Court Rejects “Sham” Payment Plan Theory, Delivers Decisive Win for Debt Collectors

By John K. Rossman

This article was originally published on August 18, 2026, in InsideARM: Court Rejects “Sham” Payment Plan Theory, Delivers Decisive Win for Debt Collectors (insideARM.com)

A recent Wisconsin Court decision reinforces that a hypothetical interpretation of a collection letter by a consumer attorney does not create an FDCPA violation. Further, a collection letter does not become deceptive simply because a consumer attorney can imagine a different way the collection process might unfold. 

On June 29, 2026, the Milwaukee County Circuit Court granted the motion of Financial Recovery Services, Inc. (“FRS”) for judgment on the pleadings* in Tesch v. Financial Recovery Services, Inc., Case No. 2025CV10137, dismissing the Plaintiff’s putative class action with prejudice. [*Editor’s note: A motion for judgment on the pleadings is an advanced procedural strategy employed by experienced debt collection defense attorneys to obtain early dismissal of FDCPA and related consumer Complaints containing incomplete or false factual allegations before expensive discovery commences].     

This case involved a seemingly straightforward payment-plan offer. FRS sent the consumer a letter offering to accept $25 per month for three months on a past due balance. The letter explained that, at the end of the three months, “the arrangement will be reviewed” and hopefully the consumer would be able to pay the remaining balance in full.

The Plaintiff called the payment plan offer a “sham.”

Why? Because FRS was willing to accept other payment arrangements, including payments of less than $25 per month. The Plaintiff also alleged that FRS would not conduct a sufficiently “meaningful” review of the account after the three-month arrangement. 

The court was not persuaded. 

The Letter Offered an Option and Not a Guarantee

The Plaintiff’s theory asked the court to treat the payment arrangement letter as deceptive because FRS did not disclose every other arrangement it might accept. But the letter did not say that $25 per month was the only payment arrangement available. In fact, it expressly characterized the proposal as an “option.” 

FRS admitted that it would accept payments of less than $25, but it denied ever representing otherwise. FRS also explained what happened when a consumer completed a three-month arrangement: the consumer’s situation would be reviewed and FRS could offer options including continuing the arrangement or other settlement options.  These facts were crucial in the Court’s decision to dismiss the case and were included in the Verified Answer FRS filed in this matter. 

The court recognized the difference between what a letter actually says and what a plaintiff later claims the letter should have said. 

That distinction proved fatal to the plaintiff’s case. 

The FDCPA Does Not Require Collectors to Predict the Future

The court relied heavily on Seventh Circuit precedent concerning the “unsophisticated consumer” standard. That standard protects consumers who are uninformed, naive, or trusting, but it does not treat them as incapable of basic logical deductions. Courts are instructed to disregard interpretations that are unrealistic, peculiar, bizarre, or idiosyncratic. 

More importantly, the court emphasized that not every question left unanswered by a collection letter creates an FDCPA claim. 

Citing Koehn v. Delta Outsource Group, Inc., the court noted that dunning letters can comply with the FDCPA without answering every possible question about the future. The fact that a lawyer can identify an unanswered question—and speculate about a potentially incorrect answer—does not establish that the letter is misleading. 

That principle is particularly significant in the context of payment arrangements. 

Payment plans are inherently forward-looking. A consumer’s financial circumstances may change. A collector may offer additional arrangements. A settlement may become available. A payment plan may be extended, modified, or replaced. 

The FDCPA does not require a debt collector to expound in a treatise every possibility that could occur after the consumer responds to a letter.

A Consumer Attorney’s Claim of “Ambiguity” Is Not Automatically an FDCPA Violation

The court also relied upon Degroot v. Client Services, Inc., where the Seventh Circuit explained that a letter making truthful representations about the present does not become actionable merely because it leaves some ambiguity concerning the future. 

That distinction is critical. 

Plaintiffs’ attorneys routinely identify some statement in a collection letter and then construct a hypothetical scenario in which a consumer might misunderstand it. But the FDCPA does not impose liability simply because a plaintiff can imagine a possible misunderstanding. 

There must be an actual deceptive, misleading, false, unfair, or otherwise prohibited representation. 

Here, there wasn’t one. 

The Wisconsin court found that the FRS letter was “straightforward” and “plainly states” a proposed payment arrangement. The court also relied on several prior published decisions involving identical payment-plan language used by FRS, including Sutton v. Financial Recovery Services, Inc., DeGeorge v. Financial Recovery Serv., Inc., and Giannini v. Financial Recovery Servs., Inc.  The court therefore concluded that the letter was not “abusive, deceptive, unfair, false, misleading or unconscionable.” 

How Did Rossman Kirk Win this Case? Smart Strategy.

The Complaint in this matter relied on several facts that the Plaintiff speculated were true about other payment arrangements FRS would accept and what would occur at the conclusion of the proposed payment arrangement. FRS could not prevail on a motion to dismiss the Complaint due to these factual allegations.  Thus, FRS instead filed a Verified Answer providing the correct facts in response to these speculated facts in the Plaintiff’s Complaint.  Our team at Rossman Kirk then relied on the Verified Answer to file a Motion for Judgment on the Pleadings, citing the overwhelming case law supporting a finding that the letter did not violate the FDCPA.  During oral argument on the motion, the Court inquired about the different standards for a motion to dismiss and a motion for judgment on the pleadings and agreed with FRS’ strategy for addressing the allegations in this Complaint.  If we had not filed the Verified Answer and Motion for Judgment on the Pleadings, this case would have cost tens of thousands of dollars in putative class discovery and depositions before a costly motion for summary judgment could be filed.  Smart strategy saves on legal fees for debt collectors! 

insideARM Perspective

The Tesch decision is significant because it pushes back against an increasingly common approach to FDCPA litigation: taking a collection communication, identifying something it does not say, and then arguing that the omission creates a misleading impression. This court’s decision recognizes that this is not the consumer harm the FDCPA was intended to avoid. 

Debt collectors are required to tell the truth. They are not required to anticipate every hypothetical question a consumer’s attorney might later identify.

The court’s conclusion is particularly useful: neither the FDCPA nor the Wisconsin Consumer Act requires a debt collector to address “every potentiality” in a letter. 

This article is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Rossman Kirk, PLLC assumes no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.