CFPB Advisory Opinion Issued on Medical Debt Collection

Update 11/22/2024:

On November 22, 2024 the CFPB pushed back the effective date to January 2, 2025.

Three Key Points:

1. The CFPB advisory opinion will impact medical bad debt collections.
2. The advisory opinion will go into effect on December 3, 2024.
3. State laws and the new prohibitions may result in more violations of the FDCPA.

In early October of 2024, the Consumer Financial Protection Bureau (CFPB) announced an advisory opinion that will have a major impact on medical debt collection. While there are two areas where we will go deeper into the potential liabilities, we’ll also cover the rest of the advisory opinion.

What is the CFPB Advisory Opinion?

The CFPB’s power stems from the Consumer Financial Protection Act (CFPA), which authorizes the CFPB to administer, enforce and otherwise implement the provisions of the Federal consumer financial law. This allows the CFPB to interpret the Fair Debt Collection Practices Act (FDCPA) and Regulation F, and issue guidance they deem necessary or appropriate, enabling it to administer and carry out the purposes and objectives of Federal consumer financial laws. One way the CFPB accomplishes this is issuing guidance through advisory opinions that are meant to assist regulated entities (such as debt collectors) in better understanding their legal and regulatory obligations.

Potential Legal Challenges

Some would argue, and in fact the American Collector’s Association (ACA) has argued, that this is a clear violation of the Administrative Procedures Act (APA). ACA CEO Scott Purcell said, “The CFPB’s approach of creating ‘rules’ without seeking comment in violation to APA, is a transparent political ploy in the mid-election season that creates sound bites but will not bring about thoughtful improvements to the complex issues surrounding healthcare in America.” Given this apparent abuse of power, it is likely that this advisory opinion will face legal challenges in the future by stakeholders to combat this overreach.

What is in this CFPB Advisory Opinion?

The advisory opinion guidance from the CFPB was announced on October 1, 2024 and will take effect 60 days after it is published in the Federal Register. The FDCPA and its implementation of Regulation F prohibit debt collectors from engaging in unlawful practices when collecting medical debt to include:

• Collecting an amount not owed because it was already paid;
• Collecting amounts not owed due to Federal or State law;
• Collecting amounts above what can be charged under Federal or State law;
• Collecting amounts for services not received;
• Misrepresenting the nature of legal obligations; and
• Collecting unsubstantiated medical bills.

While each of these points has its own concern, the two that are most concerning fall under collecting amounts not owed due to Federal or State law and collecting amounts above what can be charged under Federal or State law. Why is that? Read on.

The Problem

The issue with these two prohibitions in the CFPB advisory opinion is where one unexpected payment or a slight miscalculation can become an FDCPA violation. When you add state laws into the mix, the chance for a violation increases.

Collecting amounts not owed due to Federal and State law references Section 808(1) of the FDCPA. In the CFPB advisory opinion it is prohibited to collect any amount “unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” This means that only a debt that the consumer is legally obligated to pay can be collected.

Collecting amounts above what can be charged under Federal or State law also references Section 808(1), in addition to Section 807, which prohibits any false representation of “the character, amount, or legal status of any debt.”

Add to this the various laws like the Federal Nursing Home Reform Act and Federal No Surprises Act of 2020, plus state workers’ compensation and other state laws, and you have a minefield to navigate. Two examples of states that will be concerning are Colorado and Delaware due to their regulations that limit the amount to be collected, based on monthly household limits.

Colorado

In Colorado, HB21-1198 set rules for how much debt collectors were allowed to collect. The two rules are:

• Payment plans that are established to pay the bills may not exceed 4% of the patient’s monthly household income.
• For bills from health care professionals, the limit is 2% of the monthly household income.

These rules impact both parts of the prohibitions because attempting to collect an amount higher than 4% or 2% of the patient’s monthly income could be a violation of both collecting amounts not owed and collecting amounts above what can be charged if a patient’s income drops or is not properly calculated.

Delaware

For Delaware, Chapter 25J. Medical Debt Protection Act, states that large healthcare facilities and medical debt collectors must offer – to any patient with outstanding debt of more than $500 – a payment plan, and cannot require the patient to make monthly payments that exceed 5% of their gross monthly income.

The question then becomes if our portal has the full balance due, are we then liable for FDCPA for all patients for balances greater than $500? It is a slippery slope indeed.

More In-Depth Items of Concern

In addition to the problems faced above, the rest of the CFPB advisory opinion is answering questions that have never needed to be addressed.

Collection of Amounts Not Owed

Already Paid Amounts

• Collectors cannot pursue amounts already paid by insurance, government payors, or other sources.

• • Questions to Answer – Does Americollect regularly receive payments, withdrawals, updates, and inventory files that ensure we always have the correct balance? Are undistributed funds always caught up to ensure Americollect has the correct balance? Are our payment files being posted to accounts that are in collections and correctly to the accounts Americollect has posted payments to?

Amounts Not Legally Owed

• Collecting amounts that violate federal or state laws is prohibited. For example, workers’ compensation laws may relieve individuals from certain medical obligations.

• • Questions to Answer – Are worker’s compensation accounts being flagged for Americollect in the placements? Are worker’s compensation accounts that come in after placements being sent for notification for Americollect?

Services Not Rendered

• Collectors cannot collect for medical services not provided, including fraudulent practices like “upcoding” (charging for higher-cost services than what was delivered).
  • Question to Answer – Does your organization have a Q&A process where Americollect and patients can submit complaints about charges?

Unsubstantiated Claims

• Debt collectors must have documentation substantiating that the debt is accurate and legally owed. This includes payment records and insurance information, consistent with privacy laws.
  • Question to Answer – Are all insurance reprocessing that occurs notifying Americollect of the updated insurance information?

Prohibition of Misleading Representations

• Collectors must not misrepresent the legal status or the amount of a medical debt. False claims that a debt is settled or legally certain can result in violations.
• If state or federal laws cap the amount that can be charged (e.g., No Surprises Act), collecting beyond those limits is illegal.
  • Questions to Answer – Does your state cap the amount payment plans can be by income thresholds and if so, is the organization asking for those income thresholds at the time of service?

Strict Liability for Debt Collectors

• The FDCPA imposes strict liability, meaning collectors are responsible even if they are unaware of inaccuracies. Debt collectors must ensure the amounts they pursue are correct and in compliance with applicable laws.

Importance of Substantiating Medical Debts

• Due to the complexity of the healthcare billing system, collectors must have a reasonable basis to claim that the medical debt is valid and correctly calculated. This includes understanding any financial assistance policies the provider may have had.
  • Question to Answer – Have you provided your latest and greatest billing, collection and financial assistance policies?

Default Definition

• The CFPB advisory opinion clarifies that whether a medical debt is “in default” is determined by the terms of any agreement between the patient and provider under applicable state laws, not the subjective understanding of the debt collector.
  • Questions to Answer – Does your billing and collection policy define “default” and if so, are we following as it is intended? 

CFPB Advisory Opinion Conclusion

The CFPB advisory opinion is set to go into effect on December 3, 2024, and will enact several concerning and problematic interpretations of this opinion that will affect medical bad debt collectors and the healthcare facilities they serve. While future challenges to the advisory opinion are possible, at this time careful consideration should be taken when it comes to medical bad debt collections going forward.