Court found that plaintiffs had properly pled a claim under the FDCPA.  Specifically, the Court rejected defendant’s argument that even the least sophisticated consumer would interpret the statement that reporting “might not be required in your case” meant that the reporting might not occur, and that the statement therefore was not misleading.  To the contrary, the Court found that “there was no possibility of IRS reporting in light of the fact that the debt was less than $600, [and] use of the conditional ‘might’ suggested that reporting was a possibility.”  The Court also acknowledged that defendant likely sent form letters to debtors that included this language, but stated that “convenience does not excuse a potential violation of the FDCPA.”  Thus, the Court reinstated and remanded the action. 

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at, or Dylan Goetsch at