Rule2024-22962
Debt Collection Practices (Regulation F); Deceptive and Unfair Collection of Medical Debt
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 4, 2024
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) is issuing this advisory opinion to remind debt collectors of their obligation to comply with the Fair Debt Collection Practices Act (FDCPA) and Regulation F's prohibitions on false, deceptive, or misleading representations or means in connection with the collection of any medical debt and unfair or unconscionable means to collect or attempt to collect any medical debts.
Full Text
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<title>Federal Register, Volume 89 Issue 193 (Friday, October 4, 2024)</title>
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[Federal Register Volume 89, Number 193 (Friday, October 4, 2024)]
[Rules and Regulations]
[Pages 80715-80724]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-22962]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1006
Debt Collection Practices (Regulation F); Deceptive and Unfair
Collection of Medical Debt
AGENCY: Consumer Financial Protection Bureau.
ACTION: Advisory opinion.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing
this advisory opinion to remind debt collectors of their obligation to
comply with the Fair Debt Collection Practices Act (FDCPA) and
Regulation F's prohibitions on false, deceptive, or misleading
representations or means in connection with the collection of any
medical debt and unfair or unconscionable means to collect or attempt
to collect any medical debts.
DATES: This advisory opinion is applicable as of December 3, 2024.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or at: <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you
require this a document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#02414452405d4361616771716b606b6e6b767b42616472602c656d74"><span class="__cf_email__" data-cfemail="45060315071a0426262036362c272c292c313c05262335276b222a33">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
The CFPB is issuing this advisory opinion through the procedures
for its Advisory Opinions Policy.\1\ Refer to those procedures for more
information.
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\1\ 85 FR 77987 (Dec. 3, 2020).
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This advisory opinion explains that debt collectors are strictly
liable under the FDCPA and Regulation F (12 CFR part 1006) for engaging
in the following
[[Page 80716]]
unlawful practices when collecting medical bills:
[cir] Collecting an amount not owed because it was already paid.
This includes instances when a bill was already fully or partially paid
by insurance or a Government payor.
[cir] Collecting amounts not owed due to Federal or State law. This
includes where law prohibits obligating a person on certain debts. For
example, a State workers' compensation scheme may make employers or
insurers responsible for qualifying medical expenses, rather than the
patients. In addition, the Nursing Home Reform Act prohibits nursing
homes from requiring third parties to pay for a patient's expenses in
certain circumstances.
[cir] Collecting amounts above what can be charged under Federal or
State law. This includes, for example, collecting amounts that exceed
limits in the No Surprises Act. It also includes collection of amounts
that exceed a State's common law remedies for claims when there is no
express contract.
[cir] Collecting amounts for services not received. This includes
``upcoding'' where a patient is charged for medical services that are
more costly, more extensive, or more complex than those actually
rendered.
[cir] Misrepresenting the nature of legal obligations. This
includes collecting on uncertain payment obligations that are presented
to consumers as amounts that are certain, fully settled, or determined.
[cir] Collecting unsubstantiated medical bills. Debt collectors
must have a reasonable basis for asserting that the debts they collect
are valid and the amounts correct. Debt collectors may be able to
satisfy this requirement by obtaining appropriate information to
substantiate those assertions, consistent with patients' privacy. This
information could include payment records (including from insurance);
records of a hospital's compliance with any applicable financial
assistance policy; copies of executed contracts or, in the absence of
express contracts, documentation that the creditor can make a prima
facie claim for an alleged amount under State law (e.g., ``reasonable''
or ``market rates'').
This advisory opinion also interprets the meaning of ``in default''
for purposes of FDCPA section 803(6)(F)(iii) in the medical debt
context to be determined by the terms of any agreement between the
consumer and the medical provider under applicable law governing the
agreement.
II. Background
Medical debt is a major burden for many Americans. Recent estimates
place total medical debt owed by people in the United States at $220
billion.\2\ Medical debt is known to disproportionately impact young
and low-income adults, Black and Hispanic people, veterans, older
adults, and people in the Southern United States.\3\
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\2\ Shameek Rakshmit et al., The Burden of Medical Debt in the
United States, KFF (Feb. 12, 2024), https://www.kff.org/health-
costs/issue-brief/the-burden-of-medical-debt-in-the-united-states/
#:~:text=This%20analysis%20of%20government%20data,debt%20of%20more%20
than%20%2410%2C000.
\3\ CFPB, Medical Debt Burden in the United States at 2 (Mar. 1,
2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>.
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Medical debt is unique because consumers rarely plan to take on
medical debt or choose among providers based on price. Most medical
debt arises from acute or emergency care.\4\ In many cases, patients
lack the ability to substantively comparison-shop between medical
service providers due to emergency need, restrictive insurance
networks, price opacity, or limited provider availability.\5\ This
leaves many patients subject to the pricing and policies of the medical
service providers available to them.
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\4\ See Lunna Lopes et al., Health Care Debt in the U.S.: The
Broad Consequences of Medical and Dental Bills, KFF (June 16, 2022),
<a href="https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/">https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/</a> (finding that 50 percent of the people in the United
States who have medical debt have it because of emergency care and
72 percent have it because of acute care).
\5\ CFPB, Medical Debt Burden in the United States, at 3 (Mar.
1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>.
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Healthcare providers send medical bills to consumers to obtain
compensation for care rendered to patients. In some cases, providers
and patients enter into express contractual relationships, which may
define patients' payment obligations or providers' pricing for the
care. Yet contracts between providers and patients may still be vague,
as some do not define specific prices for the care provided.\6\ In
other cases, such as in emergency settings or where independent
contractors or provider groups are involved (e.g., lab work or
anesthesiology), consumers may not have any contractual relationship
with a medical provider that provides care and then sends a bill.\7\
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\6\ George A. Nation III, Contracting for Healthcare: Price
Terms in Hospital Admission Agreements, at 106, 124 Dick. L. Rev. 91
(2019) (describing how it is ``very common'' for admissions
agreements to not include exact prices).
\7\ Id. at 92 (``self-pay patients, who enter the hospital
through the emergency department, simply lack capacity to contract
due to the rushed, stressful and tension-laden emergency
circumstances''). As described below, the issue of whether this
constitutes an implied contract is a matter of State law.
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Consumers consistently report being confused about medical billing
practices.\8\ One reason for this is the variation in how medical
providers bill their patients. In most cases, medical providers charge
different rates for the same services to different payors, for example
charging patients far more than what Medicare would pay for a given
procedure if the patient is not covered by Medicare.\9\ This, in part,
stems from the fact that the pricing of medical services is heavily
negotiated between providers and certain institutional payors such as
insurance companies, and set by Government programs like Medicare and
Medicaid. As a result, healthcare providers are incentivized to
initially set high list prices as starting offers in negotiations with
insurers.\10\ As a result, uninsured and out-of-network patients are
often charged much higher prices than those ultimately agreed to with
insurers for patients in their networks.\11\ Even within network,
prices sometimes vary by facility or department.\12\ These rates often
vastly exceed the cost of providing care.\13\ Research has also shown
that healthcare markups are higher at hospitals with
[[Page 80717]]
more Black and Hispanic patients and at investor-owned, for-profit
hospitals.\14\
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\8\ See CFPB, Medical Debt Burden in the United States, at 3
(Mar. 1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>
(``medical billing and collections practices can be confusing and
difficult to navigate'').
\9\ See Eric Lopez et al., How Much More Than Medicare Do
Private Insurers Pay? A Review of the Literature, KFF (Apr. 15,
2020), <a href="https://www.kff.org/medicare/issue-brief/how-much-more-than-medicare-do-private-insurers-pay-a-review-of-the-literature/">https://www.kff.org/medicare/issue-brief/how-much-more-than-medicare-do-private-insurers-pay-a-review-of-the-literature/</a>; Frank
Griffin, Fighting Overcharged Bills from Predatory Hospitals, 51
ARIZ. ST. L.J. 1003 (2019).
\10\ Hospitals generally have no limit on their ``chargemaster''
rate, the rate they initially charge most private payors, and
chargemaster rates are typically significantly higher than the
actual cost of services rendered. See National Nurses United,
Fleecing Patients: Hospitals Charge Patients More Than Four Times
the Cost of Care'' (Nov. 2020), <a href="https://www.nationalnursesunited.org/sites/default/files/nnu/graphics/documents/1120_CostChargeRatios_Report_FINAL_PP.pdf">https://www.nationalnursesunited.org/sites/default/files/nnu/graphics/documents/1120_CostChargeRatios_Report_FINAL_PP.pdf</a>.
\11\ See Jennifer Tolbert et al., Key Facts about the Uninsured
Population, KFF (Dec. 18, 2023), <a href="https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/">https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/</a>.
\12\ See Matthew Panhans et al., Prices for Medical Services
Vary Within Hospitals, but Vary More Across Them, Medical Care
Research and Review 78(2), 157 (June 19, 2019); Xu, Tim, Angela Park
and Ge Bai, Variation in Emergency Department vs Internal Medicine
Excess Charges in the United States,'' JAMA Internal Medicine
(2017), <a href="https://pubmed.ncbi.nlm.nih.gov/28558093/">https://pubmed.ncbi.nlm.nih.gov/28558093/</a>.
\13\ See Ge Bai and Gerard F. Anderson, ``Extreme Markup: The
Fifty US Hospitals With The Highest Charge-To-Cost Ratios,'' Health
Affairs (June 2015), <a href="https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.1414">https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.1414</a>.
\14\ See CFPB, Medical Debt Burden in the United States, at 11
(Mar. 1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>
(referencing Faiz Gani, et al., Hospital markup and operation
outcomes in the United States, Surgery (July 2016), <a href="https://www.sciencedirect.com/science/article/abs/pii/S0039606016300022?via%3Dihub">https://www.sciencedirect.com/science/article/abs/pii/S0039606016300022?via%3Dihub</a>; Tim Xu, Angela Park, and Ge Bai,
Variation in Emergency Department vs Internal Medicine Excess
Charges in the United States, Jama Internal Medicine (2017), <a href="https://pubmed.ncbi.nlm.nih.gov/28558093/">https://pubmed.ncbi.nlm.nih.gov/28558093/</a>).
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Further, healthcare providers sometimes charge patients for
``upcoded'' services, or services more expensive than what the consumer
actually received.\15\ A 2024 study found that, from 2010-2019, the
total of upcoding expenses for Medicare Parts A, B, and C was $656
million, $2.39 billion, and $10-15 billion, respectively.\16\ Upcoding
is relatively widespread and has been estimated to account for 5-10
percent of total healthcare expenditures in the United States.\17\
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\15\ Medical care providers often calculate and itemize charges
for care using a standardized set of codes. These codes indicate the
various aspects of care a patient received along with the type and
scope of that care. Typically, more serious, more urgent, or more
involved forms of care will incur higher charges. If a medical
provider designates an aspect of a patient's care with a code that
denotes a higher or more involved level of care than was actually
received, the provider is said to be ``upcoding.''
\16\ Keith Joiner, Jianjing Lin, and Juan Pantano, Upcoding in
medicare: where does it matter most, Health Economics Review 14(1)
(2024), <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10759668/">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10759668/</a> PMC10759668/.
\17\ William Hsiao, Fraud and Abuse in Healthcare Claims,
California HHS (Jan. 2022), <a href="https://www.chhs.ca.gov/wp-content/uploads/2022/01/Commissioner-William-Hsiao-Comments-on-Fraud-and-Abuse-in-Healthcare-Claims.pdf">https://www.chhs.ca.gov/wp-content/uploads/2022/01/Commissioner-William-Hsiao-Comments-on-Fraud-and-Abuse-in-Healthcare-Claims.pdf</a>.
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After an individual receives a medical service, they and their
insurer are billed, if the individual is insured. Some healthcare
providers also market medical payment products or other external
financing options to their patients.\18\ In some cases, providers are
obligated by State or Federal laws to perform certain affirmative
functions involving the medical bill or refrain from specific
collection actions.\19\ After any insurance payments or payment via a
medical payment product are received, unpaid amounts, if any, are
collected by phone calls, letters, emails, and offers of payment plans
or settlements.\20\ Hospitals and other healthcare providers in the
United States are increasingly outsourcing medical billing and
collection activities to third parties, such as ``Revenue Cycle
Management'' firms, which are often funded by private equity.\21\ One
estimate projects the domestic market for Revenue Cycle Management
companies to grow by 10.2 percent annually until 2030.\22\ Unpaid
medical bills may also be assigned to more traditional debt collectors,
including those that specialize in medical debt, placed with an
attorney for litigation, or, more rarely, sold to a debt buyer.
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\18\ Consumers are increasingly using medical credit cards and
other financing options to pay for medical care, and the CFPB has
done significant work studying and addressing this issue. See CFPB,
Medical Credit Cards and Financing Plans'' (May 4, 2023), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-credit-cards-and-financing-plans/">https://www.consumerfinance.gov/data-research/research-reports/medical-credit-cards-and-financing-plans/</a>; see also Lorelei Salas, Ensuring
consumers aren't pushed into medical payment products'' (June 18,
2024), <a href="https://www.consumerfinance.gov/about-us/blog/ensuring-consumers-arent-pushed-into-medical-payment-products/">https://www.consumerfinance.gov/about-us/blog/ensuring-consumers-arent-pushed-into-medical-payment-products/</a>; CFPB, Request
for Information on Medical Payment Products,'' 88 FR 44281 (July 12,
2023).
\19\ Certain Federal laws, such as the No Surprises Act and the
Nursing Home Reform Act, limit collection activities for certain
kinds of medical debt. Non-profit hospitals may lose their non-
profit tax status if they fail to evaluate patients for eligibility
for financial assistance before the hospital takes certain types of
collection actions. See 26 U.S.C. 501(r)(6). Some State laws
similarly limit medical debt collections activities. For example,
states have enacted additional requirements that broaden the
applicability of hospital financial assistance, covering additional
services for those patients deemed eligible. See Washington State
Charity Care Law, RCW 70.170.060 (2024) (requiring non-profit
hospitals to provide charity care for patients and their guarantors
with incomes less than 300 percent of the Federal poverty
guidelines). Medicare and Medicaid requirements also vary by State
and may limit medical debt collections activities.
\20\ See CFPB, Medical Debt Burden in the United States, at 12
(Mar. 1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>.
\21\ See Jacqueline LaPointe, What's Behind Private Equity's
Interest in RCM Vendors, TechTarget (Mar. 5, 2024), <a href="https://www.techtarget.com/revcyclemanagement/answer/Whats-Behind-Private-Equitys-Interest-in-RCM-Vendors">https://www.techtarget.com/revcyclemanagement/answer/Whats-Behind-Private-Equitys-Interest-in-RCM-Vendors</a>.
\22\ See Grand View Research, U.S. Revenue Cycle Management
Market Size, Share, and Trends Analysis Report, <a href="https://www.grandviewresearch.com/industry-analysis/us-revenue-cycle-management-rcm-market">https://www.grandviewresearch.com/industry-analysis/us-revenue-cycle-management-rcm-market</a>.
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The CFPB has observed and reported on many issues with how debt
collectors collect medical debt in the United States. For example, the
CFPB has brought enforcement actions against debt collectors for
collecting on disputed medical debts without adequate
substantiation.\23\ The CFPB has also previously described reports from
consumers who have received collections notices for medical debts they
should or do not owe. Specifically, consumers have reported receiving
collections notices for debts that have or should have been covered by
insurance, government payors, hospital financial assistance programs,
or that the patient has otherwise paid.\24\ Consumers also have
reported receiving collections notices for debts they believe they do
not owe under State or Federal law.\ \
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\23\ See Consent Order, Commonwealth Fin. Sys., Inc., CFPB No.
2023-CFPB-0018 (Dec. 15, 2023); Consent Order, Phoenix Fin. Servs.,
LLC, CFPB No. 2023-CFPB-0004 (June 8, 2023).
\24\ See CFPB, Fair Debt Collection Practices Act CFPB Annual
Report 2023 (Nov. 16, 2023); <a href="https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/">https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/</a>.
\25\ See CFPB, Fair Debt Collection Practices Act CFPB Annual
Report 2023 (Nov. 16, 2023), <a href="https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/">https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/</a>; CFPB, Nursing Home Debt Collection (Sept. 9,
2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-nursing-home-debt-collection/">https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-nursing-home-debt-collection/</a>; see also,
e.g., Complaint for Civil Penalties, Injunctive and Other Relief,
Washington v. Providence Health & Services, No. 22-2-01754-6 SEA
(King Cnty. Sup. Ct. Feb. 24, 2024), ]] 70-77 (alleging that
hospital system sent the accounts of patients it knew were eligible
for financial assistance under state law to debt collectors).
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Further, many debt collectors do not have timely access to
healthcare providers' billing and payment information, increasing the
likelihood that the debt collector collects on an amount that is not
owed, such as a bill that has already been paid.\26\ Many consumers
have reported difficulties receiving verification of medical debts for
which they have received collections notices.\27\ In some cases, debt
collectors either may not have or refuse to provide to a consumer upon
request proof of insurance payments, documentation confirming that the
amount billed complies with State law and other affirmative collection
requirements, such as hospital financial assistance, or other documents
that would demonstrate the validity of the debt and the accuracy of the
demanded amount.
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\26\ John McNamara, Debt collectors re-evaluate medical debt
furnishing in light of data integrity issues (Feb. 14, 2023),
<a href="https://www.consumerfinance.gov/about-us/blog/debt-collectors-re-evaluate-medical-debt-furnishing-in-light-of-data-integrity-issues/">https://www.consumerfinance.gov/about-us/blog/debt-collectors-re-evaluate-medical-debt-furnishing-in-light-of-data-integrity-issues/</a>.
\27\ See CFPB, Medical Debt Burden in the United States, at 4
(Mar. 1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>.
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The FDCPA's protections are enforced by the CFPB, by other Federal
regulators, by individual consumers, and, under certain circumstances,
by States.\28\ And the CFPB is responsible for issuing rules regarding
the FDCPA.\29\ To the extent a person qualifies as a ``debt collector''
under the FDCPA and its implementing Regulation F, that person is
subject to the FDCPA and
[[Page 80718]]
Regulation F.\30\ 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,'' \31\ including, for example, any
false representation of ``the character, amount, or legal status of any
debt.'' \32\The FDCPA and Regulation F also prohibit the use of
``unfair or unconscionable means to collect or attempt to collect any
debt,'' \33\ including, for example, the ``collection of any amount
(including any interest, fee, charge, or expense incidental to the
principal obligation) unless such amount is expressly authorized by the
agreement creating the debt or permitted by law.'' \34\ The CFPB
reminds debt collectors that these FDCPA prohibitions interact with
other Federal and State laws in a variety of ways that could create
liability for debt collectors operating in the medical debt market.
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\28\ 15 U.S.C. 1692l, 1692k; see 87 FR 31940, 31941 (May 26,
2022) (explaining state authority to address violations of the
federal consumer financial laws committed by ``covered persons'' and
``service providers'' under the Consumer Financial Protection Act).
\29\ 12 U.S.C. 5481(12)(F), (H), 5512(b), 5514(c); 15 U.S.C.
1692l(d).
\30\ 15 U.S.C. 1692a(6) (defining ``debt collector''); 12 CFR
1006.2(i) (same).
\31\ 15 U.S.C. 1692e; 12 CFR 1006.18(a).
\32\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
\33\ 15 U.S.C. 1692f; 12 CFR 1006.22(a).
\34\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
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The CFPB also reminds debt collectors that sections 1692e(2)(A) and
1692f(1) impose strict liability. First, these two provisions include
no scienter requirement, in contrast to several others that do.\35\
Second, the statute differentiates between intentional and
unintentional violations.\36\ As many courts have held,\37\ imposing
strict liability for violations of these provisions is therefore the
best reading of the plain language, consistent with the statute's
overall structure, and consonant with Congress' intent.\38\
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\35\ See, e.g., 15 U.S.C. 1692e(8) (prohibiting
``[c]ommunicating or threatening to communicate to any person credit
information which is known or which should be known to be false'')
(emphasis added); 15 U.S.C. 1692d(5) (prohibiting debt collectors
from ``causing a telephone to ring or engaging any person in
telephone conversation repeatedly or continuously with intent to
annoy, abuse, or harass'') (emphasis added); 15 U.S.C. 1692j(a)
(making it unlawful to ``design, compile, and furnish any form
knowing that such form would be used'' to deceive consumers in a
specified way'') (emphasis added).
\36\ See, e.g., 15 U.S.C. 1692k(b)(1) (including as a factor for
calculating statutory damages ``the extent to which [the debt
collector's] noncompliance was intentional''). Entities may also
have an affirmative defense to liability for violations described in
this advisory opinion, but only if they maintain procedures that are
reasonably designed to prevent unintentional violations that are the
result of bona fide errors. See 15 U.S.C. 1692k(c) (providing
affirmative defense for violations if they are: (1) ``not
intentional,'' (2) the result of ``a bona fide error,'' and (3)
occurred despite ``the maintenance of procedures reasonably adapted
to avoid any such error''). Further, ``the broad statutory
requirement of procedures reasonably designed to avoid `any' bona
fide error indicates that the relevant procedures are ones that help
to avoid errors like clerical or factual mistakes. Such procedures
are more likely to avoid error than those applicable to legal
reasoning. . . .'' Jerman v. McNellie, et al., 559 U.S. 573, 587
(2010).
\37\ Every Federal Circuit Court of Appeals to address this
issue has held that the FDCPA is a strict liability statute. See,
e.g., Vangorden v. Second Round, Ltd. P'ship, 897 F.3d 433, 437-38
(2d Cir. 2018) (``The FDCPA is `a strict liability statute' and,
thus, there is no need for a plaintiff to plead or prove that a debt
collector's misrepresentation . . . was intentional.''); Allen ex
rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364, 368 (3d Cir. 2011)
(``The FDCPA is a strict liability statute to the extent it imposes
liability without proof of an intentional violation.''); Stratton v.
Portfolio Recovery Assocs., LLC, 770 F.3d 443, 448-49 (6th Cir.
2014) (``The FDCPA is a strict-liability statute: A plaintiff does
not need to prove knowledge or intent.'').
\38\ Congress enacted the FDCPA in 1977 to ``eliminate abusive
debt collection practices by debt collectors, to ensure that those
debt collectors who refrain from using abusive debt collection
practices are not competitively disadvantaged, and to promote
consistent State action to protect consumers against debt collection
abuses.'' Public Law 95-109, sec. 802(e), 91 Stat. 874, 874
(codified at 15 U.S.C. 1692(e)).
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III. Collection of Debts Invalid Under Law
A. Collection of Amounts Not Owed Because Already Paid
Section 808(1) of the FDCPA prohibits, in relevant part, the
collection of any amount ``unless such amount is expressly authorized
by the agreement creating the debt or permitted by law.'' \39\ And
section 807(2)(A) prohibits any false representation of ``the
character, amount, or legal status of any debt.'' \40\
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\39\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
\40\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
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Under these provisions, debt collectors must only collect or
attempt to collect the amount that a consumer, in fact, owes at the
time of a debt collection action after all appropriate deductions for
partial payments by the consumer or third parties are made. The amounts
due on a medical bill can often be adjusted multiple times, in light of
payments made by consumers themselves or by third parties, such as
insurers. Providers may also agree to accept a reduced amount in full
satisfaction of the bill, or reduce the amount billed pursuant to a
financial assistance policy or program.
Under the FDCPA, the ``amount [ ] expressly authorized by the
agreement creating the debt'' refers only to the remaining balance on a
debt that is fully owed by the consumer after any payments that reduce
the debt's remaining balance are deducted because such payments reduce
the amount that the consumer is obligated to pay under the original
agreement. Accordingly, seeking to collect an amount that does not
account for partial payments or changes to the bill made by the
provider would violate the FDCPA's prohibitions against unfair or
unconscionable debt collection practices because the amount has not
been expressly agreed to. In other words, once a partial payment has
been made toward an agreed-to amount, collection or attempted
collection of the full amount without accounting for the partial
payment is collection of an amount greater than that agreed to or
permitted by law. Such collection or attempted collection 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.\41\ Because payments toward a debt might be made at
any time, debt collectors are responsible for ensuring that the correct
collection amount is sought during each attempt at collection.
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\41\ See Vangorden v. Second Round, L.P., 897 F.3d 433, 437-38
(2d Cir. 2018) (consumer stated claim under FDCPA sections 807 and
808 when debt collector sought to collect debt that consumer had
already settled with creditor); Gonzalez v. Allied Collection
Servs., Inc., No. 216CV02909MMDVCF, 2019 WL 489093, at *8-9 (D. Nev.
Feb. 6, 2019), aff'd, 852 F. App'x 264 (9th Cir. 2021) (debt
collector violated FDCPA sections 807 and 808 when it sought to
collect full amount of debt that had been partially paid); see also
Complaint for Permanent Injunction and Other Equitable Relief, FTC
v. Midwest Recovery Systems, LLC, No. 12-00182 (E.D. Mo. Nov. 25,
2020), <a href="https://www.ftc.gov/system/files/documents/cases/01_-_complaint.pdf">https://www.ftc.gov/system/files/documents/cases/01_-_complaint.pdf</a> (pleading violation of FDCPA section 807 where, among
other things, ``[t]he debt was medical debt in the process of being
re-billed to the consumer's medical insurance'').
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B. Collection of Amounts Not Owed Due to Federal or State Law
Section 808(1) of the FDCPA prohibits, in relevant part, the
collection of any amount ``unless such amount is expressly authorized
by the agreement creating the debt or permitted by law.'' \42\ An
``amount expressly authorized by the agreement creating the debt or
permitted by law'' means only a debt that the consumer is legally
obligated to pay. If a Federal or State law relieves consumers of the
obligation to pay for medical costs, in whole or in part, then
collection of those costs is not ``permitted by law'' but rather
prohibited by law. Thus, any amount that a consumer is not obligated to
pay by operation of Federal or State law, is not an ``amount . . .
permitted by law.'' Nor is the amount collectible as an ``amount [ ]
expressly authorized by the agreement creating the debt'' since
contractual terms that contravene Federal or State law are
unenforceable as contrary to public policy.\43\
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\42\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
\43\ See Restatement (Second) of Contracts sec. 178 (``A promise
or other term of an agreement is unenforceable on grounds of public
policy if legislation provides that it is unenforceable. . . .'');
see also, e.g., United States v. Blue Cross/Blue Shield of Ala., 999
F.2d 1542, 1547 (11th Cir. 1993) (``The application of a regulatory
statute that is otherwise valid may not be defeated by private
contracts.'') (citing Connolly v. Pension Benefit Guaranty Corp.,
475 U.S. 211, 224 (1986)); SodexoMAGIC, LLC v. Drexel Univ., 24
F.4th 183, 219-20 (3d Cir. 2022) (``[A] voluntarily-agreed-to
contract term is enforceable unless a statute or the common law
specifically prevents enforcement of that term.'') (applying
Pennsylvania law); Metcalfe v. Grieco Hyundai LLC, 698 F. Supp. 3d
239, 2442 (D.R.I. 2023) (``Because the [Rhode Island State statute]
explicitly allows collective actions, the class action waiver
provision in the Leasing Agreement is unenforceable as against
public policy in Rhode Island.'') (applying Rhode Island law).
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[[Page 80719]]
A range of laws protect consumers from the legal obligation to pay
medical bills in certain circumstances. For example, a State workers'
compensation scheme may provide that a medical provider only has
recourse against a patient's employer or workers' compensation insurer
for the treatment of a work-related injury.\44\ And the Federal Nursing
Home Reform Act prohibits, among other things, nursing care facilities
that participate 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, and thus nursing care
facilities cannot collect the debt from third parties in violation of
this law.\45\
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\44\ See, e.g., Kottler v. Gulf Coast Collection Bureau, Inc.,
460 F. Supp. 3d 1282, 1293 (S.D. Fla. 2020), aff'd, 847 F. App'x 542
(11th Cir. 2021) (debt collector violated section 807(2)(A) when it
attempted to collect a debt for which consumer had pending workers'
compensation claim); Young v. NPAS, Inc., 361 F. Supp. 3d 1171, 1196
(D. Utah 2019) (debt collector violated FDCPA sections 807(2)(A) and
808(1) when it attempted to collect a debt that consumer did not owe
under Utah workers' compensation law); Raytman v. Jeffrey G. Lerman,
P.C., No. 17 CIV. 9681 (KPF), 2018 WL 5113952, at *5-6 (S.D.N.Y.
Oct. 19, 2018) (consumer stated claim for violations of FDCPA
sections 807 and 808 when debt collector sought to collect debt that
consumer did not owe under New York Medicaid payment rules).
\45\ See generally CFPB Circular 2022-05: Debt collection and
consumer reporting practices involving invalid nursing home debts
(Sept. 8, 2022), available at: <a href="https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/">https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/</a>.
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A debt collector that collects or attempts to collect a debt from a
consumer who is not legally obligated on the debt by operation of State
or Federal law violates the FDCPA's prohibitions against unfair or
unconscionable debt collection practices because the amount is not
expressly authorized by the agreement creating the debt or permitted by
law \46\ and also violates the FDCPA's prohibitions against deceptive
or misleading debt collection practices because it would falsely
represent the amount of the debt. Debt collectors are responsible for
ensuring that they do not collect or attempt to collect debts that are
not legally owed by the relevant consumer, whether by operation of
State or Federal law.
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\46\ This may be the case even if terms of the contract creating
the debt would make a given consumer liable. See, e.g., Tuttle v.
Equifax Check, 190 F.3d 9, 13 (2d Cir. 1999) (noting that it would
be a violation of section 1692f(1) to collect a fee if State law
expressly prohibits such fees, even if the contract allows it).
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C. Collection of Amounts Above That Permitted by Federal or State Law
Section 807 prohibits any false representation of ``the character,
amount, or legal status of any debt.'' \47\ Section 808(1) of the FDCPA
prohibits, in relevant part, the collection of any amount ``unless such
amount is expressly authorized by the agreement creating the debt or
permitted by law.'' \48\ Debt collectors would violate the FDCPA when
they collect or attempt to collect amounts that exceed limits or
calculation methods provided by State or Federal law, thus
misrepresenting the consumer's obligation to pay the debt and
collecting or attempting to collect an amount not permitted by law.
Here again, a range of laws may operate to limit or control the amount
that a medical provider may bill a patient in certain circumstances.
For example, the Federal No Surprises Act of 2020 restricts the charges
that certain medical providers can bill to certain patients depending
on a number of factors such as their insured status and whether a
billing provider is in- or out-of-network for a patient's health
insurance plan.\49\ As the CFPB has previously stated, the FDCPA's
prohibition on misrepresentations includes misrepresenting that a
consumer must pay a debt stemming from a charge that exceeds the amount
permitted by the No Surprises Act.\50\ Thus, for example, a debt
collector who represents that a consumer owes a debt arising from out-
of-network charges for emergency services would violate the prohibition
on misrepresentations if those charges exceed the amount permitted by
the No Surprises Act. Relatedly, if a Federal law limits or caps the
amount a consumer may be billed in a given circumstance, then
collection or attempted collection of an amount over the relevant limit
or cap would run afoul of the FDCPA's prohibition on collection of
amounts unless permitted by law.
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\47\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
\48\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
\49\ See Requirements Related to Surprise Billing; Part II, 86
FR 55980 (Oct. 7, 2021).
\50\ See CFPB Bulletin 2022-01: Medical Debt Collection and
Consumer Reporting Requirements in Connection With the No Surprises
Act, 87 FR 3025, 3026 (Jan. 20, 2022).
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State law may also provide a limit on the allowable amount that a
medical provider can bill a consumer. Many States have enacted laws to
protect consumers from unexpected medical bills in much the same vein
as the Federal No Surprises Act and which may provide additional
protections beyond those in the Federal law.\51\ While State laws vary
considerably, many include limits on the amounts that medical
providers, both emergency and non-emergency, can bill certain consumers
and provide specific standards to guide billing calculations.\52\ As
with the Federal statute, where one of these State laws applies to
limit the amount that a medical provider can bill a consumer, a debt
collector that collects or attempts to collect an amount that exceeds
the relevant limits would violate the FDCPA's prohibition against
misrepresenting the amount of the debt owed and the prohibition against
collecting or attempting to collect an amount unless permitted by law.
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\51\ See State Surprise Billing Laws and the No Surprises Act,
accessible at: <a href="https://www.cms.gov/files/document/nsa-state-laws.pdf">https://www.cms.gov/files/document/nsa-state-laws.pdf</a>, at 2 (``The No Surprises Act supplements State surprise
billing law protections; it does not replace them.'').
\52\ See, e.g., Conn. Gen. Stat. secs. 38a-477aa, 20-7f; Mich.
Comp. Laws sec. 333.24507.
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Finally, State contract or common law may also provide limits on
the allowable amount that a medical provider can bill a consumer in
certain circumstances. For example, consumers are sometimes billed by
medical service providers that the consumer did not enter into an
express agreement with prior to receiving the services. In these
circumstances, some courts have held that State contract law provides
that the relationship between the consumer and provider is governed by
an implied-in-fact agreement, the price term of which may be limited to
a ``reasonable'' amount.\53\ Courts have also interpreted some States'
laws to require that when an express contract for medical services
contains no explicit price term, a ``reasonable'' price term should be
inserted.\54\ Courts have even invalidated
[[Page 80720]]
explicit price terms in contracts when those terms were determined to
be unconscionable under State law, often limiting the price that must
be paid to some ``reasonable'' amount as a remedy.\55\
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\53\ See, e.g., Leslie v. Quest Diagnostics, Inc., No.
CV171590ESMAH, 2019 WL 4668140, at *7 (D.N.J. Sept. 25, 2019)
(``Plaintiffs sufficiently allege that Quest's chargemaster prices
are unreasonable based on Quest's internal cost structure, the usual
and customary rates charged, and payments received for these
services by both Quest and other laboratory testing services.'').
\54\ Colomar v. Mercy Hosp., Inc., No. 05-22409-CIV-SEITZ, 2007
WL 2083562, at *4 (S.D. Fla. July 20, 2007) (``Florida law is
settled that when the price term in a contract for hospital services
is left `open' or undefined, then the courts will infer a reasonable
price.'').
\55\ See, e.g., Ahern v. Knecht, 563 NE2d 787, 793 (Ill. App.
1990) (price term in contract for appliance repair was
unconscionable and repairman would be allowed only ``the actual
value of his services''); Toker v. Westerman, 274 A.2d 78, 81 (N.J.
Super. 1970) (price term in contract for sale of refrigerator was
unconscionably high; court refused to enforce term, relieving the
defendant-consumer from obligation to pay remaining balance owed);
Restatement (Second) of Contracts sec. 208--Unconscionable Contract
or Term, cmt. g (1981) (``the offending party [to an unconscionable
contract] will ordinarily be awarded at least the reasonable value
of performance rendered by him''); see also De La Torre v. CashCall,
Inc., 422 P.3d 1004, 1009 (Cal. 2018) (``As long established under
California law, the doctrine of unconscionability reaches contract
terms relating to the price of goods or services exchanged.'').
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The CFPB reminds debt collectors that State law may determine or
limit the amount that medical providers may charge to consumers, and
that collection of or an attempt to collect an amount that exceeds the
allowable amount under State law (including applicable State case law)
may misrepresent the amount of the debt in violation of the FDCPA.
Collection or an attempt to collect an amount that exceeds the
allowable amount under State law may also violate the prohibition
against collecting or attempting to collect an amount unless permitted
by law. These State law cases make clear that the collection amount
that is ``permitted by law'' may be much less than the amount asserted
to be owed by the medical provider. Debt collectors are responsible for
ensuring that they do not collect or attempt to collect amounts above
that which the relevant consumer(s) can be charged under applicable
State and Federal laws. Because, as noted above, the FDCPA imposes
strict liability, debt collectors should ensure that they only collect
or attempt to collect amounts that may be charged under applicable
State law.\56\
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\56\ Debt collectors may be able to minimize risk of
misrepresentations in these circumstances by working with client
medical providers to ensure that pricing and billing practices
comply with applicable legal limits.
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D. Collection of Amounts Not Owed Because Services Not Received
Section 808(1) of the FDCPA prohibits, in relevant part, the
collection of any amount ``unless such amount is expressly authorized
by the agreement creating the debt or permitted by law.'' \57\ And
section 807(2)(A) prohibits any false representation of ``the
character, amount, or legal status of any debt.'' \58\ As relevant
here, the ``amount [] expressly authorized by the agreement creating
the debt'' means amounts due for services actually rendered under the
relevant agreement. Similarly, a ``false representation of the . . .
amount . . . of any debt'' includes a representation to a consumer that
they owe an amount for services that have not been rendered.
---------------------------------------------------------------------------
\57\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
\58\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
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Courts have held that it is a violation of the FDCPA for debt
collectors to collect or attempt to collect amounts for services that
were not rendered.\59\ Medical bills, especially for services rendered
in hospitals, are frequently calculated by reference to a standardized
set of codes that indicate the type and degree of medical care a
patient received. Typically, providers will seek greater compensation
for more serious, more urgent, or more involved forms of care. As noted
above, if a medical provider designates an aspect of a patient's care
with a code that denotes a higher or more involved level of care than
was actually received, the provider is said to be ``upcoding.'' \60\
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\59\ Langley v. Statebridge Co., LLC, No. CIV.A. 14-6366 JLL,
2014 WL 7336787, at *3 (D.N.J. Dec. 22, 2014) (consumer stated claim
under FDCPA section 807(2)(A) when debt collector attempt to collect
debt for tax and insurance payments not actually made by creditor);
Fitzsimmons v. Rickenbacker Fin., Inc., No. 2:11-CV-1315 JCM PAL,
2012 WL 3994477, at *3 (D. Nev. Sept. 11, 2012).
\60\ See Centers for Medicare & Medicaid Servs., Common Types of
Healthcare Fraud, at 2 (2016), <a href="https://www.cms.gov/files/document/overviewfwacommonfraudtypesfactsheet072616pdf">https://www.cms.gov/files/document/overviewfwacommonfraudtypesfactsheet072616pdf</a>. (``Upcoding is a term
that is not defined in [] regulations but is generally understood as
billing for services at a higher level of complexity than the
service actually provided or documented in the file.''); U.S. ex
rel. Harris v. Bernad, 275 F. Supp. 2d 1, 4 (D.D.C. 2003) (``The
government alleges that the defendants engaged in `upcoding'--that
is, submitted claims with CPT codes that represented a level of care
higher than the defendants actually provided.'').
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A debt collector that collects or attempts to collect a debt that
has been ``upcoded'' violates the FDCPA's prohibitions against unfair
or unconscionable debt collection practices because the amount is not
expressly authorized by the agreement for services actually rendered
and also violates the FDCPA's prohibitions against deceptive or
misleading debt collection practices because it would falsely represent
the amount of the debt. Debt collectors are responsible for ensuring
that they do not collect or attempt to collect amounts that have been
charged for services that have not actually been rendered.\61\
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\61\ Nothing in this Advisory Opinion should be interpreted to
mean that in order to mitigate risk of violations of the FDCPA debt
collectors should obtain access to documents beyond relevant patient
contracts or bills. Again, debt collectors may be able to minimize
risk of misrepresentations in these circumstances by working with
client medical providers to ensure appropriate billing practices.
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IV. Misrepresentation of the Nature of Legal Obligations
Section 807(2)(A) prohibits any false representation of ``the
character, amount, or legal status of any debt.'' A ``false
representation of the . . . legal status of any debt'' includes
representations to a consumer about the legal nature of the provider's
claim for payment and the legal rights and obligations that arise under
that particular type of claim.
As described above, there are a variety of ways in which medical
bills and the amounts demanded therein differ from consumer
transactions where a consumer agrees to a known and definite price in
exchange for goods or services. In medical billing, consumers sometimes
enter agreements that have undefined price terms or are billed by
providers with whom the consumer has never entered into an express
agreement. The legal basis for a provider's claim for payment in such
circumstances therefore also varies, and each such basis may have
different implications for a consumer's legal rights or obligations.
For example, under some States' laws, providers sometimes demand
payment for services on the basis of an account stated theory, whereby
a party presents another with an alleged statement of account and a
legal obligation to pay that amount arises if the receiving party does
not object within a reasonable period of time.\62\ The inverse is also
true under these State's laws: an account stated claim cannot be
maintained if the receiving party disputes the alleged statement of
account within a reasonable period of time before making payments on
the account.\63\
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\62\ See, e.g., Univ. of S. Ala. v. Bracy, 466 So.2d 148, 150
(Ala. Civ. App. 1985) (stating elements of account stated claim
under Alabama law in medical context); Egge v. Healthspan Servs.
Co., No. CIV. 00-934 ADM/AJB, 2001 WL 881720, at *2 (D. Minn. July
30, 2001) (elements of account stated claim under Minnesota law in
medical context).
\63\ See, e.g., Grandell Rehab. & Nursing Home, Inc. v. Devlin,
809 N.Y.S.2d 481 at *3 (N.Y. Sup. Ct. 2005) (rejecting nursing
home's account stated claim because, among other reasons, receiving
consumer disputed their liability and the amounts) (citing Abbott,
Duncan & Wiener v. Ragusa, 214 A.D.2d 412, 413 (N.Y. App. Div.
1995)).
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However, the variations in medical billing and the associated legal
consequences are not readily apparent or known to most consumers.\64\
Most
[[Page 80721]]
consumers understand a demand for payment from a debt collector to mean
that they owe the full amount demanded. The least sophisticated
consumer presented with a demand for payment may believe that the full
demanded amount is legally owed.\65\ In particular, a consumer may be
unlikely to know that, in the absence of an express agreement and
definite price term, a debt collector's demand for payment may not
accurately reflect the consumer's actual legal obligation to the
provider under State law.\66\
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\64\ When evaluating a claim under section 807 of the FDCPA,
courts apply the ``least sophisticated debtor'' standard. See, e.g.,
Jensen v. Pressler & Pressler, 791 F.3d 413, 420 (3d Cir. 2015)
(applying ``least sophisticated debtor'' standard to evaluate
liability under section 807); McCollough v. Johnson, Rodenburg &
Lauinger, LLC, 637 F.3d 939, 952 (9th Cir. 2011) (same); Jeter v.
Credit Bureau, Inc., 760 F.2d 1168, 1177 n.11 (11th Cir. 1985)
(same).
\65\ See, e.g., Miller v. Carrington Mortgage Servs., LLC, 607
B.R. 1, 5-6 (D. Me. 2019) (consumer alleged fear that ``he would
never be free from demands for payment'' or that debt collector had
``found a way of getting around the bankruptcy discharge
protections.''); cf. Daugherty v. Convergent Outsourcing, Inc., 836
F.3d 507, 513 (5th Cir. 2016) (``[A] collection letter seeking
payment on a time-barred debt (without disclosing its
unenforceability) but offering a `settlement' and inviting partial
payment (without disclosing the possible pitfalls) could constitute
a violation of the FDCPA.''); Buchanan v. Northland Grp., Inc., 776
F.3d 393, 399 (6th Cir. 2015) (consumer stated claim under section
807(2)(A) when debt collector offered to ``settle'' time-barred debt
at a discount and noting that rule under Michigan law that partial
payment revives a time-barred debt ``is almost assuredly not within
the ken of most people, whether sophisticated, whether reasonably
unsophisticated, or whether unreasonably unsophisticated'').
\66\ C.f. Shula v. Lawent, 359 F.3d 489, 491-92 (7th Cir. 2004)
(affirming finding of liability under section 807 where debt
collector attempted to collect amount of court costs that were not
in fact awarded in State law action); Van Westrienen v.
Americontinental Collection Corp., 94 F. Supp. 2d 1087, 1101-02 (D.
Or. 2000) (consumer stated claim under section 807(2)(A) when debt
collector's communications suggested that wage garnishment or asset
seizure would occur ``within 5 days'' when such legal action was not
procedurally possible in that time span); Biber v. Pioneer Credit
Recovery, Inc., 229 F. Supp. 3d 457, 473-74 (E.D. Va. 2017)
(consumer stated claim under section 807(2)(A) when debt collector
threatened to garnish wages without disclosing that it had not in
fact taken preliminary procedural steps required to do so).
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A debt collector that collects or attempts to collect a debt where
the amount is not based on an express contractual price term risks
violating the FDCPA's prohibitions against deceptive or misleading debt
collection practices if the debt collector gives the misleading
impression that the amount demanded is final and that precise amount is
legally owed. Moreover, because, as noted above, the FDCPA imposes
strict liability, debt collectors are responsible for ensuring that
they do not collect or attempt to collect debts in a way that deceives
or misleads a consumer, explicitly or impliedly, about the legal status
of the medical provider's claim and a consumer's right to object to
claims, as appropriate; a debt collector may misrepresent the legal
status of the debt even if the collector is relying on information
provided by the medical provider. When dealing with uncertainty arising
from the lack of express agreement, debt collectors may be able to
minimize their risk of engaging in violations by communicating clearly
and conspicuously with consumers about the legal status of the debt and
the amount owed, for example, as appropriate, that an enforceable
payment obligation may not exist until proven in court.
V. Substantiation of Medical Debts
Section 807(2)(A) prohibits any false representation of ``the
character, amount, or legal status of any debt.'' When a debt collector
makes a demand for payment of a debt or otherwise represents that a
consumer owes a debt, the collector makes an implied representation
that it has a reasonable basis to assert the character, amount, and
legal status of the debt.\67\ A debt collector violates the prohibition
against false representations if the collector has no reasonable basis
on which to represent that the specific amount demanded is due and
legally collectible.
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\67\ See Debt Collection Practices (Regulation F), Final Rule,
85 FR 76734, 76857 (Nov. 30, 2020) (codified at 12 CFR part 1006)
(``[I]it is clear that a debt collector must have (or have access
to) records reasonably substantiating its claim that a consumer owes
a debt in order to avoid engaging in deceptive or unfair collection
practices in violation of the FDCPA when it attempts to collect the
debt.'').
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The many unique features of the markets for medical care and
services present particularly acute risks of uncertainty as to the
``character, amount, or legal status'' of debts that are incurred in
these markets. As described above, the health care market is complex,
variable, and opaque. Prices charged by providers vary widely even for
the same treatment or procedure and are often conditional, changing
based on factors that often cannot be known before services are
rendered. A variety of State and Federal laws may impact a consumer's
liability for payment, in whole or in part, or for the amount that may
be charged. Billing and payment are complicated by the involvement of
third-party payors such as insurers, public compensation programs, or
tortfeasors. And the nature or legal basis of a provider's claim for
payment may be unclear, often due to a lack of express agreements.
While this level of uncertainty may arise from the inherently complex
reality of medical care and the broader heath care system, it
underscores the need for debt collectors to properly substantiate the
character, amount, and legal status of medical debt before they begin
collection, in accord with consumer's expectations that debt collectors
have a reasonable basis for their demands.\68\
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\68\ As noted above, nothing in this Advisory Opinion should be
interpreted to mean that in order to mitigate risk of violations of
the FDCPA debt collectors are encouraged to obtain access to
documents beyond relevant patient contracts or bills as permitted
under applicable privacy laws.
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Although a debt collector must be able to substantiate claims
regarding the amount and validity of the debt made to a consumer,
including those made at the outset of collection, the type and amount
of information that is necessary to substantiate a particular
representation will vary depending upon the claim itself, the
circumstances surrounding the claim, and the need to observe patients'
privacy rights under relevant law. The inherently uncertain and
conditional nature of the costs of and payments for medical care means
that debt collectors should exercise heightened care to ensure that
they have a reasonable basis to assert that the debt is legally
collectible and the specific amount is owed. For example, consider a
debt collector that receives summary information concerning accounts
for collection from a provider group that operates within a hospital.
An initial reasonable step to substantiate the debts prior to
collection may include obtaining any relevant patient agreements or
contracts executed by the relevant patients. If, as is often the case,
there is no contract between patients and the provider group, the debt
collector may need documents sufficient to make a prima facie case for
the demanded amount under the applicable State law. Consider another
example where a debt collector is onboarding a hospital client. The
debt collector may reduce risk of liability if it has access to full
payment histories for the patient accounts, including any payments from
third parties covering any portion of an overall demanded amount, and
to confirm the hospital's compliance with any affirmative legal
obligations, such as requirements to assess consumers under financial
assistance policies if the hospital is a non-profit \69\ or otherwise
participates in financial assistance programs, to ensure that there is
a reasonable basis for the demanded amount.\70\
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\69\ See 26 U.S.C. 501(r).
\70\ This example is provided merely as an illustration of the
kinds of information that may be necessary to properly substantiate
debt collection information in a given circumstance and is not
offered as a complete or exhaustive list that would guarantee
compliance in all circumstances.
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Regulators, including the CFPB, have brought actions against debt
collectors for failing to substantiate collection
[[Page 80722]]
information for accuracy and completeness before beginning collection
efforts when there were indications that the information suffered from
a high degree of uncertainty or unreliability.\71\ For example, many
debt collectors operate as ``debt buyers,'' purchasing large portfolios
of debts from creditors or other debt collectors at significant
discounts from the face value of the underlying debts.\72\ These
``portfolios'' of debts may functionally be little more than
spreadsheets containing purported information concerning debts and may
not be accompanied by underlying contracts, customer agreements, or
other documentation evidencing the existence and amount of the
debts.\73\ This information may be facially unreliable, such as when
the sellers of the debt explicitly disclaim its accuracy or
collectability or when it is readily apparent that the information is
inaccurate.\74\ In these circumstances, the CFPB and other regulators
have alleged that the debt collectors were on notice that collecting or
attempting to collect the purported debts based on the information in
their possession could lead to widespread or repeated violations of
section 807(2)(A).\75\ Proceeding to collect the purported debts based
on that unsubstantiated information misrepresented to the affected
consumers that the collectors had a reasonable basis for their
collection attempts.\76\ Importantly, this misrepresentation did not
rely on a finding that the claimed amount was incorrect--for which a
debt collector can be separately liable, see generally section II,
supra--but on their failure to substantiate the validity and amounts of
the debts that were sought.
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\71\ See, e.g., Complaint for Civil Penalties, Injunctive and
Other Relief, United States v. Asset Acceptance, LLC, No. 12-00182
(M.D. Fla. Jan. 30, 2012), ECF No. 1 (Asset Acceptance Compl.);
Consent Order, Encore Capital Grp., Inc., CFPB No. 2015-CFPB-0022
(Sept. 9, 2015) (Encore Consent Order); Consent Order, Portfolio
Recovery Assocs., LLC, CFPB No. 2015-CFPB-0023 (Sept. 9, 2015) (PRA
Consent Order).
\72\ See Asset Acceptance Compl. ]] 9-10; Encore Consent Order,
] 22; PRA Consent Order, ] 24.
\73\ See Asset Acceptance Compl., ] 11; Encore Consent Order, ]
23; PRA Consent Order, ] 27.
\74\ See Asset Acceptance Compl., ] 11-16, 49-52; Encore Consent
Order, ]] 24-35; PRA Consent Order, ]] 28-32.
\75\ See Asset Acceptance Compl., ] 81-83; Encore Consent Order,
] 112-114; PRA Consent Order, ] 103-105.
\76\ See Asset Acceptance Compl., ] 54-55; Encore Consent Order,
] 45-47, 78-81, 103-105; PRA Consent Order, ] 63-66, 94-96,.
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Debt collectors working with medical debts are responsible for
ensuring that they possess a reasonable basis for collecting or
attempting to collect those debts. Collecting or attempting to collect
medical debts without substantiation violates section 807(2)(A).
VI. Defining Default Under the FDCPA
The prohibitions imposed by sections 807 and 808 of the FDCPA apply
only to ``debt collectors.'' \77\ As relevant here, Section 803 of the
FDCPA defines ``debt collector'' in two ways: (1) ``any person who uses
any instrumentality of interstate commerce or the mails in any business
the principal purpose of which is the collection of any debts,'' or (2)
any person ``who regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due another.''
\78\ The statute also provides a limited number of exemptions from the
definition of ``debt collector.'' One of those exemptions carves out of
the definition ``any person collecting or attempting to collect any
debt owed or due or asserted to be owed or due another to the extent
such activity . . . concerns a debt which was not in default at the
time it was obtained by such person.'' \79\ In the context of medical
debt collection, for purposes of section 803(6)(F)(iii)'s exemption,
whether a debt is ``in default'' is determined by the terms of any
agreement between the consumer and the medical provider under
applicable law governing the agreement.\80\
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\77\ 15 U.S.C. 1692e (``A debt collector may not use any false,
deceptive, or misleading representation or means in connection with
the collection of any debt.) (emphasis added); 15 U.S.C. 1692f (``A
debt collector may not use unfair or unconscionable means to collect
or attempt to collect any debt.'') (emphasis added).
\78\ 15 U.S.C. 1692a(6). Section 803 also provides that the term
``debt collector'' ``includes any creditor who, in the process of
collecting his own debts, uses any name other than his own which
would indicate that a third person is collecting or attempting to
collect such debts'' as well as, ``[f]or the purpose of section
808(6), . . . any person who uses any instrumentality of interstate
commerce or the mails in any business the principal purpose of which
is the enforcement of security interests.'' 15 U.S.C. 1692a(6). The
term ``creditor'' is defined as ``any person who offers or extends
credit creating a debt or to whom a debt is owed, but such term does
not include any person to the extent that he receives an assignment
or transfer of a debt in default solely for the purpose of
facilitating collection of such debt for another.'' 15 U.S.C.
1692a(4).
\79\ 15 U.S.C. 1692a(6)(F)(iii). The exemptions under section
803a(6)(F)--including the exemption for debt collection activity
that ``concerns a debt which was not in default at the time it was
obtained by such person''--explicitly apply only to persons
collecting or attempting to collect debts ``owed or due another.''
Compare 15 U.S.C. 1692a(6)(F) (exemption that references ``owed or
due another'') with 15 U.S.C. 1692a(6)(A)-(E) (exemptions that do
not use ``owed or due another'' language).
\80\ De Dios v. Int'l Realty & Invs., 641 F.3d 1071, 1074 (9th
Cir. 2011). Outcomes for non-express agreements may vary
considerably under relevant State law, and this Advisory Opinion
takes no position on the correct interpretation of those laws.
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The term ``default'' is not specifically defined in the FDCPA, so
the meaning of the term should first be determined by its ordinary
meaning.\81\ ``Default'' is commonly defined as the failure to satisfy
an agreement, promise, or obligation, especially a failure to make a
payment when due.\82\ These definitions are consistent with the
longstanding common law use of the word as a party's failure to perform
contractual obligations at the time they come due.\83\ Further,
applicable law--typically State contract law--may determine when
obligations are due under a contract.
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\81\ See, e.g., Lawson v. FMR LLC, 571 U.S. 429, 440 (2014); see
also, e.g., Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566
(2012) (``When a term goes undefined in a statute, we give the term
its ordinary meaning.'').
\82\ See, e.g., Default <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> Dictionary, <a href="https://www.merriam-webster.com/dictionary/default/">https://www.merriam-webster.com/dictionary/default/</a> (accessed Aug. 19, 2024)
(``failure to do something required by duty or law . . . a failure
to pay financial debts''; Default, Black's Law Dictionary (11th ed.
2019) (``The omission or failure to perform a legal or contractual
duty; esp., the failure to pay a debt when due.''); Default,
Ballentine's Law Dictionary (3d ed. 1969) (``Fault; neglect;
omission; the failure to perform a duty or obligation; the failure
of a person to pay money when due or when lawfully demanded.'').
\83\ See, e.g., The Restatement (First) of Contracts Index D80
(1932) (``Default: See Breach of Contract.''); Restatement (Second)
of Contracts sec. 235(2) (1981) (``When performance of a duty under
a contract is due any non-performance is a breach.''); 23 Williston
on Contracts sec. 63:16 (4th ed.) (``It is a material breach of a
contract to fail to pay any substantial amount of the consideration
owing under the contract.''); Butler Mach. Co. v. Morris Constr.
Co., 682 NW2d 773, 778 (S.D. 2004) (``Morris was to make monthly
payments of $5,547 and its failure to make such monthly payments
constituted a default under the terms of that agreement.'').
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However, some third-party firms collecting on past-due medical
bills have argued that the bills were not in default because the firm
or the creditor did not consider or treat the accounts as in default
until some later date.\84\ To the contrary, under the plain meaning of
``default,'' when a ``default'' has occurred for purposes of section
803(6)(F)(iii) with respect to medical bills is determined based on the
terms of the relevant consumer-provider
[[Page 80723]]
agreements under applicable law. It is the terms of the contract--the
``[o]bjective indicators of the debt's status'' at the time it was
obtained \85\--that governs when collection of medical debts is covered
by the FDCPA, not the subjective state of mind of the medical debt
collector.\86\
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\84\ See Ward v. NPAS, Inc., 63 F.4th 576, 583-84 (6th Cir.
2023) (Though medical provider's bill said ``due on receipt'' court
considered evidence that provider ``didn't treat Ward's failure to
pay immediately as a breach'' dispositive to the question of whether
debt was in default when placed with third-party.); Prince v. NCO
Fin. Servs., Inc., 346 F. Supp. 2d 744, 749 (E.D. Pa. 2004) (``This
evidence of Capital One's State of mind with regard to whether the
debt was in default is a satisfactory initial showing that Capital
One did not consider Prince's account to be ``in default.'');
Roberts v. NRA Grp., LLC, No. CIV.A. 3:11-2029, 2012 WL 3288076, at
*6 (M.D. Pa. Aug. 10, 2012) (``[W]hether Plaintiff's account was in
default will be determined by looking at the `state of mind' of the
creditor to see whether the creditor considered the debt to be in
default.'').
\85\ Mavris v. RSI Enters., 86 F. Supp. 3d 1079, 1088 (D. Ariz.
2015).
\86\ Echlin v. Dynamic Collectors, Inc., 102 F. Supp. 3d 1179,
1185 (W.D. Wash. 2015) (rejecting defendant's argument that it did
not ``consider'' plaintiffs debt to be in default until a particular
dunning letter was sent because ``Dynamic's belief that Echlin's
account was not in default is not dispositive of whether default had
in fact occurred''); Hartman v. Meridian Fin. Servs., Inc., 191 F.
Supp. 2d 1031, 1043-44 (W.D. Wis. 2002) (holding that defendant did
not meet section 803(6)(F)(iii) exception and rejecting argument
that defendant does not ``consider'' a buyer to be in default before
end of 30-day cure period when buyer's contract with creditor
expressly provided that buyer would be in default ``if he fails to
pay on time'').
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In addition to being consistent with the term's plain meaning,
reading ``default'' as coextensive with contractual breach under
applicable law is consistent with Congress's intent to apply this
exemption to ``servicers'' of debt that is not in default at the time
the person obtains it. The FDCPA's legislative history explains that
Congress ``[did] not intend the definition [of debt collector] to cover
the activities of . . . mortgage service companies and others who
service outstanding debts for others, so long as the debts were not in
default when taken for servicing.'' \87\ These references make clear
the intended distinction between a consumer who has failed to meet
their contractual obligation to pay and a consumer who has an
outstanding debt but under their contract repays it over a defined
period of time (i.e., their failure to pay the entire outstanding
balance on a payment due date does not breach the contract).\88\ Courts
and the Federal Trade Commission (FTC) have likewise recognized a
distinction between a debt that may yet be ``outstanding'' but for
which a consumer is not necessarily ``in default.'' \89\
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\87\ S. Rep. No. 95-382, at 3-4 (1977), as reprinted in 1977
U.S.C.C.A.N. 1695, 1698. In its section-by-section discussion of the
bill, the report reiterates that ``The term [debt collector] does
not include . . . persons who service debts for others.'' S. Rept.
No. 95-382, at 7, 1977 U.S.C.C.A.N. 1695, 1701.
\88\ Of course, an entity that operates as a mortgage servicer
does not enjoy a blanket exemption from the FDCPA for all its
activities and can still satisfy the definition of ``debt
collector'' for those debts that were in default when they were
obtained by the entity. See, e.g., Babadjanian v. Deutsche Bank
Nat'l Tr. Co., No. CV1002580MMMRZX, 2010 WL 11549894, at *5 (C.D.
Cal. Nov. 12, 2010) (collecting cases); S. Rep. No. 95-382, at 3-4
(1977), as reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (``so long as
the debts were not in default when taken for servicing).
\89\ See, e.g., Alibrandi v. Fin. Outsourcing Servs., Inc., 333
F.3d 82, 86 (2d Cir. 2003) (collecting cases that ``distinguish[]
between a debt that is in default and a debt that is merely
outstanding''); FTC, Annual Report to Congress on the Fair Debt
Collection Practices Act (2000), (available at: <a href="https://www.ftc.gov/reports/annual-report-congress-fair-debt-collection-practices-act-0">https://www.ftc.gov/reports/annual-report-congress-fair-debt-collection-practices-act-0</a>)
(``[Section 803(6)(F)(iii)] was designed to avoid application of the
FDCPA to mortgage servicing companies, whose business is accepting
and recording payments on current debts.'') (emphasis in original)
(citing S. Rep. No. 95-382).
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In the context of medical debt, amounts owed are not typically paid
on a regular, recurring schedule over time pursuant to the terms of a
contract. To the contrary, as noted above, medical debts are
contractually generally due in full at a given time. Medical debt
collectors therefore do not ``service'' debts on an ongoing basis like
the mortgage servicers intended to be covered by this exemption.
To be sure, the terms of a given contract or the principles of
applicable law may differentiate between one (or more) missed payments
and contractual breach, in which case the debt may not be ``in
default'' if a single payment is missed. But absent such terms or
applicable legal principle, failure to make full payment by the given
time constitutes a breach of the consumer's contractual obligation. If
a person obtains that debt (or the right to collect it) after that
failure to make full payment, that person has obtained a debt ``in
default at the time it was obtained'' and therefore does not qualify
for the section 803(6)(F)(iii) exemption.
Finally, defining ``default'' for purposes of section
803(6)(F)(iii) by reference to relevant consumer-provider agreements
and background legal principles also best effectuates the statute's
purpose and Congress' intent, closes off avenues for regulatory
evasion, and is consistent with prior regulatory interpretations. The
FDCPA is a remedial consumer protection statute aimed at curbing
abusive and unscrupulous conduct by debt collectors and establishing
comprehensive national standards for the debt collection industry.\90\
As such, the statute's provisions are interpreted liberally in favor of
consumers' interests.\91\ Defining ``default'' by reference to the
relevant consumer agreements and applicable governing law advances
consumer interests because it is an objective, transparent standard
that a consumer or their advocate can apply to ascertain the status of
a party seeking to collect money that is claimed to be owed by the
consumer. Relatedly, an objective standard for defining ``default''
prevents debt collectors from attempting to expand the section
803(6)(F)(iii) exemption by reference to the subjective intent or
belief of the collector or creditor or by reference to agreements or
policy documents that the consumer has no access to.\92\ And this
interpretation is consistent with prior staff advisory opinions on this
definition issued by the FTC in the period when that agency had primary
regulatory authority over the FDCPA.\93\
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\90\ See 15 U.S.C. 1692(e) (``It is the purpose of this
subchapter to eliminate abusive debt collection practices by debt
collectors, to insure that those debt collectors who refrain from
using abusive debt collection practices are not competitively
disadvantaged, and to promote consistent State action to protect
consumers against debt collection abuses.'').
\91\ See, e.g., Salinas v. R.A. Rogers, Inc., 952 F.3d 680, 683
(5th Cir. 2020) (``Because Congress intended the FDCPA to have a
broad remedial scope, the FDCPA should be construed broadly and in
favor of the consumer.'') (internal quotations omitted); Brown v.
Card Serv. Ctr., 464 F.3d 450, 453 (3d Cir. 2006) (``Because the
FDCPA is a remedial statute . . . we construe its language broadly,
so as to effect its purpose. . . .''); Johnson v. Riddle, 305 F.3d
1107, 1117 (10th Cir. 2002) (``Because the FDCPA, like the Truth in
Lending Act (TILA), 15 U.S.C. 1601 et seq., is a remedial statute,
it should be construed liberally in favor of the consumer.'').
\92\ See. e.g., Alibrandi v. Fin. Outsourcing Servs., Inc., 333
F.3d 82, 88 (2d Cir. 2003) (rejecting argument by debt collector
that default status of debt should be determined by a ``letter
agreement'' between the collector and creditor); Echlin v. Dynamic
Collectors, Inc., 102 F. Supp. 3d 1179, 1185 (W.D. Wash. 2015)
(``Dynamic's belief that Echlin's account was not in default is not
dispositive of whether default had in fact occurred.''); Mavris v.
RSI Enters., 86 F. Supp. 3d 1079, 1086 (D. Ariz. 2015) (``[T]he
lender's subjective choice that the debtor has not defaulted cannot
be dispositive of whether default has in fact occurred. If it were,
debtors' access to FDCPA protections would be subject to the whim of
creditors, who could leave debtors completely in the dark about
when, if ever, those protections commence. Objective indicia of a
creditor's treatment of a debt are entitled to greater weight.'').
\93\ See, e.g., FTC, Staff Opinion Letter, 1989 WL 1178045 at *1
n.2 (Apr. 25, 1989) (``Whether a debt is in default is generally
controlled by the terms of the contract creating the indebtedness
and applicable state law.'').
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VII. Regulatory Matters
The CFPB has concluded that the advisory opinion is an interpretive
rule in part and a general statement of policy in part. Insofar as the
advisory opinion constitutes an interpretive rule, it is issued under
the CFPB's authority to interpret the Fair Debt Collection Practices
Acts and Regulation F, including under section 1022(b)(1) of the
Consumer Financial Protection Act of 2010, which authorizes guidance as
may be necessary or appropriate to enable the CFPB to administer and
carry
[[Page 80724]]
out the purposes and objectives of Federal consumer financial laws.\94\
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\94\ 12 U.S.C. 5512(b)(1).
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Insofar as the advisory opinion constitutes a general statement of
policy, it provides background information about applicable law and
articulates considerations relevant to the CFPB's exercise of its
authorities. It does not confer any rights of any kind.
The CFPB has determined that this rule does not impose any new or
revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\95\
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\95\ 44 U.S.C. 3501-3521.
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Pursuant to the Congressional Review Act,\96\ the CFPB will submit
a report containing this interpretive rule and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this interpretive rule as a ``major
rule'' as defined by 5 U.S.C. 804(2).
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\96\ 5 U.S.C. 801 et seq.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-22962 Filed 10-3-24; 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.