The Fair Debt Collection Practices Act
By Judd Peak, COO and General Counsel & George Buck, President Emeritus, Frost-Arnett Company
The Fair Debt Collection Practices Act (FDCPA) is a 1977 federal law that limits the actions of third-party debt collectors when attempting to collect debts on behalf of a provider or other entity. Requirements fall under two categories: prohibited conduct by a debt collector and required disclosures that must be made to the patient. Though the original text has never been amended, courts, state legislatures and regulatory bodies have put their own stamp on the interpretation and meaning of the statutory requirements of the FDCPA. This leaves the accounts receivable management (ARM) industry in a continual posture of navigating, monitoring and updating their compliance programs.
At the core, the FDCPA provides the following guidelines for those in the ARM industry and consumers:
A debt collector CANNOT:
- Call before 8 a.m. or after 9 p.m. or any time they are notified is inconvenient to call;
- Tell other people (friends, family, neighbors) about the fact that a debt is owed;
- Call the consumer’s place of employment if they have been advised that calls cannot be accepted at work;
- Use any profane language or any language that is harassing and abusive;
- Engage in any conduct, the natural consequence of which is to harass, abuse or oppress;
- Make any misrepresentations of fact, such as how much is owed, or certain actions they may take to force payment;
- Threaten arrest or criminal prosecution;
- Send false information to the credit bureaus; or
- Cause a telephone to ring an unreasonable number of times .
Under the FDCPA, a debt collector MUST:
- Identify who they are and advise the consumer each and every time that the communication is coming from a debt collector. In the first communication, the collector must also inform the consumer that any information obtained will be used for purposes of debt collection. This has become to be known as the “Mini Miranda.”
- Send written correspondence to the consumer’s home address within five days of the first communication identifying who they are, who they are collecting on behalf of, and the balance owed. In addition, the correspondence must advise the consumer that they have the right to dispute the debt, and have 30 days to demand that the debt collector validate the debt.
- If the consumer seeks the validation, then the collector must discontinue all attempts to collect the debt until such time as the debt collector provides verification.
- In the event of obtaining a post-dated payment instrument, provide written notice of the intent to deposit the post-dated instrument.
Additionally, more than 30 states have their own debt collection statutes that are, in many cases, more restrictive than the FDCPA. Some of these restrictions and requirements include:
- Expansive text in written communications that is beyond that required by the FDCPA;
- Disclosures regarding consumer rights under state Statutes of Limitations;
- Limitations beyond the FDCPA for frequency of calls and calls to place of employment;
- Additional requirements beyond the FDCPA for debt validation; and
- Specific licensing and registration requirements.
The FDCPA is a strict liability statute granting consumers a private right to action to sue in state or federal court and providing for a penalty of up to $1,000 per violation. Violations of the FDCPA are also class actionable. The ARM industry has been a favorite target of the plaintiffs’ bar and pro se consumers for years. Though statistics reflect that FDCPA lawsuits are on a downward trend, they don’t reflect the number of threatened suits that are being settled before ever being filed. Also, many lawsuits are being filed under the state debt collection laws in order to avoid removal to federal courts.
Of the countless number of FDCPA cases, there are two cases in particular that have had a significant impact on the ARM industry:
Douglas v. Convergent Outsourcing – The Third Circuit Court of Appeals ruled that a collection agency violated the FDCPA when it sent a collection letter with the consumer’s account number visible through the transparent address window of an envelope. The debt collector argued that the account number was “benign language” since it was only a randomly-assigned number. But the Third Circuit found that “the account number is not meaningless — it is a piece of information capable of identifying [a consumer] as a debtor.”
The Circuit Court’s decision instantly became the rule across the entire circuit and was retroactively applied. Any agency doing business in the Third Circuit was subjected to the same consequences.
Foti v. NCO Financial Systems – Although several years old now, Foti proved to be a landmark decision, of sorts, finding NCO liable under Section 1692e(11) of the FDCPA, commonly known as the “mini-Miranda.” The district court found that when leaving a message for a specific consumer, notice obligations are still triggered. According to Foti, a debt collector must still identify itself and provide the mini-Miranda disclosure in order to give full information to the consumer.
By contrast, the court in Zortman v. J.C. Christensen & Assocs. asserted that such voicemail statements could cause an impermissible third-party disclosure. Per Zortman, a debt collector should leave only his or her name and a call back number. Various jurisdictions across the country have sided with one or the other rule, which has caused compliance headaches for agencies and resulted in many of them refusing to leave messages at all.
Collecting from patients that can’t or won’t pay has become one of the biggest challenges for providers, as well as those in the ARM industry. Providers have seen the patient responsibility portion of their AR grow to as much as 35 percent. When you combine the challenge of overcoming patient tendencies to put off paying their healthcare account in favor of housing, auto and childcare needs with the current regulatory and consumer environment, the challenge becomes even greater.
President Emeritus George Buck and Chief Compliance Officer andGeneral Counsel Judd Peak are part of the leadership team at Nashville-headquartered Frost-Arnett Company, which has been helping healthcare clients resolve healthcare account balances for 125 years. Now staffing three offices, Frost-Arnett works with clients nationwide on early-out, bad debt recovery, as well as pre-certification, pre-service, insurance follow-up and cleanup work for legacy systems. For more information, go online to frost-arnett.com.