2d Cir. Says Debt Collector Did Not Violate FDCPA By Failing to Advise the Debtor that Debt Settlement Would Result in Tax Consequences

In Altman v. J.C. Christensen & Associates, Inc., 2015 WL 2242398— F.3d —- (2d Cir. 2015), the Court of Appeals for the Second Circuit found no FDCPA violation for failing to advise a debtor that a settlement resulting in debt relief to the debtor would result in tax consequences.

Altman argues that, by specifying the savings that he would enjoy if he accepted one of the choices set forth in the letter without warning him that any savings might be offset by possible tax consequences, J.C. Christensen violated FDCPA. Altman relies on Ellis v. Cohen & Slamowitz, LLP, 701 F.Supp.2d 215 (N.D.N.Y.2010), which allowed a similar claim to survive a motion to dismiss. In Ellis, the plaintiff argued that a letter from a debt collector “offering to discount or forgive $1,924.91, or 30% of the debt,” failed to notify him of the possible tax consequences in violation of FDCPA. Id. at 219–20. The district court found that:  “As outlined in Ellis’s submissions, the amount of debt being forgiven may be taxable under 26 U.S.C. § 61(a)(12), whereby the taxes levied specific to that additional taxable income would in essence diminish the actual net value of the discount offered by the debt collector. Thus, the discount offered in [debt collector’s] second letter may constitute a deceptive or misleading collection practice by failing to warn the consumer that the amount forgiven could affect his tax status. Accordingly, [debt collector’s] motion to dismiss Ellis’s first cause of action is denied at this juncture.”  *3 Id. at 220 (internal citations omitted). ¶  We agree with the district court below that Ellis is unpersuasive. The Letter at issue here plainly states that the percentage saved is “on your outstanding account balance.” The fact that a debtor may then have to pay tax on the amount saved is simply not deceptive in the context of what the savings are on a debtor’s “outstanding account balance.” See, e.g., Schaefer v. ARM Receivable Mgmt., Inc., No. 09–11666–DJC, 2011 WL 2847768, at * 5 (D.Mass. July 19, 2011) (holding that “[t]he language of the FDCPA does not require a debt collector to make any affirmative disclosures of potential tax consequences when collecting a debt,” and that “requiring, as a matter of law, debt collectors to inform a debtor of such a potential collateral consequence of settling a pre-existing debt seems far afield from even the broad mandate of FDCPA to protect debtors from abusive debt collection practices.”); Landes v. Cavalry Portfolio Servs., LLC, 774 F.Supp.2d 800, 801, 804 (E.D.Va.2011) (finding that debt collector’s letter stating that it “wants [plaintiff] to get the most out of your tax refund this year” and that it “wants [plaintiff] to get tax season savings!” without advising of the tax consequences of acceptance did not violate FDCPA because “a careful reading of the letter reveals that the only promise being made by [the debt collector] was to reduce the amount of indebtedness by a specified percentage if the debtor paid in full or on a specified payment schedule”). As Altman’s reading of the Letter is objectively unreasonable under the least sophisticated consumer standard, it cannot form the basis for a FDCPA claim.