State Focus on Medical Debt and Credit Reporting
Meanwhile, states across the country have passed legislation to limit medical debt collection and credit reporting. Nevada, New Mexico, Idaho, Maryland, Maine, and Texas have recently enacted laws concerning outstanding medical debt. Many of these laws impose obligations different from or in addition to federal debt collection and credit reporting requirements. Collectors or CRAs that run afoul of these state-level limitations risk consumer litigation or regulatory enforcement actions.
The New Mexico Patients’ Debt Collection Practices Act, which took effect July 1, 2021, prohibits health care facilities and medical debt collectors from continuing collection actions, including lawsuits and garnishment, against patients making less than 200 percent of the Federal Poverty Level. Additionally, health care facilities must take the following steps before collecting a bill from a patient: verify whether a patient has any health insurance; if the patient is uninsured, screen the patient for all available public insurance and any other financial assistance that might cover the bill; and assist patients in applying for the assistance. Further, hospitals must provide more information on payment invoices and provide receipts for payments. The New Mexico state attorney general is charged with enforcing the law.
Similarly, Nevada Senate Bill 248 (2021) (“S.B. 248”) prohibits debt collection practices for medical debt, such as taking any confession of judgment or any power of attorney running to the collection agency or to any third person to confess judgment or to appear for the debtor in a judicial proceeding; commencing a civil action to collect the medical debt if the amount of the debt, excluding interest, late fees, collection costs, attorney’s fees, and any other fees or costs, is less than the maximum jurisdictional amount; and charging or collecting more than 5 percent of the amount of the medical debt, excluding interest, late fees, collection costs, attorney’s fees, and any other fees or costs, as a collection fee or as attorney’s fees for the collection of the medical debt. The law also mandates that a debt collection agency must provide written notice by registered or certified mail to a person who owes a medical debt at least sixty days before taking any action to collect the medical debt. For an agency to take a voluntary payment within the sixty-day notice period, the debtor must have initiated contact with the collector and the collector must tell the debtor that the payment is not due and that the debt will not be reported to the CRAs during the sixty-day period.
The practical hurdles posed by this law make the collection process lengthier and more expensive, while simultaneously limiting to 5 percent the amount of revenue a collection agency may earn from its labors. Not surprisingly, several collection agencies and an industry trade group sued in Nevada federal court in June 2021 to enjoin enforcement of S.B. 248. The plaintiffs argued that: S.B. 248 is unconstitutionally vague as it fails to define numerous key terms; it is preempted by both the FDCPA and the FCRA; it constitutes a prior restraint on constitutionally protected speech and prohibits access to courts; and the legislation violates equal protection because the bill is underinclusive. In support of their motion for a preliminary injunction, the plaintiffs argued that because the Nevada law requires debt collectors to send a completely different notice than that specified in the FDCPA’s implementing Regulation F, they would lose Regulation F’s safe harbor if they comply with the state law.
The district court denied the plaintiffs’ requests for a temporary restraining order and preliminary injunction, finding primarily that the collection industry plaintiffs were unlikely to succeed on the merits of each claim they brought. With regard to the vagueness claim, the court concluded that because the constitutionally allowed vagueness of statutory provisions depends, in part, on the nature of the enactment and because the plaintiffs did not establish that there were no circumstances under which S.B. 248 would be valid, they were unlikely to succeed on the merits of their challenge. Because regulations were forthcoming, the court declined to use the “‘manifestly strong medicine’ . . . of declaring [a] statute facially unconstitutional for vagueness.” The court then found that S.B. 248 was not an obstacle to accomplishing the purposes of federal debt collection and credit reporting law and that express preemption was also not a basis for blocking the law. Moving to the First Amendment arguments, while the court found that S.B. 248 did regulate speech, it reasoned that the speech regulated is commercial speech, triggering intermediate, not strict, scrutiny, for which the state met its lower burden. Importantly, the court noted that nothing in the law’s text suggests that debt collectors cannot answer debtors’ questions regarding their debts.
In addressing the irreparable harm the collectors argued that they faced from severely curtailing or ceasing their operations under the Nevada law, the court recognized that going out of business can surely be irreparable, but it found that the plaintiffs’ affidavits attesting to such imminent risk were not enough. Finally, the court determined that the balance of the equities and the public interest tipped in the defendant’s favor. The plaintiffs have appealed the decision to the Ninth Circuit, which had recently heard oral argument as of the writing of this survey.
Idaho passed legislation effective in March 2022 requiring certain steps be taken before any “extraordinary collection action,” such as assigning the account to a third party for collection in less than sixty days from the final notice of the debt, reporting the debt to a CRA, or taking legal action against a patient in less than ninety days, is taken against a patient. For example, the health care provider may not have charged or caused to accrue interest, fees, or other charges for at least sixty days following the patient’s receipt of their final statement from the billing entity, and before any extraordinary collection actions can be taken, at least ninety days must have passed from the patient’s receipt of the final statement and final resolution of all internal review, good-faith disputes, and appeals of any obligations or payments. This law provides a private right of action to injured consumers.
Effective in April 2022, Maryland’s new medical debt law requires hospitals to have policies that prevent them from selling any debt, charging interest on debt, and reporting information to a CRA or filing a civil action against any individual for collection within 180 days of the provision of the initial bill. Patients are also allowed 240 days after the initial bill to establish whether they are eligible for free care. The Maryland law establishes a process by which patients or their authorized representatives can file a complaint against a hospital with the State Health Services Cost Review Commission for violating these requirements, the filing of which does not prevent an individual from seeking a remedy to which they are otherwise entitled or from filing a complaint with another agency or court.
Maine amended its Fair Credit Reporting Act in 2019 to regulate the reporting of past due medical debt. The amendment prohibits CRAs from reporting “debt from medical expenses on a consumer's consumer report when the date of the first delinquency on the debt is less than 180 days prior to the date that the debt is reported.” Once a CRA receives “reasonable evidence . . . that a debt from medical expenses has been settled in full or paid in full,” it “[m]ay not report that debt” and “[s]hall remove or suppress the report of that debt[.]” Additionally, if “the consumer is making regular, scheduled periodic payments toward the [medical] debt . . . reported to the [CRA] as agreed upon by the consumer and medical provider, the [CRA] shall report that [medical] debt . . . on the consumer's consumer report in the same manner as debt related to a consumer credit transaction is reported.” The Maine act authorizes consumers to file civil lawsuits for violations of the law and also provides for state enforcement.
The same year that Maine enacted its medical debt reporting act, a trade association representing the national CRAs filed suit to challenge the act as preempted by the FCRA in Consumer Data Industry Association v. Frey. The district court concluded that the amendment was preempted by section 1681t(b)(1)(E) of the FCRA. On appeal, the First Circuit vacated and reversed the district court’s judgment, concluding that “[s]ection 1681t(b)(1)(E) narrowly preempts state laws that impose requirements or prohibitions with respect to the specific subject matters regulated under Section 1681c,” and therefore, that the Maine medical debt reporting act was not completely preempted. The court stated that the “statutory text and structure” of the FCRA’s preemption provisions outweighed “the possible negative effects that [upholding the state law] might have on the national economy and the difficulties that the consumer-credit industry might face if [CRAs] have to comply with . . . a ‘patchwork of state laws.’”
However, the First Circuit left open the question of whether the Maine law was partially preempted because it also limits the reporting of veterans’ medical debt, which is expressly regulated under sections 1681c(a)(7) and 1681c(a)(8) of the FCRA. Because the parties had not briefed the issue, the court took no position and instead remanded to the district court for further proceedings to address the partial preemptive effect of the FCRA provisions.
Like Maine, Texas also amended its Fair Credit Reporting Act to limit the medical debt information that CRAs may include in a consumer’s credit report. Specifically, subject to certain limited exceptions, a CRA “may not furnish a consumer report containing information related to . . . a collection account with a medical industry code, if the consumer was covered by a health benefit plan at the time of the event giving rise to the collection and the collection is for an outstanding balance, after copayments, deductibles, and coinsurance, owed to an emergency care provider or a facility-based provider for an out-of-network benefit claim[.]”
Shortly after the law’s passage, the same trade association filed suit challenging the Texas law on preemption grounds in Consumer Data Industry Association v. Texas. The district court denied the state’s motion to dismiss for lack of subject matter jurisdiction and failure to state a claim, concluding that it had jurisdiction over the challenge and that the trade association “sufficiently alleged that the Statute is expressly preempted by Section 1681t(b)(1) because it concerns the same subject matter as Section 1681c of the FCRA: what medical debt information may be included in a consumer report.” In reaching this conclusion regarding the FCRA’s preemptive scope, the court cited the Maine district court decision that found that the Maine law preempted and other cases. An appeal of this decision is pending as of this writing.
White House and Federal Agency Activity
On April 11, 2022, the White House announced plans consistent with the recent federal and state legislative focus on medical debt and credit reporting. As part of this announcement, the White House directed the U.S. Department of Health and Human Services (“HHS”) to evaluate how providers’ billing practices impact medical debt and medical debt collection. The Administration instructed HHS to request data from more than 2,000 providers on medical bill collection practices, lawsuits against patients, financial assistance, financial product offerings, and third-party contracting or debt buying practices. The announcement also detailed efforts federal agencies are making to eliminate medical debt from consideration in underwriting processes. The U.S. Department of Agriculture plans to discontinue including recurring medical debt into borrower repayment calculations, the VA is taking steps to virtually cease reporting medical debt for veterans with bills from VA Care and is reviewing its underwriting guidelines to minimize or eliminate the use of this debt as a proxy for creditworthiness, the SBA is reviewing its lending programs to identify ways to reduce negative impacts of medical debt on access to capital, and the Federal Housing Finance Agency is ensuring that Fannie Mae’s and Freddie Mac’s creditworthiness models are “accurate, reliable, and predictive.”
In a separate memorandum released in late August 2022, the White House outlined its next steps, zeroing in on “direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor.” For these programs, the White House called on agencies to “develop a plan to eliminate medical debt as a factor for underwriting in credit programs.” This included a directive to “[i]dentify any statutory, regulatory, or administrative changes that would be required to modify criteria and consideration factors, exclude medical debt, or otherwise lessen the impact of medical debt consideration.”
The White House’s announcement expands upon efforts already underway across the federal executive branch. For example, starting in 2021, the VA proceeded through rulemaking to issue a policy that it will only furnish information to credit reporting agencies about medical debt that meets all of the following standards: the VA has exhausted all other debt collection efforts, the VA has determined the individual responsible is not catastrophically disabled or entitled to free medical care from the VA, and the outstanding debt is over $25.
CFPB Actions on Medical Debt
The CFPB has addressed medical debt issues during the past year in several contexts. In January 2022, it issued Bulletin 2022-01 to highlight what it considers to be unlawful medical debt collection practices and credit reporting of medical debt and tied them to the prohibitions against collecting certain emergency and non-emergency medical services in the recently enacted No Surprises Act. In particular, the bulletin stated that debt collectors violate the FDCPA and Regulation F if they attempt to collect accounts that stem from a charge that exceeds the amount permitted by the No Surprises Act.
The bulletin highlighted instances of medical debt collection practices that would violate federal law:
The prohibition on misrepresentation includes misrepresenting that a consumer must pay a debt stemming from a charge that exceeds the amount permitted by the No Surprises Act. Thus, for example, a debt collector who represents that a consumer owes a debt arising from out-of-network charges for emergency services may violate the prohibition on misrepresentations if those charges exceed the amount permitted by the No Surprises Act.
With respect to credit reporting of medical debt, the bulletin stated:
[T]he accuracy and dispute obligations imposed by the FCRA and Regulation V apply with respect to debts stemming from charges exceed the amount permitted by the No Surprises Act. Thus, for example, a debt collector who furnishes information indicating that a consumer owes a debt arising from out-of-network charges for emergency services (or a CRA that includes such information in a consumer report) may violate the FCRA and Regulation V if those charges exceed the amount permitted by the No Surprises Act or if the furnisher (or CRA) fails to meet its dispute obligations.
In March 2022, Director Rohit Chopra issued remarks that questioned whether the reporting of medical debt by the three nationwide CRAs was “being used as a tool to coerce and extort patients on medical bills they may not even owe” and questioned “whether it is appropriate for unpaid medical billing data to be included on credit reports altogether.” Within a month, the CRAs moved in that direction, announcing that, effective July 1, 2022, paid medical collection debt would no longer be included on consumer credit reports, that the past-due period before unpaid medical collection debt would appear on a consumer's report would increase from six months to one year, and, starting in the first half of 2023, that the CRAs would no longer include medical collection debt under $500 on credit reports.
While the CRAs’ changes are notable, a report by the CFPB released a few months later found that almost half of consumers with medical debt will continue to see medical debt collection appearing on their credit reports. The effects of the announced reforms will vary across geographic region, with those consumers in the north and east of the country expected to benefit the most. Also, residents from lower income, Black, or Hispanic census tracts are more likely to have medical debts appear on their credit reports, but they are less likely to benefit. Thus, Director Chopra has urged that “more work must be done.”
To that end, the CFPB issued an interpretive rule in July 2022 on the FCRA’s limited preemption of state laws that concluded that states can pass laws limiting or eliminating the reporting of medical debts. After it claimed that “[t]he FCRA’s express preemption provisions have a narrow and targeted scope,” the rule asserted that “States . . . retain substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens.” The CFPB then tied this assertion directly to state laws impacting medical debt reporting:
For example, if a State law were to forbid consumer reporting agencies from including information about medical debt . . . in a consumer report (or from including such information for a certain period of time), such a law would generally not be preempted. Likewise, if a State law were to prohibit furnishers from furnishing such information to consumer reporting agencies, such a law would also not generally be preempted.