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Colorado establishes medical debt collection requirements
On May 4, the Colorado governor signed SB 23-093 to cap the interest rate on medical debt at three percent per year. The Act outlines numerous provisions, including that entities collecting on a medical debt must provide a consumer with a written copy of a payment plan within seven days for medical debt that is payable in four or more installments. The Act also outlines requirements for accelerating or declaring a payment plan longer operative, and lays out prohibited actions (such as collecting on a debt or reporting a debt to a consumer reporting agency within a certain timeframe) relating to medical debt that an entity knows, or reasonably should know, is under review or being appealed. An entity that files a legal action to collect a medical debt must provide to a consumer (upon written request) an itemized statement concerning the debt and must allow a consumer to dispute the debt’s validity after receiving the statement. Entities are prohibited from engaging in collection activities until the itemized statement is delivered. The Act outlines self-pay requirements and estimates, and further provides that it is a deceptive trade practice to violate outlined provisions relating to billing practices, surprise billing, and balance billing laws. The Act takes effect immediately and applies to contracts entered into after the effective date.
CFPB examines removal of medical collections from credit reports
On April 26, the CFPB released a data point report estimating that nearly 23 million American consumers will have at least one medical collection removed from their credit reports when all medical collection tradelines under $500 are deleted. Additionally, the Bureau found that the removal will result in approximately 15.6 million people having all medical collections removed. The reporting change occurred as part of an undertaking by the three nationwide consumer reporting companies announced earlier in April. Examining credit reports that occurred between 2012 and 2020, the Bureau studied the impact of this change and noted that on average consumers experienced a 25-point increase in their credit scores in the first quarter following the removal of their last medical collection. The average increase, the report found, was 21 points for consumers with medical collections under $500 compared to 32 points for those with medical collections over $500. The report further discussed the association between the removal of medical collection tradelines and the amount of available credit for revolving and installment accounts, as well as increases in first-lien mortgage inquiries (attributable, the Bureau believes, to consumers working to remove these tradelines as part of applying for mortgage credit).
FTC, Pennsylvania ban debt collection operation
On April 26, the FTC and the Commonwealth of Pennsylvania announced that the U.S. District Court for the Eastern District of Pennsylvania recently entered an order permanently banning a debt collection firm and two associated individuals from the industry. The FTC and Pennsylvania sued the defendants in 2020 for their involvement in a telemarketing operation that allegedly misrepresented “no obligation” trial offers to organizations and then enrolled recipients in subscriptions for several hundred dollars without their consent (covered by InfoBytes here). The complaint charged the defendants with violating the FTC Act by, among other things, illegally threatening the organizations if they did not pay for the unordered subscriptions and claimed the debt collection firm handled collections nationwide despite not having a valid corporate registration in any state and only being licensed to collect debt in Washington State. In addition to permanently enjoining the defendants from participating in the debt collection industry (whether directly or through an intermediary), the court order requires the defendants’ continued cooperation as the case proceeds against the other defendants.
CFPB warns debt collectors on “zombie mortgages”
On April 26, the CFPB issued an advisory opinion affirming that the FDCPA and implementing Regulation F prohibit covered debt collectors from suing or threatening to sue to collect time-barred debt. As such, a debt collector who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt may violate federal law, the Bureau said. The agency stated that numerous consumers have filed complaints relating to “zombie second mortgages,” where homeowners, operating under the assumption that a mortgage debt was forgiven or was satisfied long ago by loan modifications or bankruptcy proceedings, are contacted years later by a debt collector threatening foreclosure and demanding payment of the outstanding balance along with interest and fees.
The Bureau explained that, leading up to the 2008 financial crisis, many lenders originated mortgages without considering consumers’ ability to repay the loans. Focusing on “piggyback” mortgages (otherwise known as 80/20 loans, in which consumers took out a first lien loan for 80 percent of the value of the home and a second lien loan for the remaining 20 percent of the home’s valuation), the Bureau stated that most lenders did not pursue payment on the second mortgage but instead sold them off to debt collectors. Years later, some of these debt collectors are demanding repayment of the second mortgage and threatening foreclosure, the Bureau said, adding that for many of the mortgages, the debts have become time barred. The Bureau commented that, in most states, consumers can raise this as an affirmative defense to prevent a debt collector from recovering on the debt using judicial processes such as foreclosure. Additionally, because “Regulation F’s prohibition on suits and threats of suit on time-barred debt is subject to a strict liability standard,” a debt collector that sues or threatens to sue “violates the prohibition ‘even if the debt collector neither knew nor should have known that a debt was time-barred,’” the Bureau said. The advisory opinion clarified that these restrictions apply to covered debt collectors, including individuals and entities seeking to collect defaulted mortgage loans and many of the attorneys that bring foreclosure actions on their behalf.
CFPB Director Rohit Chopra delivered remarks during a field hearing in Brooklyn, New York, in which he emphasized that the Bureau will work with state enforcement agencies to take action against covered debt collectors who break the law. He reminded consumers that they can also sue debt collectors themselves under the FDCPA.
3rd Circuit: No ambiguity in collection dispute notice
On April 18, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a putative FDCPA class action debt collection lawsuit concerning allegedly misleading dispute language. A letter the plaintiff received from the defendant debt collector included the following statement:
Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request of this office in writing within 30 days after receiving this notice[,] this office will provide you with the name and address of the original creditor, if different from the current creditor.
If you dispute the debt, or any part thereof, or request the name and address of the original creditor in writing within the thirty-day period, the law requires our firm to suspend our efforts to collect the debt until we mail the requested information to you.
The plaintiff argued that the suspended collection language in the second paragraph violated the FDCPA because it led her to believe “that she could suspend collection by disputing all or part of the debt orally outside of the 30-day window.” Doing so, the plaintiff maintained, would conflict with her rights under Section 1692g(b) of the statute, which “guarantees that, if a consumer invokes her § 1692g(a) right to request information about a debt, and the consumer invokes this right in writing and within the thirty-day period prescribed by statute, a debt collector must ‘cease collection of the debt’ until it has provided the requested information to the debtor.” While the defendant was not required to notify the plaintiff about her rights under 1692g(b), the plaintiff claimed that including inaccurate information about those rights gave her “contrary and inconsistent” information.
The district court dismissed the action for failure to state a claim on the premise that, when “read holistically,” the letter did not suggest that the plaintiff could have collection activity suspended by orally disputing the debt outside the 30-day window. On appeal, the 3rd Circuit agreed with the district court that the language that preceded the disputed statement “eliminates any ambiguity” because “it explains that a debtor who wishes to avail herself of her statutory right to validation of a debt must request validation in writing and within 30 days of receiving a collection notice.”
Collection agency to pay $10k for operating without a license
On March 21, the Connecticut Department of Banking fined a collection agency $10,000 and ordered it to cease and desist from collection agency activity for operating without a valid license. According to the order, the company applied for a consumer collection agency license in Connecticut in October 2022. However, during its review of the company’s application, the Department of Banking discovered that the company had been operating as a consumer collection agency without a license in the state since at least 2019. Under the terms of the consent order, the company must pay a civil penalty fine of $10,000, and pay $800 to cover back licensing fees. The company consented to the entry of the sanctions without admitting or denying any wrongdoing “solely for the purpose of obviating the need for further formal administrative proceedings,” the order said.
District Court: Collection can resume after debt is verified
On March 24, the U.S. District Court for the Southern District of Illinois granted defendants’ motion for summary judgment in an action concerning whether the defendants failed to adequately validate plaintiff’s debt. Plaintiff incurred a debt that was charged off and sold to one of the defendants for collection. The defendant creditor used the second defendant to manage collection of the account. An independent third party hired by the defendant creditor to collect on the debt sent an email containing a FDCPA-required validation notice to the plaintiff, who responded by sending a written validation request to the third party. In response, the second defendant sent two letters to the plaintiff, validating the debt and including the name of the original creditor, the current creditor, the last four digits of the account number, and the amount owed. The plaintiff submitted additional validation requests to the second defendant. The account was eventually placed with a different third-party collection agency, which sent a verification letter containing the same information to the plaintiff. The plaintiff sent a validation request to the new collection agency, as well as an additional request to the second defendant, and received responses to these validation requests as well.
The plaintiff sued, premising her FDCPA claims on the argument that the defendants acted deceptively when they attempted to collect on a debt by placing the account with the second collection agency while the debt was being actively disputed. The court disagreed, stating that after the defendants “provided verification of the debt, they were free to resume collection efforts.” The court explained that the plaintiff “cannot forestall collection efforts by disputing the debt into perpetuity,” and added that nothing in the FDCPA prevents the use of more than one collection agency to collect on a debt. The court also said the fact that the initial validation response was sent after the 30-day statutory validation period expired and contained a second validation notice, did not adversely impact the plaintiff nor “create actionable confusion,” particularly because “the second validation notice was sent after Plaintiff exercised her statutory right to dispute the debt.”
District Court allows prerecorded-voice-based claims to proceed
On March 23, the U.S. District Court for the Western District of New York partially granted a defendant debt collector’s motion for summary judgment in an action concerning the alleged use of an automated telephone dialing system (autodialer) to collect unpaid medical debt. Plaintiff claimed the defendant repeatedly called his cell phone using an autodialer and left messages using a prerecorded voice message even after he asked the defendant to stop. These actions, the plaintiff said, violated the FDCPA and the TCPA. In partially granting the defendant’s motion for summary judgment, the court found that the plaintiff’s TCPA claims concerning the alleged use of an autodialer were “no longer viable” following the U.S. Supreme Court’s ruling in Facebook v. Duguid (covered by a Special Alert), which narrowed the definition of autodialer under the TCPA, resulting in the law only covering equipment that generates numbers randomly and sequentially.
Although both parties agreed that the Facebook decision does not affect plaintiff’s prerecorded-voice-based-claims (which are distinct from claims based on the use of an autodialer), the parties disputed how the defendant came to possess the plaintiff’s cell phone number. The defendant maintained that the hospital that treated the plaintiff provided the cell phone number; however, the plaintiff contended that he did not recall providing his number to the hospital. The court reviewed, among other things, whether the plaintiff expressly consented to receiving calls—prerecorded or not. Under the TCPA, “[p]roviding one’s phone number to an entity constitutes consent for that entity to use the number to collect a debt, so long as ‘such number was provided during the transaction that resulted in the debt [being] owed,’” the court explained, adding that the burden is on the defendant to demonstrate that the plaintiff consented to receiving the calls that allegedly used a prerecorded voice.
A purported hospital intake form submitted by the defendant that included the plaintiff’s cell phone number did not indicate that “it was filled out by, or includes information provided only by, [the plaintiff],” the court said, also writing that “this document merely demonstrates that whenever the document was typed, [the hospital] had [plaintiff’s] phone number from some source.” This is not sufficient to indicate that the plaintiff consented to be contacted, the court ruled, holding that the defendant was not entitled to summary judgment based on its express consent affirmative defense. As a result, the court allowed the prerecorded-voice-based-claims to proceed to trial.
Utah repeals some collection agency registration requirements
On March 17, the Utah governor signed HB 20 to repeal several of the state’s collection agency statutory provisions. Specifically, the bill repeals provisions that (i) require collection agencies to register with the Division of Corporations and Commercial Code and have on file sufficient bond in the amount of $10,000 (see Sections 12-1-1 and 12-1-2); (ii) stipulate bond terms and require certain records relating to registrations and bonds to be maintained with the Division and open to public inspection (see Sections 12-1-3, and 12-1-5); (iii) relate to violations and penalties and specify that “[a]ny person, member of a partnership, or officer of any association or corporation who fails to comply with any provision of this title is guilty of a class A misdemeanor (see Section 12-1-6); (iv) outline exceptions (see Section 12-1-7); (v) govern assignments of debts involving collection agencies and limit activities as to the assignments (see Section 12-1-8); (vi) specify that information about a consumer’s credit rating or credit worthiness sent to a consumer reporting agency is void if the collection agency does not have a bond on file (see Section 12-1-9); and (vii) require certain registration forms and application fees for collection agencies seeking approval to conduct business in Utah (see Section 12-1-10). Limitations and terms of collection fees and convenience fees imposed by creditors or third-party debt collection agencies will remain unchanged by the amendments (see Section 12-1-11). The changes take effect May 3.
District Court: Failure to investigate duplicate reporting dispute could violate the FCRA
On March 10, the U.S. District Court for the Southern District of Illinois ruled a defendant credit union failed to properly report an individual’s debt to a consumer reporting agency or investigate his dispute. Plaintiff obtained a credit card from the defendant but fell behind on his payments. After his account was later sent to a third-party collection agency, the plaintiff obtained a copy of his credit report where he noticed that his credit card debt was listed twice—once as a “individual” and “revolving” account with a balance of $10,145, and another time as an “open” collections account with a different balance. Plaintiff sent identical dispute letters to the three major credit reporting agencies (CRAs), acknowledging the delinquent credit card but expressing confusion as to why the account was listed twice. He submitted additional similar disputes with the CRAs, claiming that the error caused him to be denied the opportunity to rent an apartment and made it difficult for him to obtain a mortgage. During discovery, two corporate witnesses testified on behalf of the defendant—one of whom is responsible for reviewing consumer credit disputes and verified the information being reported was accurate. A second witness also testified that while the defendant understood that the plaintiff was alleging inaccuracies due to the debt being reported twice, it chose to focus its investigation on verifying that the information in the plaintiff’s credit report matched the information in its internal system.
In denying the defendant’s motion for summary judgment, the court noted that while the U.S. Court of Appeals for the Seventh Circuit “has not decided whether double-reporting of a single debt on a credit report is an FCRA violation, district courts across the country have found that whether the practice is misleading and violates the FCRA is an issue of fact.” The court explained that an issue of fact exists as to whether double reporting the debt created a misleading impression that the plaintiff has two separate debts totaling $22,000 rather than a single debt of roughly $10,000. Moreover, even though the plaintiff’s dispute contained the message “duplicate,” the defendant did not address this issue nor did it request that a change be made to the plaintiff’s credit report. “A jury could reasonably conclude [] that [defendant’s] investigation was inadequate under the FCRA,” the court wrote. “[W]hether [defendant’s] investigation or protocol may qualify as a willful violation giving rise to statutory or punitive damages is an issue for a jury as well.”