Continuing its attack on the $220 billion worth of medical debt owed by Americans and the impact it can have on their lives, the Consumer Financial Protection Bureau recently issued guidance to medical debt collectors in the form of an advisory opinion. The opinion warned them that their debt collection activities may constitute unlawful practices under the Fair Debt Collection Practices Act and its implementing Regulation F.
The advisory opinion highlights debt collection practices that may cause the collection of legally invalid debts, including amounts already paid by health insurance, amounts that should be covered by workers’ compensation or other programs, or amounts that result from “upcoding” by health care providers. The opinion also warns debt collectors against misrepresenting the status of medical debt, including misleading consumers into believing that amounts demanded are fully settled when their payment obligations may be uncertain.
Collection of Legally Invalid Debts
The CFPB’s guidance first focused on four types of unlawful practices involving the collection of legally invalid debts: amounts already paid, amounts prohibited by state or federal law, amounts charged above those permitted by state or federal law, and amounts for services not rendered/received.
By way of background, Section 808(1) of the FDCPA prohibits debt collectors from attempting to collect any debt “unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Section 807(2)(A) prohibits false representations regarding “the character, amount, or legal status of any debt.”
With those provisions in mind, debt collectors may only attempt to collect amounts that a consumer owes after accounting for all appropriate deductions for partial payments by consumers and third parties, such as insurers. According to the CFPB, debt collectors may violate the FDCPA by attempting to collect medical debt amounts that do not account for partial payments or changes to the bill balance made by the health care provider.
That’s because the CFPB interprets section 808(1)’s “amount [] expressly authorized by the agreement creating the debt” to refer to the remaining balance on a debt owed by the consumer after any payments that reduce the debt’s balance are deducted. In the CFPB’s view, those payments reduce the amount a consumer must pay under the original agreement. According to the CFPB, a collection or attempted collection of these amounts would also violate the FDCPA’s prohibitions against deceptive or misleading debt collection practices because it would misrepresent the amount of the debt actually owed.
Additionally, debt collectors must avoid collecting amounts not owed under state or federal law so as not to violate the FDCPA. Various state and federal laws may relieve consumers of the obligation to pay for certain medical costs, such as workers’ compensation laws that prohibit medical providers from charging workers for treatment for work-related injuries and illnesses, or Medicare/Medicaid regulations that prohibit nursing homes from requiring third-party guarantees as a condition of admission. According to the CFPB, medical expenses that consumers do not have to pay under state or federal law do not constitute an amount expressly authorized per FDCPA Section 808(1) and thus cannot be lawfully collected by debt collectors under the FDCPA.
The CFPB noted that debt collectors can also run afoul of the FDCPA by attempting to collect a debt amount that charges more than the maximum amount permitted by state or federal law, as doing so would involve collecting more than the amount expressly authorized and misrepresenting the nature of the debt to the consumer. Several federal and state laws restrict charges that health care providers may bill to consumers depending on factors such as a consumer’s insurance status and the provider’s network status with the consumer’s insurer. State contract or common law can also restrict the amounts health care providers charge consumers, such as when the nature of the relationship between a consumer and a provider limits the price term of a contract for medical services to one that is a “reasonable amount.”
Lastly, the CFPB pointed out that courts have routinely held that debt collectors will violate the FDCPA when they collect or attempt to collect medical debts for services that were not rendered or received by a consumer. In particular, debt collectors generally may not collect debts that are the result of “upcoding” by health care providers, a practice in which a provider designates a treatment with a code denoting a more intensive level of care than the consumer actually received.
Misrepresenting the Nature of Legally Invalid Debts
The CFPB’s guidance then turned to the misrepresentation of debts to consumers. In the health care industry, consumers frequently enter agreements with health care providers that have undefined price terms. They also frequently receive bills from providers with whom they have never entered into an express agreement with, such as when they receive a bill from a physician who treated them at a hospital. A consumer might interpret a demand for payment from a debt collector to mean that the full amount demanded is legally owed, as they may not know that various state/federal regulations and state contract law could mean a debt collector’s demand does not accurately reflect the consumer’s true financial obligation to the health care provider.
Because the FDCPA imposes strict liability, the CFPB reminded debt collectors that they are responsible for not collecting or attempting to collect debts in ways that deceive or mislead a consumer about the legal status of the medical provider’s claim. Under the FDCPA, a debt collector may misrepresent the legal status of a debt when they rely on incorrect information provided by the medical provider.
The CFPB suggested debt collectors can avoid running afoul of the FDCPA by clearly communicating to consumers about the legal status of a debt and the amount owed, such as informing them that an enforceable payment obligation may not exist until a court order is entered against them regarding payment of that debt.
Substantiating Medical Debts
The CFPB’s guidance next turned to debt collectors substantiating medical debts. When debt collectors send demands for payment, they effectively make an implied representation that they have a reasonable basis to assert the character, amount, and status of the debt. But medical debts arise in a complex and opaque environment where laws and third-party payors complicate the billing and payment processes.
According to the CFPB, a debt collector will violate the FDCPA if it knowingly has no reasonable basis to substantiate the amount of a debt, whether it is due, and whether it is legally collectible. Debt collectors may also violate the FDCPA if they have information suggesting account information received from a health care provider was uncertain or unreliable, such as when a debt collector purchases accounts from another creditor or another debt collector who disclaims any accuracy in the account information it is providing.
According to the CFPB, to avoid violating the FDCPA, debt collectors must properly substantiate the character, amount, and legal status of medical debt before they collect on it. The CFPB suggested debt collectors’ best practices should include obtaining relevant patient agreements, contracts, or other documentation that would establish a prima facie case under relevant state and federal law to demand the amount due.
Defining Default Under the FDCPA
Finally, the CFPB’s guidance turned to the term “default” and how the FDCPA does not specifically define that term. This is relevant to any discussion of medical debt collection because the statute exempts from the definition of a “debt collector” someone who is collecting or attempting to collect a debt “which was not in default at the time it was obtained by such person.”
According to the CFPB, whether a debt is in “default” is determined by the terms of an agreement between a consumer and their medical provider under applicable law governing the agreement. The agency noted that “default” is often defined as “the failure to satisfy an agreement, promise, or obligation, especially a failure to make a payment when due.”
The CFPB further noted that defining “default” to be coextensive with contractual breach under applicable law was consistent with Congress’s intent to exempt from the FDCPA “servicers” of debt that was not in default at the time an entity obtained it, such as mortgage servicers. On the other hand, the CFPB noted, if an entity obtains a debt or the right to collect it after the debtor failed to make full payment, the entity obtained that debt “in default at the time it was obtained” and cannot qualify for the statutory exemption.
A Reminder to Medical Debt Collectors of Their Obligations Under the FDCPA
Because medical debt collectors often do not have timely access to health care providers’ billing and payment information, it’s easy for them to violate the FDCPA when attempting to collect medical debts. That because this lack of access can lead to debt collectors trying to collect amounts consumers have already paid, or amounts state or federal law prohibit them from collecting on.
Despite the good intentions of the CFPB in issuing this advisory opinion, the nature of the medical debt collection industry is to prioritize profits over legal compliance. Thus, it would not be surprising if many medical debt collectors do not embrace the guidance the CFPB provided here and instead conducted business as usual, daring the CFPB and private plaintiffs to bring suits for alleged violations of the FDCPA.
John Soumilas is a partner at Center City-based Francis Mailman Soumilas, a leading consumer rights law firm. He can be reached at jsoumilas@consumerlawfirm.com.
