A District Court judge in New Jersey has certified a class against a company accused of violating the Fair Debt Collection Practices Act by sending collection letters which included a disclosure regarding the possible need to report the forgiveness of a debt to the Internal Revenue Service.
A copy of the ruling in the case of Schultz v. Midland Credit Management can be accessed by clicking here.
The two named plaintiffs received a handful of collection letters from the defendant attempting to collect on three unpaid credit card debts. The letters included the following disclosure: “We are not obligated to renew
this offer. We 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.”
All of the debts that were being collected were for less than $600, the threshold for notifying the IRS about the forgiveness of a debt, so the plaintiffs filed suit, alleging the disclosure was false and misleading because it implied there could be negative consequences even though those consequences would never come to pass.
A District Court judge dismissed the complaint, finding the disclosure was not deceptive. The plaintiffs appealed the ruling to the Third Circuit, which overturned the dismissal and remanded the case back to the District Court.
The defendant then tried to compel arbitration, which a judge denied.
In certifying a class of more than 8,000 individuals who received similar collection letters Judge Madeleine Cox Arleo ruled that even though the plaintiffs never claimed to have been misled by the disclosure, they still suffered an injury-in-fact and had standing to move forward with their suit.
The class was defined as: “All natural persons with addresses within the state of New Jersey, to whom, beginning July 20, 2015 through and including April 25, 2016, Midland Credit Management, Inc., sent a Section 1692g initial communication or ‘LT1Y’ letter in an attempt to collect a consumer debt with an original creditor of Capital One, and a current balance of less than $600 at the time the letter was sent, which contained the statement: ‘We 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.’ “
