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Phillips & Cohen Collection Letter Reference to IRS FDCPA Class Action

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Letters D-E-B-T with Ladder Against D

One tactic that debt collectors have used to scare consumers into paying is to imply that they are getting into circumstances over their heads because attorneys or government entities are involved. The complaint for this class action claims that the reference to filing a form with the Internal Revenue Service (IRS) in a debt collection letter was one such scare tactic, and that such tactics are illegal under the Fair Debt Collection Practices Act (FDCPA).

The class for this action is

  • All individuals with addresses in Mississippi
  • To whom Phillips & Cohen Associates, Ltd. Sent a letter trying to collect a consumer debt
  • Between June 29, 2017 and July 20, 2018,

That included a statement that a Form 1099-C may be filed for settlement of the debt, when the requirements for this filing will never be met.

Plaintiff Renyna Smith allegedly incurred a consumer debt by borrowing an amount from Merrick Bank Corporation to buy items for personal, family, or household purposes. At some point in time, Merrick assigned Phillips & Cohen to collect the debt.

Phillips & Cohen sent Smith a collection letter dated September 6, 2017, which is attached to the complaint as Exhibit A.

The complaint quotes these sentences from the letter: “Whenever $600.00 or more in principle of a debt is forgiven as a result of settling a debt for less than the balance owing, the creditor may be required to report the amount of the debt forgiven to the Internal Revenue Service on a 1099C form, a copy of which would be mailed to you by your creditor. If you are uncertain of the legal or tax consequences, we encourage you to consult your legal or tax advisor.”

The complaint says that the letter also said that the balance of the debt was $746.03 and that the proposed settlement amount was $447.62. This means that the amount forgiven would only be $298.41.

According to the complaint, since the amount forgiven will not approach $600, the “invocation of the Internal Revenue Service in the Letter only served to scare Plaintiff for fear of tax repercussions and served to overshadow the settlement offer.” The complaint claims that this kind of statement, which cannot apply to the current debt and only serves to confuse the consumer, is deceptive.

The standard for interpreting compliance with the FDCPA is the understanding of the “least sophisticated consumer.” The complaint alleges that the least sophisticated consumer would be misled and confused, thinking that she might have tax obligations if she did not pay the entire amount of the debt. In that sense, the complaint says that the letter is deceptive, misleading, and false.

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