The United States District Court for the Western District of New York recently held that defendant debt collector’s letter that offered various settlement options to plaintiff did not violate the Fair Debt Collection Practices Act (“FDCPA”) by stating that the “settlement offers may have tax consequences[.]”  See Church v. Fin. Recovery Servs., Inc., 2018 WL 1383231 (W.D.N.Y. Mar. 19, 2018).  In the case, defendant sent a collection letter to plaintiff in which it offered a number of settlement options to settle plaintiff’s outstanding debt.  The letter stated: “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.”  Plaintiff then filed this action, alleging that this statement violated the FDCPA’s prohibition on “false, deception, or misleading” representations.  See 15 U.S.C. §1692e.  Specifically, plaintiff argued that the statement was misleading because “unaccepted settlement offers cannot possibly cause the consumer to incur any tax consequences.”  The parties then filed a number of motions, including a motion by defendant for summary judgment.

The Court granted defendant’s summary judgment motion.  First, it acknowledged that it was required to use the “least sophisticated consumer” standard to determine whether the statement was misleading.  Nonetheless, it held that the least sophisticated consumer “is still ‘rational, and [she] possesses a rudimentary amount of information about the world.’”  Second, the Court noted that a number of other courts recently have held that statements that “this settlement may have tax consequences” are not misleading and do not violate the FDCPA.  Finally, it held that plaintiff’s argument—that the representation here is distinguishable from those other cases because it says that a settlement offer may have tax consequences—is undermined by the very next sentence, which states, “[w]e 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.” (Emphasis added).  Thus, the Court held that the letter, although “likely the product of sloppy drafting,” did not violate the FDCPA because “the least sophisticated consumer would read the entirety of the paragraph and understand that consequences attach only once the offer has been accepted.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.