Rule2022-20324
Consumer Financial Protection Circular 2022-05: Debt Collection and Consumer Reporting Practices Involving Invalid Nursing Home Debts
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Published
September 20, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (Bureau or CFPB) has issued Consumer Financial Protection Circular 2022-05, titled, "Debt collection and consumer reporting practices involving invalid nursing home debts." In this circular, the Bureau responds to the question, "Can debt collection and consumer reporting practices relating to nursing home debts that are invalid under the Nursing Home Reform Act violate the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA)?"
Full Text
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<title>Federal Register, Volume 87 Issue 181 (Tuesday, September 20, 2022)</title>
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[Federal Register Volume 87, Number 181 (Tuesday, September 20, 2022)]
[Rules and Regulations]
[Pages 57375-57377]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-20324]
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Rules and Regulations
Federal Register
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having general applicability and legal effect, most of which are keyed
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Federal Register / Vol. 87, No. 181 / Tuesday, September 20, 2022 /
Rules and Regulations
[[Page 57375]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Chapter X
Consumer Financial Protection Circular 2022-05: Debt Collection
and Consumer Reporting Practices Involving Invalid Nursing Home Debts
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Consumer financial protection circular.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) has
issued Consumer Financial Protection Circular 2022-05, titled, ``Debt
collection and consumer reporting practices involving invalid nursing
home debts.'' In this circular, the Bureau responds to the question,
``Can debt collection and consumer reporting practices relating to
nursing home debts that are invalid under the Nursing Home Reform Act
violate the Fair Debt Collection Practices Act (FDCPA) and Fair Credit
Reporting Act (FCRA)?''
DATES: The Bureau released this circular on its website on September 8,
2022.
ADDRESSES: Enforcers, and the broader public, can provide feedback and
comments to <a href="/cdn-cgi/l/email-protection#1c5f756e7f69707d6e6f5c7f7a6c7e327b736a"><span class="__cf_email__" data-cfemail="94d7fde6f7e1f8f5e6e7d4f7f2e4f6baf3fbe2">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Colin Reardon or Joshua Johnson,
Senior Counsels, Office of Law & Policy, at (202) 435-7700. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#fcbfbaacbea3bd9f9f998f8f959e9590958885bc9f9a8c9ed29b938a"><span class="__cf_email__" data-cfemail="84c7c2d4c6dbc5e7e7e1f7f7ede6ede8edf0fdc4e7e2f4e6aae3ebf2">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Question Presented
Can debt collection and consumer reporting practices relating to
nursing home debts that are invalid under the Nursing Home Reform Act
violate the Fair Debt Collection Practices Act (FDCPA) and Fair Credit
Reporting Act (FCRA)?
Response
Yes. Under the Nursing Home Reform Act, a nursing facility may not
condition a resident's admission or continued stay on receiving a
guarantee of payment from a third party, such as a relative or friend.
Contractual provisions that violate that prohibition are illegal and
unenforceable. As detailed in this Circular, certain practices related
to the collection of nursing home debts that are invalid under the
Nursing Home Reform Act and its implementing regulation violate the
FDCPA and FCRA.
Background on the Nursing Home Reform Act
Enacted in 1987, the Nursing Home Reform Act establishes a
comprehensive set of requirements that protect the health, safety,
welfare, and rights of residents of nursing facilities that participate
in Medicaid and Medicare.\1\ The Centers for Medicare & Medicaid
Services (``CMS'') and the Department of Health and Human Services
(``HHS'') have issued rules implementing the Nursing Home Reform
Act.\2\ State agencies are responsible for surveying nursing facilities
for compliance with the Nursing Home Reform Act's requirements
concerning admissions agreements, and HHS and CMS are responsible for
the enforcement of those requirements.\3\
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\1\ See Public Law 100-203, tit. IV, subtit. C, 101 Stat. 1330
(1987). The Nursing Home Reform Act imposes requirements for nursing
facilities that participate in Medicaid, see 42 U.S.C. 1396r, and
for skilled nursing facilities that participate in Medicare, see 42
U.S.C. 1395i-3. For simplicity, and because the distinction is not
relevant to the Bureau's analysis, this Circular refers to both
nursing facilities and skilled nursing facilities as ``nursing
facilities.''
\2\ See 42 CFR 483.1 et seq.
\3\ See 42 U.S.C. 1395i-3(f)(1), (g)(1)(A), (h); 42 U.S.C.
1396r(f)(1), (g)(1)(A), (h).
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Among other protections, the Nursing Home Reform Act and its
implementing regulation prohibit a nursing facility that participates
in Medicaid or Medicare from requesting or requiring a third-party
guarantee of payment as a condition of admission, expedited admission,
or continued stay in the facility.\4\ As HHS has explained, this
prohibition prevents a nursing facility ``from requiring a person other
than the resident to assume personal responsibility for any cost of the
resident's care.'' \5\ The prohibition applies to all residents and
prospective residents of a nursing facility, regardless of whether they
are eligible for Medicare or Medicaid.\6\ The Nursing Home Reform Act
further provides that a nursing facility may require a resident's
representative who has legal access to a resident's available income or
resources to sign a contract to provide the facility payment from the
resident's income or resources, so long as the representative does not
incur personal financial liability.\7\
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\4\ 42 U.S.C. 1395i-3(c)(5)(A)(ii), 1396r(c)(5)(A)(ii); 42 CFR
483.1(b), 483.15(a)(3).
\5\ 56 FR 48826, 48841 (Sept. 26, 1991).
\6\ See id.; see also Centers for Medicare & Medicaid Services,
State Operations Manual, Appendix PP, Guidance to Sec. 483.15(a)(3)
(Nov. 22, 2017), available at <a href="https://www.cms.gov/files/document/appendix-pp-guidance-surveyor-long-term-care-facilities.pdf">https://www.cms.gov/files/document/appendix-pp-guidance-surveyor-long-term-care-facilities.pdf</a>.
\7\ 42 U.S.C. 1395i-3(c)(5)(B)(ii), 1396r(c)(5)(B)(ii); see also
42 CFR 483.15(a)(3).
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Through these provisions, Congress sought to prohibit nursing
facilities ``from requiring a person, such as a relative, to accept
responsibility for the charges incurred by a resident, unless that
person is authorized by law to disburse the income or assets of the
resident.'' \8\ A nursing facility's admissions agreement may not
contain terms that conflict with the Nursing Home Reform Act and its
implementing regulation,\9\ and courts have recognized that contract
terms that conflict with the Nursing Home Reform Act and its
implementing regulation are unenforceable.\10\
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\8\ 56 FR 48826, 48841 (Sept. 26, 1991).
\9\ 42 CFR 483.10(g)(18)(v).
\10\ See, e.g., Manor of Lake City, Inc. v. Hinners, 548 NW2d
573, 576 (Iowa 1996); Village at the Greene v. Smith, 2020-Ohio-
4088, ] 25 (Ohio Ct. App. 2020); Knight v. John Knox Manor, Inc., 92
So. 3d 111, 120 (Ala. Civ. App. 2012).
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Some States have adopted State law analogues of the Nursing Home
Reform Act that prohibit nursing facilities from requiring third-party
guarantees, and admissions agreements can also be unenforceable if they
violate those State law prohibitions.\11\
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\11\ See, e.g., Ala. Admin. Code r. 560-X-10-.02(9); 410 Ind.
Admin. Code 16.2-3.1-16(b); see also DC Mun. Regs. tit. 22, Sec.
B3200.1 (incorporating requirements of Federal regulations
implementing Nursing Home Reform Act).
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Violations of the FDCPA and FCRA
While the CFPB does not enforce compliance with the Nursing Home
Reform Act and is generally not responsible for overseeing the
activities of nursing facilities, the CFPB is
[[Page 57376]]
responsible for issuing rules regarding and enforcing compliance with
the FDCPA and FCRA.\12\ The FDCPA and FCRA can also be enforced by
other Federal government agencies and States,\13\ and through private
actions brought by consumers.\14\ The CFPB is issuing this Circular to
emphasize that certain practices involving the collection of nursing
home debts can violate the FDCPA and FCRA.\15\
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\12\ See, e.g., 12 U.S.C. 5481(12)(F), (H), 5512(b), 5514(c); 15
U.S.C. 1681s(b)(1)(H), (e) (FCRA); 15 U.S.C. 1692l(b)(6), (d)
(FDCPA).
\13\ 15 U.S.C. 1681s (FCRA); 15 U.S.C. 1692l (FDCPA). States can
directly bring actions under FCRA, see 12 U.S.C. 1681s(c), and can
also bring actions under the Consumer Financial Protection Act
(CFPA) against ``covered persons'' and ``service providers'' based
upon violations of Federal consumer financial laws, including the
FDCPA and FCRA, see Authority of States to Enforce the Consumer
Financial Protection Act of 2010, 87 FR 31940 (May 26, 2022).
\14\ 15 U.S.C. 1681n, 1681o (FCRA); 15 U.S.C. 1692k (FDCPA).
\15\ The Bureau notes that practices involving the collection of
invalid nursing home debts may violate other laws not discussed in
this Circular. For example, the collection of invalid nursing home
debt may violate State law analogues of the FDCPA and State laws
prohibiting unfair, deceptive, or abusive acts or practices. In
addition, to the extent that persons collecting nursing home debts
are ``covered persons'' or ``service providers'' under the CFPA, see
12 U.S.C. 5481(6), (15)(A)(i), (iv), (x), (26), the collection of
invalid nursing home debts would typically violate the CFPA's
prohibition on engaging in any unfair, deceptive, or abusive act or
practice. 12 U.S.C. 5531(a), 5536(a)(1)(B); see also CFPB v.
CashCall, Inc., 35 F.4th 734, 746 (9th Cir. 2022) (affirming ruling
that defendant ``engaged in a deceptive practice by collecting
payments on loans that were invalid''). Furthermore, actions taken
with respect to nursing home debts may violate other provisions of
the FDCPA and FCRA not specifically addressed in this Circular.
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Nursing facilities and their third-party debt collectors at times
seek to collect residents' debts from relatives and other third parties
when the resident cannot afford to pay. The nursing facilities
reportedly collect unpaid balances, often after the resident's
discharge or death, directly from third parties. If the third-party
refuses to pay the arrears, some nursing facilities hire debt
collectors to demand payment, report the debt to consumer reporting
companies as the third party's personal debt, and sue the third party
in court.
An amount that is owed or allegedly owed for nursing facility
services is a ``debt'' under the FDCPA because it arises out of a
consumer transaction.\16\ When a nursing facility claims that a
resident's bill has not been paid, it may engage a third-party debt
collector subject to the FDCPA and Regulation F to collect the
resident's debt,\17\ including when the facility claims that a third
party is personally financially responsible for the debt. Among other
things, the FDCPA and Regulation F prohibit the use of ``any false,
deceptive, or misleading representation or means in connection with the
collection of any debt.'' \18\ That prohibition includes, for example,
using a false representation of the ``character, amount, or legal
status of any debt''; a ``threat to take any action that cannot legally
be taken or that is not intended to be taken''; and ``any false
representation or deceptive means to collect or attempt to collect any
debt or to obtain information concerning a consumer.'' \19\
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\16\ See 15 U.S.C. 1692a(5) (defining ``debt'' as ``any
obligation or alleged obligation of a consumer to pay money arising
out of a transaction in which the money, property, insurance, or
services which are the subject of the transaction are primarily for
personal, family, or household purposes, whether or not such
obligation has been reduced to judgment''); see also Eades v.
Kennedy, PC Law Offices, 799 F.3d 161, 170 (2d Cir. 2015).
\17\ 15 U.S.C. 1692a(6) (defining ``debt collector''); 12 CFR
1006.2(i) (same).
\18\ 15 U.S.C. 1692e; 12 CFR 1006.18(a).
\19\ 15 U.S.C. 1692e(2), (5), (10); accord 12 CFR
1006.18(b)(2)(i), (c)(1), (d).
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The prohibition on misrepresentations includes misrepresenting that
a consumer must pay a debt that arises from a contract provision that
is illegal and unenforceable under Federal or State law. Thus, a debt
collector, including a law firm in litigation,\20\ that represents that
a third party must personally pay a nursing facility resident's debt
may violate the prohibition on misrepresentations where the debt is
invalid under the Nursing Home Reform Act, its implementing regulation,
or one of its State law analogues.\21\
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\20\ Attorneys who regularly engage in collecting consumer
debts, including through litigation, are ``debt collectors'' under
the FDCPA. See Heintz v. Jenkins, 514 U.S. 291 (1995).
\21\ Some nursing facilities may claim that family members are
responsible for residents' costs under State filial support or
necessaries statutes. See Katherine C. Pearson, Filial Support Laws
in the Modern Era: Domestic and International Comparison of
Enforcement Practices for Laws Requiring Adult Children to Support
Indigent Parents, 20 Elder L.J. 269 (2013), <a href="https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1034&context=fac_works">https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1034&context=fac_works</a>. This Circular does
not address such claims made under State law.
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The CFPB is also aware that debt collectors sometimes claim that a
third party, such as a relative of the resident, is personally liable
for the resident's debt because the third party engaged in financial
wrongdoing in relation to the resident's resources. In some cases, debt
collectors make such allegations in debt collection lawsuits without
having any factual basis for the allegations, and the allegations prove
to be false. A debt collector may violate the FDCPA's prohibition on
misrepresentations by making a false, baseless allegation in a lawsuit
that a third party engaged in financial wrongdoing as a means to hold
them personally liable for a resident's debts.\22\
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\22\ Attorneys collecting debts on behalf of nursing facilities
may also independently violate the FDCPA's prohibition on
misrepresentations if their law firm alleges that a third party owes
the debt in pleadings or other communications that the firm's
attorneys were not ``meaningfully involved'' in preparing. Nielsen
v. Dickerson, 307 F.3d 623, 635 (7th Cir. 2002); see also Miller v.
Wolpoff & Abramson, L.L.P., 321 F.3d 292, 300-07 (2d Cir. 2003);
CFPB v. Frederick J. Hanna & Assocs., 114 F. Supp. 3d 1342, 1362-69
(N.D. Ga. 2015).
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The FCRA and its implementing Regulation V impose obligations on
consumer reporting companies and on debt collectors who furnish
information to consumer reporting companies, including obligations
relating to the accuracy of information in consumer reports. For
example, a furnisher must ``establish and implement reasonable written
policies and procedures regarding the accuracy and integrity of the
information relating to consumers that it furnishes to a consumer
reporting agency.'' \23\ Furnishers must also investigate consumer
disputes concerning the accuracy of the information furnished,\24\ and
are prohibited from furnishing inaccurate information to any consumer
reporting company after receiving notice from a consumer that
particular information is inaccurate.\25\ In addition, consumer
reporting companies ``shall follow reasonable procedures to assure
maximum possible accuracy of the information concerning the individual
about whom the report relates'' \26\ and must investigate consumer
disputes.\27\
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\23\ 12 CFR 1022.42(a).
\24\ 15 U.S.C. 1681s-2(a)(8), (b); 12 CFR 1022.43(a).
\25\ 15 U.S.C. 1681s-2(a)(1)(B). The consumer must send the
notice to the address specified by the furnisher for such notices.
Id. If the furnisher has not specified such an address, then the
furnisher is subject to FCRA's general prohibition against
``furnish[ing] any information relating to a consumer to any
consumer reporting agency if the person knows or has reasonable
cause to believe that the information is inaccurate.'' 15 U.S.C.
1681s-2(a)(1)(A).
\26\ 15 U.S.C. 1681e(b).
\27\ 15 U.S.C. 1681i.
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It is inaccurate to report that a consumer owes a debt when the
debt is based on an illegal contract term. Thus, a debt collector who
furnishes information about nursing home debts, or a consumer reporting
company that includes such information in a consumer report, may
violate FCRA and Regulation V if those debts are invalid and
unenforceable under the Nursing Home Reform Act, its implementing
regulation, or one of its State law analogues. A furnisher or consumer
reporting company also violates FCRA or Regulation V if it fails to
meet its dispute obligations with respect to information related to
such debts.
[[Page 57377]]
About Consumer Financial Protection Circulars
Consumer Financial Protection Circulars are issued to all parties
with authority to enforce Federal consumer financial law. The CFPB is
the principal Federal regulator responsible for administering Federal
consumer financial law, see 12 U.S.C. 5511, including the Consumer
Financial Protection Act's prohibition on unfair, deceptive, and
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws
are also enforced by State attorneys general and State regulators, 12
U.S.C. 5552, and prudential regulators including the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, and the National
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2)
(exclusive enforcement authority for banks and credit unions with $10
billion or less in assets). Some Federal consumer financial laws are
also enforceable by other Federal agencies, including the Department of
Justice and the Federal Trade Commission, the Farm Credit
Administration, the Department of Transportation, and the Department of
Agriculture. In addition, some of these laws provide for private
enforcement.
Consumer Financial Protection Circulars are intended to promote
consistency in approach across the various enforcement agencies and
parties, pursuant to the CFPB's statutory objective to ensure Federal
consumer financial law is enforced consistently. 12 U.S.C. 5511(b)(4).
Consumer Financial Protection Circulars are also intended to
provide transparency to partner agencies regarding the CFPB's intended
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C.
5552(b) (consultation with CFPB by State attorneys general and
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB
and other agencies).
Consumer Financial Protection Circulars are general statements of
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They
provide background information about applicable law, articulate
considerations relevant to the Bureau's exercise of its authorities,
and, in the interest of maintaining consistency, advise other parties
with authority to enforce Federal consumer financial law. They do not
restrict the Bureau's exercise of its authorities, impose any legal
requirements on external parties, or create or confer any rights on
external parties that could be enforceable in any administrative or
civil proceeding. The CFPB Director is instructing CFPB staff as
described herein, and the CFPB will then make final decisions on
individual matters based on an assessment of the factual record,
applicable law, and factors relevant to prosecutorial discretion.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-20324 Filed 9-19-22; 8:45 am]
BILLING CODE 4810-AM-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.