CFPB debt collection rules pose a test for medical and student debts
Collection companies are facing outdated billing procedures, especially for student loans and medical debts, as they seek to revamp their consumer communications practices, as required by new federal rules.
As of November 30, Consumer Financial Protection Bureau rules, the first federal regulations for the industry, require debt collectors to provide consumers with a clear description of how much money they are supposed to owe and to whom they are. must, among a host of other changes.
Collection agencies rely on their clients (credit card companies, banks, student lenders, utilities, hospitals, medical providers, debt buyers and others) to provide the information needed for enhanced disclosures, including validation notices. debt.
But billing procedures in some industries, such as student loan managers, hospitals, and medical practices, are often outdated and inconsistent with the requirements set out in the new CFPB rules. The problem could stall the industry’s implementation of rules designed to empower consumers to deal with debt collectors.
Debt collectors “can’t be in compliance if they don’t get the information they need from their clients,” said Jan Stieger, executive director of Receivables Management Association International, an industry group. “If they don’t have it by November 30, debt collection for these clients will come to a screeching halt.”
Validation of debts
The centerpiece of enhanced disclosures is the validation notice, which is the first contact a collector has with a suspected debtor. The CFPB will require collectors to provide a so-called “inventory date” so consumers can get an idea of how much they owe and when the charge was made.
The CFPB offered five different options for setting a detail date, including the last statement sent to a consumer or the invoice date when a business determines that the overdue invoice should be sent to a collection agency.
The CFPB has provided a validation notice template which, if followed to the letter, protects the collection agency from enforcement actions and private prosecution by consumers who alleged improper disclosures or attempted collections of illegitimate claims.
The model validation form requires a sea change in the way medical practices bill, said Joann Needleman, head of consumer financial services practice at Clark Hill PLC.
“There is just a lot of heartburn surrounding medical care, as unfortunately the form does not address the nuances” of how medical bills are paid, she said.
Physician visits and hospital stays are typically billed per procedure, meaning a consumer can get multiple bills on multiple accounts for the same visit, said Stefanie Jackman, partner at Ballard Spahr LLP.
There are also delays in insurance payments and other factors that can complicate medical billing and make it difficult to comply with the CFPB’s model validation, she said.
The CFPB model validation notice also does not include a place where the collector can include the person financially responsible for a procedure conducted on a minor or on a deceased person, said Missy Meggison, general counsel and executive director. of the Consumer Relations Consortium, an industrial group representing both collection agencies and creditors.
Student loans can be just as complicated for reporting debts to collectors, as many borrowers take more than one loan. Student loans have their own issues with third parties, such as loan guarantors – often parents or relatives – who are responsible for payments in the event the borrower defaults.
“Student loan, medical debt, some of these concepts don’t fit together well,” Jackman said.
The CFPB rule and model validation form will likely be easier for banks and other creditors looking to collect traditional loans and other consumer debt, Stieger said.
“Certainly credit card debt and loans more clearly fit the wording of the rule,” she said.
Other companies, especially doctors’ offices, hospitals and other health care providers, and student loan services, are simply resisting the changes, said Richard Perr, chairman of Kaufman’s consumer financial services practice group. Dolowich Voluck LLP.
“You get a backlash from people who have been doing something for 50 years and now being told to do it differently,” he said.
Debt collectors hope the CFPB will offer a grace period as they and their clients get used to the new rules.
Private litigants are less likely to offer this kind of respite if debt isn’t properly validated under the rules, according to industry lawyers.
With this in mind, collection agencies will have two options when the rules go into effect, if they do not have the proper documentation.
“Either go ahead and send collection letters without using the template form, and take the risk, or stop collecting for these creditors,” Meggison said.
Ready to go
Debt validation notices are only part of the first set of regulations interpreting the Fair Debt Collection Practices Act of 1977, enacted long before e-mail, text, and cellphones. The rules prohibit collectors from calling a consumer more than seven times in a period of seven consecutive days. But these limits do not apply to SMS and e-mail, unless the consumer specifically opt out of such communications.
Contact limits will also require negotiations between collection agencies and their clients, Stieger said.
“They need to understand the call cap. They can’t put in their contracts that we want you to call them twice a day, ”she said.
The new rules also prohibit collectors from suing or threatening to sue for debts too old to be collected.
The CFPB proposed in April to postpone the November 30 effective date due to the Covid-19 pandemic, but the industry has widely said this was not necessary. The office withdrew this proposed postponement in July.
“It’s been in the works for nine or ten years now, and it’s time to go,” Stieger said.