Warning about report to IRS may violate fair-debt law – 7th Circuit

N.Y. phantom debt buyer, collector banned from collection industry

Bill collectors could run afoul of the Fair Debt Collection Practices Act by warning a debtor that the creditor “may report” the transaction to the Internal Revenue Service if the creditor would not actually do so, a federal appeals court held on Friday.

Saying its precedent is “currently evolving,” the 7th U.S. Circuit Court of Appeals revived Mabel Heredia’s lawsuit against Capital Management Services over a dunning letter that warned: “Settling a debt for less than the balance owed may have tax consequences and Discover may file a 1099C form.”

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