District Court Holds 1099-C Language Not in Violation of FDCPA or ICAA

The Northern District of Illinois recently granted summary judgment in favor of the defendant, a debt collector, in a case challenging the following Form 1099-C language contained in a debt settlement letter:

IRS requires certain amounts that are discharged as a result of the cancellation of debt to be reported on a Form 1099-C.  You will receive a copy of the Form 1099-C if one is required to be filed with the IRS.

See Moses v. LTD Financial Services I, Inc. et al., N.D. Illinois Case No. 16-cv-5190 (August 9, 2017).  (The court’s Memorandum and Order can be found here.)

In Moses, the plaintiff argued the failure to include the exceptions to the 1099-C reporting requirement rendered the aforementioned language false, deceptive and misleading on its face in violation of the Fair Debt Collection Practices Act (“FDCPA”) and Illinois Collection Agency Act (“ICAA”).  Plaintiff further claimed that the aforementioned language threatened an action not intended to be taken in violation of the FDCPA and ICAA because the defendants were neither tasked with determining whether a Form 1099-C was required nor the filing of such form.   

The district court rejected the plaintiff’s arguments.  The court focused on the fact that the defendant, LTD Financial Services, LP (“LTD”) “was indisputably [  ] not made aware of the principal/interest/fee composition of Moses’ debt.  Accordingly, because [the creditor] would have forgiven $713.47 in debt had Moses accepted LTD’s settlement offer, LTD was aware that [Moses] acceptance could have triggered the Form 1099-C requirement.”  The court went further to state that, “[g]iven this, it was entirely prudent for LTD to alert Moses to the possibility that the discharged debt would reported to the IRS.”

The court reasoned that the challenged language did not state that a discharge would be reported to the IRS, only that it might, which was true.  The court emphasized that the “language does not say that the discharge will be reported to the IRS.  Rather, it does nothing more, and nothing less, than accurately state the possibility that a Form 1099-C would be filed.”  And “by stating that the reporting was only required for “certain amounts” and that a Form 1099-C would be issued “if” one was required, LTD clearly conveyed that there are situations in which reporting is not required – in other words, that there are exceptions to the reporting requirement.”  Accordingly, no reasonable consumer could read the letter as a threat to file a Form 1099-C where no such reporting was required.  Having found that the letter was not deceptive or threatening on its face, meant that the language was either not deceptive as a matter of law or that plaintiff was required to present extrinsic evidence proving the majority of unsophisticated consumers would find the language deceptive or threatening.  With no extrinsic evidence presented by plaintiff, defendants were entitled to summary judgment.  

David John, CEO of LTD Financial Services, L.P. said “We are very encouraged by this decision and appreciate that the court applied logic and reason to this issue.  It is LTD’s hope that decisions such as this one will discourage the spate of litigation that the collection industry faces.”

The attorneys of Messer Strickler, Ltd. of Chicago, IL defended the case on behalf of LTD Financial Services, LP.