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Financial Services Law Insights and Observations

Split 9th Circuit: Nevada’s medical debt collection law is not preempted

Courts State Issues Appellate Ninth Circuit Debt Collection Medical Debt Nevada FDCPA FCRA Covid-19 Credit Reporting Agency


The U.S. Court of Appeals for the Ninth Circuit recently issued a split decision upholding a Nevada medical debt collection law after concluding the statute was neither preempted by the FDCPA or the FCRA, nor a violation of the First Amendment. SB 248 took effect July 1, 2021, in the wake of the Covid-19 pandemic, and requires debt collection agencies to provide written notification to consumers 60 days “before taking any action to collect a medical debt.” Debt collection agencies are also barred from taking any action to collect a medical debt during the 60-day period, including reporting a debt to a consumer reporting agency.

Plaintiffs, a group of debt collectors, sued the Commissioner of the Financial Institutions Division of Nevada’s Department of Business and Industry after the bill was enacted, seeking a temporary restraining order and a preliminary injunction. In addition to claiming alleged preemption by the FDCPA and the FCRA, plaintiffs maintained that SB 248 is unconstitutionally vague and violates the First Amendment. The district court denied the motion, ruling that none of the arguments were likely to succeed on the merits.

In agreeing with the district court’s decision, the majority concluded that SB 248 is not unconstitutionally vague with respect to the term “before taking any action to collect a medical debt” and that any questions about what constitute actions to collect a medical debt were addressed by the statute’s implementing regulations. With respect to whether SB 248 violates the First Amendment, the majority held that debt collection communications are commercial speech and thus not subject to strict scrutiny. As to questions of preemption, the majority determined that SB 248 is not preempted by either the FDCPA or the FCRA. The majority explained that furnishers’ reporting obligations under the FCRA do not include a deadline for when furnishers must report a debt to a CRA and that the 60-day notice is not an attempt to collect a debt and therefore does not trigger the “mini-Miranda warning” required in a debt collector’s initial communication stating that “the debt collector is attempting to collect a debt.”

The third judge disagreed, arguing, among other things, that the majority’s “position requires setting aside common sense” in believing that the FDCPA does not preempt SB 248 because the 60-day notice is not an action in connection with the collection of a debt. “The only reason that a debt collector sends a Section 7 Notice is so that he can later start collecting a debt,” the dissenting judge wrote. “It is impossible to imagine a situation where a debt collector would send such a notice except in pursuit of his goal of ultimately obtaining payment for (i.e., collecting) the debt.” The dissenting judge further argued that by delaying the reporting of unpaid debts, SB 248 conflicts with the FCRA’s intention of ensuring credit information is accurately reported.