The Consumer Financial Protection Bureau has supervisory, enforcement, and rulemaking authority—we all know that. In this article we will take a look at what it has said and done in these regards concerning medical debt.
Final Rule
On October 31, 2012, the CFPB issued its final rule, which defines large market participants in the debt collection industry. This rule is significant because large market participants are subject to supervisory examinations by the CFPB. In its explanation of the rule, the Bureau said, “The Final Consumer Debt Collection Rule acknowledges that medical debt may, if it arose from an extension of credit within the meaning of the Dodd- Frank Act, involve a consumer financial product or service. However, the rule excludes receipts resulting from collecting medical debt from the definition of ‘annual receipts,’ and thus from the quantity that determines larger-participant status.” However, the Bureau provides an important clarification related to its intended exercise of its enforcement jurisdiction against debt collectors who provide services to medical providers: “The Bureau will continue to seek more information relevant to that task, through supervision, through potential registration of nonbank covered persons…and from other sources. In addition, in supervising a larger participant of the consumer debt collection market, the Bureau will examine the entity’s collection of medical debt along with other activities subject to the FDCPA and other Federal consumer financial law.” In a footnote, the rule explanation provided further insight: “As the Bureau explained in the Consumer Reporting Rule, it has the authority to examine an entity’s compliance with Federal consumer financial law, beyond the activities that rendered the entity subject to supervision.”
Anthony DiResta, an attorney in Washington, D.C. who specializes in CFPB regulatory enforcement investigation and examinations, can confirm that supervisory audits may, indeed, include the review of medical debt. As he notes, “the CFPB is not concerned about the specific nature of the debt; rather, the Bureau is focused on the ‘deceptive,’ ‘unfair’ or ‘abusive’ practices that occur within the enterprise of debt collection.”
It is clear that debt collectors who have any medical clients, especially those in the large market segment, can expect their compliance with the FDCPA and other consumer financial laws and regulations to be examined as it relates to their practices in the collection of medical debt. No doubt the CFPB will use this experience to inform further rulemaking and even potential changes to the large market participant rule and definition. Further, it is clear that enforcement actions can occur related to collection practices related to the collection of medical debt. DiResta notes that it is “important to remember that investigations of debt collectors—in contrast to examinations of debt collectors—can take place irrespective of the size of a company. A company that is not a large market participant can be investigated.”
Action Against GE Capital Retail Bank
In a December, 2013, enforcement action against GE Capital Retail Bank and its affiliate, Care- Credit LLC, the CFPB identified a number of violations of the Consumer Financial Protection Act related to the issuance of credit cards used specifically for payment of medical bills. The CareCredit Card is marketed primarily for health-care related services including dental, veterinarian, cosmetic, vision and audiology services. The use of the card is limited to providers who are enrolled providers with the issuer. The order reported that CareCredit had about 175,000 enrolled providers and more than 4 million cardholders. The CFPB’s investigation showed that enrollees often did not receive accurate information about deferred interest promotions, and proper disclosures under Regulation Z, and may have received contradictory or misleading information about the terms and conditions related to the card and promotional interest rates. It was alleged that some of these problems resulted from inadequate training of staff in the providers’ offices that worked with patients in the application process for and issuance of the CareCredit cards. This action required GE Capital to create a $27.7 million reimbursement fund for the redress of consumers and as potential penalty for the action, and also to create a $6.4 million auxiliary fund, which, if not used, would return to the bank. Enhanced disclosures, training for medical office staff, complaint resolution, and consumer redress are required by the order.
What’s Next?
The CFPB’s advanced notice of proposed rulemaking, issued on November 5, 2013, asks few questions specifically related to the collection of medical debt. The Bureau said in the introduction to a question about the accuracy of information, that medical debts may be more likely to go unverified but did not offer any questions or conclusions related to that assertion. Much later in the document, the Bureau asked whether the information or documentation substantiating a claim should depend on the type of debt to which the claim relates, including medical claims. It appears, then, that the rules that the CFPB will eventually issue may treat medical debt in the same manner that all other debt is treated.
In a May 20, 2014, press release related to the CFPB’s study of the impact of medical debt on credit scores, the Bureau said that, “consumers’ credit scores may be overly penalized for medical debt that goes into collections and shows up on their credit report. According to the study, credit scoring models may underestimate the creditworthiness of consumers who owe medical debt in collections. The scoring models also may not be crediting consumers who repay medical debt that has gone to collections.” The release quoted another study by the Federal Reserve Board that said that “over half of all collections on credit reports are associated with medical bills.” Assuredly, the CFPB is concerned about the impact of medical debt on credit scores, especially because the Bureau contends that most medical debt is unavoidable and not planned for by consumers.
The conclusion we can draw from the understanding of medical debt that the CFPB has articulated in its rulemaking, enforcement, and research is that debt collectors handling medical debt will have to answer to the CFPB for compliance with the FDCPA, consumer financial protection laws, and future rulemaking. As DiResta succinctly notes, “Without a doubt, medical debt is subject to CFPB scrutiny.” The CFPB will be looking for accuracy and integrity in credit reporting, proper notification of consumers about debts referred to collections, the ability to provide validation when debts are disputed, and proper handling of consumer complaints and disputes related to medical debt.
Author’s note: Anthony DiResta is a partner at Winston & Strawn in Washington, DC. He can be reached at 202-282-5782.
Debra Ciskey is the Director of Compliance at Afni, Inc. She is a member of the board of directors and a certified instructor for ACA International.