Ever since the West Virginia State Legislature began amending the unlawful debt collection provisions of the WVCCPA in 2015 making it more difficult for litigants to abuse the consumer protection laws, the consumer plaintiff’s bar has been scrambling to seize upon a class action theory for the next generation of consumer claims in West Virginia. In a recent decision, the United States District Court for the Southern District of West Virginia struck down yet another class action theory. See Garretson v. Sentry Credit, Inc., 2018 U.S.Dist. LEXIS 56425 (D.C. W.Va., April 4, 2018)
Under the facts of Garretson, the class representative plaintiff received two debt collection letters from the defendants offering to settle his debt on two accounts for less than the total amount due. Both letters contained language that, as a result of the settlement, the IRS may require the creditor to report any amount forgiven or cancelled that exceeds $600 on a form 1099-C. The letters further advised the plaintiff to consult with a tax professional regarding potential tax consequences of a settlement. No representations were made by the creditors regarding the tax consequences that a settlement would have or any reporting requirement that would be imposed.
The plaintiff alleged that these warnings (1) were purposely confusing and misleading; (2) misstated the requirements of the IRS regulations; and (3) were designed to pressure debtors into paying the whole debt rather than accept a settlement that may be reported to the IRS. The Complaint included claimed violations of the FDCPA and WVCCPA, as well as class action allegations.
On the defendants’ motion to dismiss, the Court concluded that the challenged language was not misleading or deceptive. In this regard, the Court found that the conditional language used in the letters, as well as the subsequent sentences encouraging the recipient to contact a tax professional and indicating that the creditor makes no representations about the tax consequences, serve to indicate that there may be circumstances under which even a debt cancellation of $600 or more would not result in a 1099-C or potential tax liability. Thus, the import of the language is that the creditor may be required to report the debt forgiveness.
The Court was also unconvinced by the plaintiff’s creative theory that the creditors included the language in an effort to pressure the plaintiff to pay the full amount. As the Court noted, “[i]f the Defendants wanted to insist on full payment, they could insist on full payment without the rather convoluted approach of offering a settlement but coercing consumers to decline it by referencing the possibility that debt forgiveness could be taxable.” The Court went on to state that it was much more likely that the creditors were simply trying to keep debtors from being blind-sided by receiving a 1099-C, and perhaps an unexpected tax bill.
In sum, the Court granted the motion to dismiss finding the language in the letters provided no legal basis for a claim under either the FDCPA or the WVCCPA.
WHAT IT MEANS TO YOU
If you are collecting a debt in West Virginia, there is now legal precedent that the following language pertaining to 1099-C tax reporting is, as a matter of law, neither false, deceptive, or misleading under Section 1692e of the FDCPA nor threatening, coercive, oppressive, abusive, fraudulent, deceptive, or misleading under Sections 46A-2-124 to 127 of the WVCCPA:
If, as a result of the settlement, the amount forgiven or canceled on this debt equals or exceeds $600, the IRS may require the creditor to report the amount forgiven or canceled on a form 1099-C. You may receive this form for the year in which the settlement is completed. If you would like advice about the potential tax consequences that may result from this settlement, my client recommends that you consult a tax professional of your choosing. My client does not make any representations about the tax consequences that this settlement may have for you or any reporting requirement that may be imposed.