Case Information
*1 Before W OOD , Chief Judge , and M ANION and R OVNER , Cir- cuit Judges .
R OVNER , Circuit Judge
. Cаpital Management Services, L.P. (CMS) is a debt collector, and therefore regularly sends out dunning letters to debtors hoping to collect past-due debts. The Fair Debt Collection Practices Act (FDCPA) highly regu- lates the content of those letters to prevent debt collectors from using abusive practices that prey on vulnerable debtors. See 15 U.S.C. § 1692(e). Mabel L. Heredia received four collection letters from CMS—and claims that the language in this correspondence violated the FDCPA. CMS disagreed and filed a motion to dismiss under Fed. R. Civ. P. 12(b)(6), which the district court granted. Upon our de novo review (see Marquez v. Weinstein, Pinson & Riley, P.S. , 836 F.3d 808, 810 (7th Cir. 2016)), we find that Heredia has plausibly аlleged that the dunning letter violated the FDCPA. We therefore re- verse the order dismissing the matter and remand to the dis- trict court for further proceedings.
I.
Because this case comes before us on a motion to dismiss,
we must accept as true all well-pleaded factual allegations
and draw all reasonable inferences in favor of the plaintiff.
Marquez,
Marquez,
II. Like most debt collectors, CMS sends out form letters to debtors hoping to convince them to pay what they owe on their debt. But, of course, most debt collectors, in reality, would be happy to receive any amount of money from a debtor. This is so because, by the time a debt collector gets involved in the collection process, many of the debts will be unrecoverable. Although CMS sends form letters, it personal- izes those letters, offering an individualized payment option, and often multiple options, to debtors to clear their debt. For example, CMS sent a letter to Heredia, dated November 11, 2016, which stated:
In an effort to liquidate as many files as possible, we are making the following settlement offers: A. 29% reduction of your present balance to the amount of $1343.63, if paid in full on or before 11/30/2016. (A savings of: $548.80) B. 24% reductiоn of your present balance to the amount of $1438.25. The first payment of $719.13 or more is due on or before 11/30/2016. The second and final payment of $719.12 or more is due on or before 12/30/2016. (A savings of: $454.18)
C. 19% reduction of your present balance to the amount of $1532.87. The first payment of $510.96 or more is due on or before 11/30/2016. The second рayment of $510.96 or more is due on or before 12/30/2016. The third and final payment of $510.95 or more is due on or before 01/30/2017. (A savings of $359.56) *** Settling a debt for less than the balance owed may have tax consequences and Discover may file a 1099C form. We cannot provide you with tax advice. If you have any questions, Discover encоurages you to consult a tax advisor of your choosing.
R. 32 at 25. CMS sent Heredia three other letters dated Octo- ber 5, 2016, December 7, 2016, and January 5, 2017, but the letter above is the most pivotal to the resolution of this matter, as we will explain below.
The language at the crux of this lawsuit is the part of the sentence which cоntains the following six words: “Discover may file a 1099C form.” (We will refer to this as the “1099C Clause.”) That statement does not occur in a vacuum, but ra- ther, it is the clause that follows on the heels of the one stating that “[s]ettling a debt for less than the balance owed may have tax consequences.” (We will refer to this as the “Tax Conse- quences Clause.”) The question presented by this lawsuit is whether the 1099C Clause violated the FDCPA.
Heredia alleged that CMS violated sections 1692e and
1692f of the FDCPA. Language in a dunning letter violates
section 1692e of the FDCPA if the creditor used false, decep-
tive, or misleading representation or means in connection
with the cоllection of debt. 15 U.S.C. § 1692e(10). And under
section 1692f, a debt collector may not use unfair or
unconscionable means to collect or attempt to collect any
debt. 15 U.S.C. § 1692f. The language of a collection letter can
be literally true and still be misleading in a way that violates
the Act.
O'Boyle v. Real Time Resolutions, Inc.
,
As is often the case, a good plaсe to begin our legal analy- sis is with that which is settled. Recently, in Dunbar, 896 F.3d at 762, we evaluated a very similar tax consequences clause. That clause stated, “NOTICE: This settlement may have tax consequences.” Id. at 764. We held that this “tax-consequences warning is literally true and not misleading under the objec- tive ‘unsophisticated cоnsumer’ test,” and thus did not violate the FDCPA. Id. at 768. This was so even though the debtors at issue in that particular case were insolvent and would not have had to pay taxes on any discharged debt. Id. at 764. We noted that the word “may” does not mean “will,” and that therefore the statement is true on its face. Id. at 765. We also found that the clause was not misleading because, among other reasons, an insolvent debtor can become solvent at any moment and “a debt collector has no reason or way to know whether an individual debtor is solvent or insolvent at a given time.” Id. at 766. In other words, by saying “may” rather than “will,” the debt collector described аn accurate scenario. Set- tlement may or may not have tax consequences depending on the financial situation of the debtor, and that information is only in the hands of the debtor herself, and not the debt col- lector.
Information about filing a 1099C form, on the other hand,
is information within the knowledge of the creditor. This
makes the 1099C Clause materially different than the tax con-
sequences clause at issue in . Only the debtor knows
whether, given her financial situation as a whole, she will
have to pay taxes on the forgiven debt. The creditor, however,
knows whether it will have to file a 1099C form or not. The
Internal Revenue Service requires a creditor to file a 1099C
form if it has forgiven at least $600 in principal. 26 C.F.R. §
1.6050P-1(a) & (d)(2)–(3); 26 U.S.C. § 6050P. The creditor
knows for certain whether it is offering to forgive more or less
than $600 in principal. The debtor, on the other hand, may
have a difficult time determining how much she owes in prin-
cipal versus interest, as the dunning letter may not identify
the amount of eaсh. This was certainly the case in CMS’s let-
ter. Although we know that Heredia owed a balance of
$1,892.43, even now as the case has wound its way to this
7 court, we still do not have a clear statement about the amount
of principal that CMS was willing to forgive.
[1]
To summarize the law, it is permissible for a creditor to
make a “may” statement if there is any possibility that an
event might happen.
Dunbar
,
On the other hand, it is impermissible for a creditor to
make a “may” statement about something that is illegal or im-
possible. And so, for example, a creditor may not state that “a
court could allow … attorney fees” where the contract be-
tween the debtor and creditor did not provide for them.
Lox
v. CDA, Ltd.
,
Although it is not technically illegal or impossible for Dis-
cover to file a 1099C form with the IRS if the amount is under
$600, “a collection letter can be literally true” and still mis-
leading. ,
In this case, CMS was sending out individualized form let- ters with settlement offers tailored to each recipient’s debt. It had both the knowledge (or at least the ability to acquire the knowledge) and capability to include the 1099C Clause in sit- uations in which it would be forgiving at least $600 in princi- pal and to еxclude the clause for less than $600. This was not true in the case, where the debt collector could not have known whether any particular debtor would have a tax liability or not. The district court relied on the reasoning of the case without recognizing the material distinction be- tween the Tax Consequences Clаuse and the 1099C Clause. Heredia v. Capital Mgmt. Servs., L.P. , No. 17-C-284, 2019 WL 288122, at *4 (E.D. Wis. Jan. 22, 2019); R. 43 at 9.
Moreover, the language is misleading in a material way.
The reference to a report to the IRS may instill angst in the
unsophisticated debtor. The district court focused on whether
the 1099C Clause might cajole a debtor into paying more of
the debt to avoid the economic consequences of tax liability,
without considering the psychological coercion that a threat
to involve the IRS might have on such a consumer. See, e.g.
Schultz v. Midland Credit Mgmt., Inc.
,
Our decision is in line with this recent decision of the
Third Circuit in
Schultz
. The collection letter at issue in that
case stated, “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.”
Id
. at 161. The
Schultz
сourt held that such language, even with
the conditional statement that not all debt would be reported,
“presented a false or misleading view of the law—one de-
signed to scare or intimidate the [debtors] into paying the out-
standing debts listed on the debt collection letters even
though [the debt collector] knew that any discharge of the
[debtor’s] debt would not result in a report to the IRS.”
Id.
at
162. See also
Foster v. AllianceOne Receivable Mgmt., Inc.
No. 15-cv-11108,
For the reasons we discussed, applying the requisite pre-
sumptions in a motion to dismiss, here we cannot say that
“there is no set of facts consistent with the pleadings under
which [Heredia] could obtain relief.”
Marqeuz
,
Because these questions of whether particular statements are deceptive or misleading, however, are almost always quеstions of fact, the ultimate decision on this question is one in the province of a district court. We therefore VACATE the judgment of the district court and REMAND this case for fur- ther proceedings consistent with this opinion.
Notes
[1] Because we do not know which portion of the offer was principal, we cannot make a determination as to whether the December and January letters also contained false, deceptive, or misleading statements. In De- cember, CMS made a single offer to save Heredia $738.05 and in January, the offer stated that she would save $927.29. We do not know if the amount of principal forgiven in either case would have been $600 or more. This is a matter for fact-finding on remand, if it becomes relevant.
[2] The December 7, 2016 letter offered to settle Heredia’s debt for $1,154.38, thus forgiving $738.05, and the January 5, 2017 letter offered to settle the debt for $965.14, thus forgiving $927.29. CMS did not demarcate—either in the letters themselves or in briefing—how much of this forgiveness was principal and hоw much interest. Both of these letters also contained the statement “Discover may file a 1099C form.” The complaint alleges that the settlement offers in these third and fourth letters, although offering total reductions over $600, did not reduce the amount of principal owed by $600 or more. Whether the 1099C Clauses in these later letters were misleading is a matter to be determined on remand, if necessary to the resolution of the case.
[3] The remainder of the cases that CMS lists as “similar,” in fact, are not
similar enough to have any bearing on this case, as they address the per-
missibility of a tax consequences clause (which we held in was
permissible), rather than the permissibility of a 1099C clause.
Taylor v. I.C.
Sys., Inc.
, No. 17 CV 00541,