In Foster v. Allianceone Receivables Management, Inc., 2016 WL 1719824, at *2 (N.D.Ill., 2016), Judge Farrah denied a motion to dismiss by a debt collector who referenced IRS charge-off rules for compromised debt. Plaintiff incurred a debt from Capital One Bank (USA). Defendant sent Plaintiff a single collection letter on or about March 9, 2015, advising that its client, Capital One, had referred her debt to AllianceOne for collection. The letter listed the balance on the Capital One account as $718.96 and stated, “[p]lease be advised that any settlement which waives $600.00 or more in principal of a debt may be reported to the Internal Revenue Service by our client.” The letter also stated that the Defendant was authorized to reduce the amount owed in exchange for a settlement payment in the amount of $467.32.
Defendant argues that the language in question is not misleading because even an unsophisticated consumer would know that the offered debt write-off did not meet the $600 threshold mentioned in the Letter. Defendant further argues that the language was an accurate statement of the law and that it was immaterial because it did not apply to Plaintiff. Plaintiff argues that the language is not an accurate statement because there are exceptions to the IRS reporting requirement. As noted by Defendant, the statement in question notes that a settlement “may be reported” to the IRS but does not state that all settlements waiving $600.00 or more would be reported. Further, the language does not imply that any particular outcome might occur except in those cases where a settlement write-off of over $600.00 has occurred. However, Plaintiff also argues that including any language regarding the IRS is a “collection ploy designed to deceive or mislead” the consumer into thinking that the IRS could be involved in their debt where there is no set of circumstances in which the IRS would be involved. At issue in this case is whether the unsophisticated consumer would plausibly be deceived by the Letter, and whether this deception would lead that consumer to settle the matter without negotiating the debt for fear that the settlement would be reported to the IRS. While the language at issue is not necessarily a misrepresentation of the law, by Defendant’s own admission, the offered debt write-off does not meet the $600.00 threshold mentioned. It is plausible that mention of the IRS in a situation where there is no set of circumstances in which the IRS would be involved could mislead “a person of modest education and limited commercial savvy.” As a consumer may forego his or her rights related to the disputed debt, by settling the matter without negotiation due to this deception, the statement in question is material. Accepting the Complaint’s well-pleaded factual allegations as true and drawing all reasonable inferences in Plaintiff’s favor, Plaintiff alleges sufficient facts to state a plausible claim for relief.