Fair Debt Collection Practices Act complaint to proceed in Philadelphia federal court

By Nicholas Malfitano | May 5, 2016

PHILADELPHIA -- A federal judge recently ruled that a recovery agency facing complaints of violating the Fair Debt Practices Collection Act (FDCPA) will see that case continue.

On Monday, Judge Stewart Dalzell of the U.S. District Court for the Eastern District of Pennsylvania ruled Radamed Velez’s lawsuit against Enhanced Recovery Company (ERC) will proceed, defeating ERC’s motion to dismiss the case.

On Aug. 3, 2015, ERC sent Velez correspondence related to a consumer debt in the amount of $692.70 owed to TD Bank USA, and offering to settle the debt for $554.16. The letter further read, “In addition, any indebtedness of $600.00 or more, which is discharged as a result of a settlement, may be reported to the IRS as taxable income pursuant to the Internal Revenue Code 6050 (P) and related federal law.”

Velez claims the letter and statement violated 15 U.S.C. Section 1692(e) and “contained a false, deceptive, or misleading representation or statement in connection with the collection of a consumer debt, threatened to take an action that ERC did not intend to take, and utilized a false representation or deceptive means to collect or attempt to collect a consumer debt.”

U.S. District Court for the Eastern District of Pennsylvania  

In response, ERC contested their statement was neither deceptive nor misleading, and “accurately reflects the controlling statute and regulation.”

However, Dalzell said if Velez’s allegations were accepted as truth, “Velez’s settlement of the alleged debt, and ERC’s cancellation of, could not possibly have been reportable under the relevant exceptions.”

“If, in fact, under the circumstances of this case, there could not possibly have been a reportable event, then the statement would be false,” the judge wrote.

“Moreover, the statement could mislead or deceive the least sophisticated debtor. A debt collector’s statement is deceptive where it can be reasonably read to have two or more different meanings, one of which is inaccurate, and it is misleading if it states that a certain action is possible even though the debt collector has reason to know that there are facts that make the action unlikely in a particular case.”

Dalzell said Velez had in fact alleged a plausible claim that ERC’s letter statement was deceptive, with the use of the word “may” not removing the possibility the suspected debtor could be deceived into thinking they could be reported to the IRS.

“Velez’s interpretation of the statement from the perspective of the least sophisticated debtor is not bizarre or idiosyncratic. The least sophisticated debtor, given a generally applicable rule with some, but not all, of the relevant exceptions thereto, might be misled into thinking that there will be adverse tax consequences for settling a debt for less than the total amount due,” Dalzell wrote.

The judge added, “ERC also argues that the statement is not material, but does not explain why. Velez argues that it is material because the gratuitous injection of the IRS into a collections communication has the potential to affect the least sophisticated debtor’s decision-making process.”

It was Velez’s rationale that the court found favor with.

“The least sophisticated debtor could reasonably assume that ERC included the statement because it was relevant, and such a debtor could believe, given the lack of specificity in the generally-stated rule that mentions one exception but not others, that the action he chooses to take with respect to the debt will trigger tax consequences or reporting requirements,” Dalzell said.

“We will deny ERC’s motion to dismiss, because the amended complaint states a facially plausible claim to relief under Section 1692(e) of the FDCPA.”

The plaintiff is represented by Cary L. Flitter and Andrew M. Milz of Flitter Milz in Narberth.

The defendant is represented by Richard J. Perr of Fineman Krekstein & Harris in Philadelphia.

U.S. District Court for the Eastern District of Pennsylvania case 2:16-cv-00164

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com.

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