As the Consumer Financial Protection Bureau develops rules for the debt collection industry, questions about inclusion of medical debt in the process remain unanswered. The CFPB has excluded medical debts from much of its work to date. There also remains some question whether medical debt falls within the bureau’s scope under the Dodd-Frank Act.
ACA International recently submitted comments in response to the bureau’s Advance Notice of Proposed Rulemaking about debt collection. Specifically, the bureau should recognize that the debt collection market is extremely varied in the types of debt being collected and the nature and size of the nation’s debt collectors encompasses a broad scope.
Excluding mortgages and auto loans, debt issued by financial institutions no longer represents the largest focus of debt collection activity in the United States, either by dollar amount or by number of consumers it reaches, according to the bureau. This has been surpassed by medical debt. During a House committee hearing, primarily about small business regulation, in August 2013 CFPB Director Richard Cordray also discussed medical debt and the “larger market participant” rule. The rule allows the bureau to have supervisory authority over debt collection companies with more than $10 million in annual receipts from consumer debt collection activities.
During the hearing Cordray said, in response to a question about medical debt on credit reports, “That is something we have been grappling with at the bureau, not only as medical debt affects credit reporting bureaus but also as it affects debt collection, which obviously intersect with credit bureaus. We are in the process of working through issues of medical debt as it relates to what will soon be our supervisory coverage of debt collectors.”
More recently, in February 2014, the American Hospital Association submitted a letter to the CFPB requesting consideration of the significant differences between medical debt and consumer debt when setting policies. The AHA notes that, unlike other service providers, hospitals:
• Collect, in most cases, only a very small portion of the initial bill at the time of service.
• Provide, by law, certain medical services without regard to a patient’s ability to pay.
• Seek the majority of their reimbursement through a complex, post-visit billing process and working with numerous potential payers.
Despite various efforts to collect payments, hospitals are left uncompensated for a considerable amount of their services, according to the letter. An AHA survey of 5,000 community hospitals found that their uncompensated care totaled $45.9 billion, or 6.1 percent of expenses.
“Concepts that may be relatively simple in the context of consumer debt can be much more complicated in the context of medical debt owed to hospitals,” AHA Senior Vice President and General Counsel Melinda Reid Hatton said in the letter. “For instance, the concept of when a mortgage payment, a credit card payment or a bill from a service provider to a consumer is ‘due’ or ‘past due’ may typically be straightforward and governed by a credit agreement. However, when a particular medical account becomes past due will depend on the post-visit billing process that must occur to determine how much the patient ultimately owes.”
Therefore, AHA noted that strict definitions of terms and concepts such as “due,” “past due” or “delinquency” may not apply in the same manner for medical debt as for other forms of debt. AHA asked the CFPB to avoid defining delinquency based on specific number of days past-due and recognize that hospitals do not typically extend credit to patients or provide consumer financial products or services.
The association also asked the CFPB to recognize consumer protections in the Internal Revenue Services’ requirements for nonprofit hospital debt collection practices. Reid Hatton explained that hospitals may not use “extraordinary collection actions,” before determining if a patient is eligible for financial assistance. AHA believes this financial assistance process may address the CFPB’s concerns about insufficient validation and premature reporting to a credit agency.
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