CFPB Issues Advisory Opinion on Medical Debt

CFPB recently issued guidance, in the form of an Advisory Opinion concerning the obligations of debt collectors under the Fair Debt Collection Practices Act (FDCPA) and Reg F not to engage in false, deceptive, or misleading representations in connection with the collection of medical debt.  The Advisory Opinion outlines how these companies may violate federal law by attempting to collect inaccurate, unsubstantiated, or invalid medical bills. Common illegal practices cited by CFPB include double billing consumers, exceeding legal debt limits, falsifying charges, collecting unsubstantiated bills, and misrepresenting consumers’ rights to contest bills.

Perhaps more interesting for servicers generally, the Advisory Opinion also interpreted the meaning of “default” for purposes of FDCPA in the context of medical debt.  Whether an obligation is in “default” is relevant since one of the exemptions from FDCPA coverage is where the underlying debt is not in default at the time the account is obtained by the third-party servicer.  In the context of medical debt, some third-party servicers have argued that the medical bills they service are not subject to FDCPA because the creditor did not treat the accounts as past due, or in default, until some period of time after the third-party firm acquired the right to service such account.  CFPB dismissed this interpretation and cited the ordinary meaning of “default” as applicable in this context, namely, when a party fails to perform contractual obligations at the time they become due.  In the context of medical debt, and unlike mortgage debt, amounts are not typically paid on a regular recurring schedule over time pursuant to the contract.  Thus, in CFPB’s view, how the creditor treats the debt by refraining from classifying the debt as “in default” has no bearing on whether the underlying debt obligation may be subject to the FDCPA.