[Federal Register Volume 89, Number 193 (Friday, October 4, 2024)]
[Rules and Regulations]
[Pages 80715-80724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22962]


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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1006


Debt Collection Practices (Regulation F); Deceptive and Unfair 
Collection of Medical Debt

AGENCY: Consumer Financial Protection Bureau.

ACTION: Advisory opinion.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing 
this advisory opinion to remind debt collectors of their obligation to 
comply with the Fair Debt Collection Practices Act (FDCPA) and 
Regulation F's prohibitions on false, deceptive, or misleading 
representations or means in connection with the collection of any 
medical debt and unfair or unconscionable means to collect or attempt 
to collect any medical debts.

DATES: This advisory opinion is applicable as of December 3, 2024.

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this a document in an alternative electronic format, please 
contact <a href="/cdn-cgi/l/email-protection#02414452405d4361616771716b606b6e6b767b42616472602c656d74"><span class="__cf_email__" data-cfemail="45060315071a0426262036362c272c292c313c05262335276b222a33">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    The CFPB is issuing this advisory opinion through the procedures 
for its Advisory Opinions Policy.\1\ Refer to those procedures for more 
information.
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    \1\ 85 FR 77987 (Dec. 3, 2020).
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    This advisory opinion explains that debt collectors are strictly 
liable under the FDCPA and Regulation F (12 CFR part 1006) for engaging 
in the following

[[Page 80716]]

unlawful practices when collecting medical bills:
    [cir] Collecting an amount not owed because it was already paid. 
This includes instances when a bill was already fully or partially paid 
by insurance or a Government payor.
    [cir] Collecting amounts not owed due to Federal or State law. This 
includes where law prohibits obligating a person on certain debts. For 
example, a State workers' compensation scheme may make employers or 
insurers responsible for qualifying medical expenses, rather than the 
patients. In addition, the Nursing Home Reform Act prohibits nursing 
homes from requiring third parties to pay for a patient's expenses in 
certain circumstances.
    [cir] Collecting amounts above what can be charged under Federal or 
State law. This includes, for example, collecting amounts that exceed 
limits in the No Surprises Act. It also includes collection of amounts 
that exceed a State's common law remedies for claims when there is no 
express contract.
    [cir] Collecting amounts for services not received. This includes 
``upcoding'' where a patient is charged for medical services that are 
more costly, more extensive, or more complex than those actually 
rendered.
    [cir] Misrepresenting the nature of legal obligations. This 
includes collecting on uncertain payment obligations that are presented 
to consumers as amounts that are certain, fully settled, or determined.
    [cir] Collecting unsubstantiated medical bills. Debt collectors 
must have a reasonable basis for asserting that the debts they collect 
are valid and the amounts correct. Debt collectors may be able to 
satisfy this requirement by obtaining appropriate information to 
substantiate those assertions, consistent with patients' privacy. This 
information could include payment records (including from insurance); 
records of a hospital's compliance with any applicable financial 
assistance policy; copies of executed contracts or, in the absence of 
express contracts, documentation that the creditor can make a prima 
facie claim for an alleged amount under State law (e.g., ``reasonable'' 
or ``market rates'').
    This advisory opinion also interprets the meaning of ``in default'' 
for purposes of FDCPA section 803(6)(F)(iii) in the medical debt 
context to be determined by the terms of any agreement between the 
consumer and the medical provider under applicable law governing the 
agreement.

II. Background

    Medical debt is a major burden for many Americans. Recent estimates 
place total medical debt owed by people in the United States at $220 
billion.\2\ Medical debt is known to disproportionately impact young 
and low-income adults, Black and Hispanic people, veterans, older 
adults, and people in the Southern United States.\3\
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    \2\ Shameek Rakshmit et al., The Burden of Medical Debt in the 
United States, KFF (Feb. 12, 2024), https://www.kff.org/health-
costs/issue-brief/the-burden-of-medical-debt-in-the-united-states/
#:~:text=This%20analysis%20of%20government%20data,debt%20of%20more%20
than%20%2410%2C000.
    \3\ CFPB, Medical Debt Burden in the United States at 2 (Mar. 1, 
2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/.
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    Medical debt is unique because consumers rarely plan to take on 
medical debt or choose among providers based on price. Most medical 
debt arises from acute or emergency care.\4\ In many cases, patients 
lack the ability to substantively comparison-shop between medical 
service providers due to emergency need, restrictive insurance 
networks, price opacity, or limited provider availability.\5\ This 
leaves many patients subject to the pricing and policies of the medical 
service providers available to them.
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    \4\ See Lunna Lopes et al., Health Care Debt in the U.S.: The 
Broad Consequences of Medical and Dental Bills, KFF (June 16, 2022), 
https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/ (finding that 50 percent of the people in the United 
States who have medical debt have it because of emergency care and 
72 percent have it because of acute care).
    \5\ CFPB, Medical Debt Burden in the United States, at 3 (Mar. 
1, 2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/.
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    Healthcare providers send medical bills to consumers to obtain 
compensation for care rendered to patients. In some cases, providers 
and patients enter into express contractual relationships, which may 
define patients' payment obligations or providers' pricing for the 
care. Yet contracts between providers and patients may still be vague, 
as some do not define specific prices for the care provided.\6\ In 
other cases, such as in emergency settings or where independent 
contractors or provider groups are involved (e.g., lab work or 
anesthesiology), consumers may not have any contractual relationship 
with a medical provider that provides care and then sends a bill.\7\
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    \6\ George A. Nation III, Contracting for Healthcare: Price 
Terms in Hospital Admission Agreements, at 106, 124 Dick. L. Rev. 91 
(2019) (describing how it is ``very common'' for admissions 
agreements to not include exact prices).
    \7\ Id. at 92 (``self-pay patients, who enter the hospital 
through the emergency department, simply lack capacity to contract 
due to the rushed, stressful and tension-laden emergency 
circumstances''). As described below, the issue of whether this 
constitutes an implied contract is a matter of State law.
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    Consumers consistently report being confused about medical billing 
practices.\8\ One reason for this is the variation in how medical 
providers bill their patients. In most cases, medical providers charge 
different rates for the same services to different payors, for example 
charging patients far more than what Medicare would pay for a given 
procedure if the patient is not covered by Medicare.\9\ This, in part, 
stems from the fact that the pricing of medical services is heavily 
negotiated between providers and certain institutional payors such as 
insurance companies, and set by Government programs like Medicare and 
Medicaid. As a result, healthcare providers are incentivized to 
initially set high list prices as starting offers in negotiations with 
insurers.\10\ As a result, uninsured and out-of-network patients are 
often charged much higher prices than those ultimately agreed to with 
insurers for patients in their networks.\11\ Even within network, 
prices sometimes vary by facility or department.\12\ These rates often 
vastly exceed the cost of providing care.\13\ Research has also shown 
that healthcare markups are higher at hospitals with

[[Page 80717]]

more Black and Hispanic patients and at investor-owned, for-profit 
hospitals.\14\
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    \8\ See CFPB, Medical Debt Burden in the United States, at 3 
(Mar. 1, 2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/ 
(``medical billing and collections practices can be confusing and 
difficult to navigate'').
    \9\ See Eric Lopez et al., How Much More Than Medicare Do 
Private Insurers Pay? A Review of the Literature, KFF (Apr. 15, 
2020), https://www.kff.org/medicare/issue-brief/how-much-more-than-medicare-do-private-insurers-pay-a-review-of-the-literature/; Frank 
Griffin, Fighting Overcharged Bills from Predatory Hospitals, 51 
ARIZ. ST. L.J. 1003 (2019).
    \10\ Hospitals generally have no limit on their ``chargemaster'' 
rate, the rate they initially charge most private payors, and 
chargemaster rates are typically significantly higher than the 
actual cost of services rendered. See National Nurses United, 
Fleecing Patients: Hospitals Charge Patients More Than Four Times 
the Cost of Care'' (Nov. 2020), https://www.nationalnursesunited.org/sites/default/files/nnu/graphics/documents/1120_CostChargeRatios_Report_FINAL_PP.pdf.
    \11\ See Jennifer Tolbert et al., Key Facts about the Uninsured 
Population, KFF (Dec. 18, 2023), https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/.
    \12\ See Matthew Panhans et al., Prices for Medical Services 
Vary Within Hospitals, but Vary More Across Them, Medical Care 
Research and Review 78(2), 157 (June 19, 2019); Xu, Tim, Angela Park 
and Ge Bai, Variation in Emergency Department vs Internal Medicine 
Excess Charges in the United States,'' JAMA Internal Medicine 
(2017), https://pubmed.ncbi.nlm.nih.gov/28558093/.
    \13\ See Ge Bai and Gerard F. Anderson, ``Extreme Markup: The 
Fifty US Hospitals With The Highest Charge-To-Cost Ratios,'' Health 
Affairs (June 2015), https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.1414.
    \14\ See CFPB, Medical Debt Burden in the United States, at 11 
(Mar. 1, 2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/
(referencing Faiz Gani, et al., Hospital markup and operation 
outcomes in the United States, Surgery (July 2016), https://www.sciencedirect.com/science/article/abs/pii/S0039606016300022?via%3Dihub; Tim Xu, Angela Park, and Ge Bai, 
Variation in Emergency Department vs Internal Medicine Excess 
Charges in the United States, Jama Internal Medicine (2017), https://pubmed.ncbi.nlm.nih.gov/28558093/).
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    Further, healthcare providers sometimes charge patients for 
``upcoded'' services, or services more expensive than what the consumer 
actually received.\15\ A 2024 study found that, from 2010-2019, the 
total of upcoding expenses for Medicare Parts A, B, and C was $656 
million, $2.39 billion, and $10-15 billion, respectively.\16\ Upcoding 
is relatively widespread and has been estimated to account for 5-10 
percent of total healthcare expenditures in the United States.\17\
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    \15\ Medical care providers often calculate and itemize charges 
for care using a standardized set of codes. These codes indicate the 
various aspects of care a patient received along with the type and 
scope of that care. Typically, more serious, more urgent, or more 
involved forms of care will incur higher charges. If a medical 
provider designates an aspect of a patient's care with a code that 
denotes a higher or more involved level of care than was actually 
received, the provider is said to be ``upcoding.''
    \16\ Keith Joiner, Jianjing Lin, and Juan Pantano, Upcoding in 
medicare: where does it matter most, Health Economics Review 14(1) 
(2024), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10759668/ PMC10759668/.
    \17\ William Hsiao, Fraud and Abuse in Healthcare Claims, 
California HHS (Jan. 2022), https://www.chhs.ca.gov/wp-content/uploads/2022/01/Commissioner-William-Hsiao-Comments-on-Fraud-and-Abuse-in-Healthcare-Claims.pdf.
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    After an individual receives a medical service, they and their 
insurer are billed, if the individual is insured. Some healthcare 
providers also market medical payment products or other external 
financing options to their patients.\18\ In some cases, providers are 
obligated by State or Federal laws to perform certain affirmative 
functions involving the medical bill or refrain from specific 
collection actions.\19\ After any insurance payments or payment via a 
medical payment product are received, unpaid amounts, if any, are 
collected by phone calls, letters, emails, and offers of payment plans 
or settlements.\20\ Hospitals and other healthcare providers in the 
United States are increasingly outsourcing medical billing and 
collection activities to third parties, such as ``Revenue Cycle 
Management'' firms, which are often funded by private equity.\21\ One 
estimate projects the domestic market for Revenue Cycle Management 
companies to grow by 10.2 percent annually until 2030.\22\ Unpaid 
medical bills may also be assigned to more traditional debt collectors, 
including those that specialize in medical debt, placed with an 
attorney for litigation, or, more rarely, sold to a debt buyer.
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    \18\ Consumers are increasingly using medical credit cards and 
other financing options to pay for medical care, and the CFPB has 
done significant work studying and addressing this issue. See CFPB, 
Medical Credit Cards and Financing Plans'' (May 4, 2023), https://www.consumerfinance.gov/data-research/research-reports/medical-credit-cards-and-financing-plans/; see also Lorelei Salas, Ensuring 
consumers aren't pushed into medical payment products'' (June 18, 
2024), https://www.consumerfinance.gov/about-us/blog/ensuring-consumers-arent-pushed-into-medical-payment-products/; CFPB, Request 
for Information on Medical Payment Products,'' 88 FR 44281 (July 12, 
2023).
    \19\ Certain Federal laws, such as the No Surprises Act and the 
Nursing Home Reform Act, limit collection activities for certain 
kinds of medical debt. Non-profit hospitals may lose their non-
profit tax status if they fail to evaluate patients for eligibility 
for financial assistance before the hospital takes certain types of 
collection actions. See 26 U.S.C. 501(r)(6). Some State laws 
similarly limit medical debt collections activities. For example, 
states have enacted additional requirements that broaden the 
applicability of hospital financial assistance, covering additional 
services for those patients deemed eligible. See Washington State 
Charity Care Law, RCW 70.170.060 (2024) (requiring non-profit 
hospitals to provide charity care for patients and their guarantors 
with incomes less than 300 percent of the Federal poverty 
guidelines). Medicare and Medicaid requirements also vary by State 
and may limit medical debt collections activities.
    \20\ See CFPB, Medical Debt Burden in the United States, at 12 
(Mar. 1, 2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/.
    \21\ See Jacqueline LaPointe, What's Behind Private Equity's 
Interest in RCM Vendors, TechTarget (Mar. 5, 2024), https://www.techtarget.com/revcyclemanagement/answer/Whats-Behind-Private-Equitys-Interest-in-RCM-Vendors.
    \22\ See Grand View Research, U.S. Revenue Cycle Management 
Market Size, Share, and Trends Analysis Report, https://www.grandviewresearch.com/industry-analysis/us-revenue-cycle-management-rcm-market.
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    The CFPB has observed and reported on many issues with how debt 
collectors collect medical debt in the United States. For example, the 
CFPB has brought enforcement actions against debt collectors for 
collecting on disputed medical debts without adequate 
substantiation.\23\ The CFPB has also previously described reports from 
consumers who have received collections notices for medical debts they 
should or do not owe. Specifically, consumers have reported receiving 
collections notices for debts that have or should have been covered by 
insurance, government payors, hospital financial assistance programs, 
or that the patient has otherwise paid.\24\ Consumers also have 
reported receiving collections notices for debts they believe they do 
not owe under State or Federal law.\ \
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    \23\ See Consent Order, Commonwealth Fin. Sys., Inc., CFPB No. 
2023-CFPB-0018 (Dec. 15, 2023); Consent Order, Phoenix Fin. Servs., 
LLC, CFPB No. 2023-CFPB-0004 (June 8, 2023).
    \24\ See CFPB, Fair Debt Collection Practices Act CFPB Annual 
Report 2023 (Nov. 16, 2023); https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/.
    \25\ See CFPB, Fair Debt Collection Practices Act CFPB Annual 
Report 2023 (Nov. 16, 2023), https://www.consumerfinance.gov/data-research/research-reports/fair-debt-collection-practices-act-cfpb-annual-report-2023/; CFPB, Nursing Home Debt Collection (Sept. 9, 
2022), https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-nursing-home-debt-collection/; see also, 
e.g., Complaint for Civil Penalties, Injunctive and Other Relief, 
Washington v. Providence Health & Services, No. 22-2-01754-6 SEA 
(King Cnty. Sup. Ct. Feb. 24, 2024), ]] 70-77 (alleging that 
hospital system sent the accounts of patients it knew were eligible 
for financial assistance under state law to debt collectors).
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    Further, many debt collectors do not have timely access to 
healthcare providers' billing and payment information, increasing the 
likelihood that the debt collector collects on an amount that is not 
owed, such as a bill that has already been paid.\26\ Many consumers 
have reported difficulties receiving verification of medical debts for 
which they have received collections notices.\27\ In some cases, debt 
collectors either may not have or refuse to provide to a consumer upon 
request proof of insurance payments, documentation confirming that the 
amount billed complies with State law and other affirmative collection 
requirements, such as hospital financial assistance, or other documents 
that would demonstrate the validity of the debt and the accuracy of the 
demanded amount.
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    \26\ John McNamara, Debt collectors re-evaluate medical debt 
furnishing in light of data integrity issues (Feb. 14, 2023), 
https://www.consumerfinance.gov/about-us/blog/debt-collectors-re-evaluate-medical-debt-furnishing-in-light-of-data-integrity-issues/.
    \27\ See CFPB, Medical Debt Burden in the United States, at 4 
(Mar. 1, 2022), https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/.
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    The FDCPA's protections are enforced by the CFPB, by other Federal 
regulators, by individual consumers, and, under certain circumstances, 
by States.\28\ And the CFPB is responsible for issuing rules regarding 
the FDCPA.\29\ To the extent a person qualifies as a ``debt collector'' 
under the FDCPA and its implementing Regulation F, that person is 
subject to the FDCPA and

[[Page 80718]]

Regulation F.\30\ The FDCPA and Regulation F prohibit the use of ``any 
false, deceptive, or misleading representation or means in connection 
with the collection of any debt,'' \31\ including, for example, any 
false representation of ``the character, amount, or legal status of any 
debt.'' \32\The FDCPA and Regulation F also prohibit the use of 
``unfair or unconscionable means to collect or attempt to collect any 
debt,'' \33\ including, for example, the ``collection of any amount 
(including any interest, fee, charge, or expense incidental to the 
principal obligation) unless such amount is expressly authorized by the 
agreement creating the debt or permitted by law.'' \34\ The CFPB 
reminds debt collectors that these FDCPA prohibitions interact with 
other Federal and State laws in a variety of ways that could create 
liability for debt collectors operating in the medical debt market.
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    \28\ 15 U.S.C. 1692l, 1692k; see 87 FR 31940, 31941 (May 26, 
2022) (explaining state authority to address violations of the 
federal consumer financial laws committed by ``covered persons'' and 
``service providers'' under the Consumer Financial Protection Act).
    \29\ 12 U.S.C. 5481(12)(F), (H), 5512(b), 5514(c); 15 U.S.C. 
1692l(d).
    \30\ 15 U.S.C. 1692a(6) (defining ``debt collector''); 12 CFR 
1006.2(i) (same).
    \31\ 15 U.S.C. 1692e; 12 CFR 1006.18(a).
    \32\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
    \33\ 15 U.S.C. 1692f; 12 CFR 1006.22(a).
    \34\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
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    The CFPB also reminds debt collectors that sections 1692e(2)(A) and 
1692f(1) impose strict liability. First, these two provisions include 
no scienter requirement, in contrast to several others that do.\35\ 
Second, the statute differentiates between intentional and 
unintentional violations.\36\ As many courts have held,\37\ imposing 
strict liability for violations of these provisions is therefore the 
best reading of the plain language, consistent with the statute's 
overall structure, and consonant with Congress' intent.\38\
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    \35\ See, e.g., 15 U.S.C. 1692e(8) (prohibiting 
``[c]ommunicating or threatening to communicate to any person credit 
information which is known or which should be known to be false'') 
(emphasis added); 15 U.S.C. 1692d(5) (prohibiting debt collectors 
from ``causing a telephone to ring or engaging any person in 
telephone conversation repeatedly or continuously with intent to 
annoy, abuse, or harass'') (emphasis added); 15 U.S.C. 1692j(a) 
(making it unlawful to ``design, compile, and furnish any form 
knowing that such form would be used'' to deceive consumers in a 
specified way'') (emphasis added).
    \36\ See, e.g., 15 U.S.C. 1692k(b)(1) (including as a factor for 
calculating statutory damages ``the extent to which [the debt 
collector's] noncompliance was intentional''). Entities may also 
have an affirmative defense to liability for violations described in 
this advisory opinion, but only if they maintain procedures that are 
reasonably designed to prevent unintentional violations that are the 
result of bona fide errors. See 15 U.S.C. 1692k(c) (providing 
affirmative defense for violations if they are: (1) ``not 
intentional,'' (2) the result of ``a bona fide error,'' and (3) 
occurred despite ``the maintenance of procedures reasonably adapted 
to avoid any such error''). Further, ``the broad statutory 
requirement of procedures reasonably designed to avoid `any' bona 
fide error indicates that the relevant procedures are ones that help 
to avoid errors like clerical or factual mistakes. Such procedures 
are more likely to avoid error than those applicable to legal 
reasoning. . . .'' Jerman v. McNellie, et al., 559 U.S. 573, 587 
(2010).
    \37\ Every Federal Circuit Court of Appeals to address this 
issue has held that the FDCPA is a strict liability statute. See, 
e.g., Vangorden v. Second Round, Ltd. P'ship, 897 F.3d 433, 437-38 
(2d Cir. 2018) (``The FDCPA is `a strict liability statute' and, 
thus, there is no need for a plaintiff to plead or prove that a debt 
collector's misrepresentation . . . was intentional.''); Allen ex 
rel. Martin v. LaSalle Bank, N.A., 629 F.3d 364, 368 (3d Cir. 2011) 
(``The FDCPA is a strict liability statute to the extent it imposes 
liability without proof of an intentional violation.''); Stratton v. 
Portfolio Recovery Assocs., LLC, 770 F.3d 443, 448-49 (6th Cir. 
2014) (``The FDCPA is a strict-liability statute: A plaintiff does 
not need to prove knowledge or intent.'').
    \38\ Congress enacted the FDCPA in 1977 to ``eliminate abusive 
debt collection practices by debt collectors, to ensure that those 
debt collectors who refrain from using abusive debt collection 
practices are not competitively disadvantaged, and to promote 
consistent State action to protect consumers against debt collection 
abuses.'' Public Law 95-109, sec. 802(e), 91 Stat. 874, 874 
(codified at 15 U.S.C. 1692(e)).
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III. Collection of Debts Invalid Under Law

A. Collection of Amounts Not Owed Because Already Paid

    Section 808(1) of the FDCPA prohibits, in relevant part, the 
collection of any amount ``unless such amount is expressly authorized 
by the agreement creating the debt or permitted by law.'' \39\ And 
section 807(2)(A) prohibits any false representation of ``the 
character, amount, or legal status of any debt.'' \40\
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    \39\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
    \40\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
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    Under these provisions, debt collectors must only collect or 
attempt to collect the amount that a consumer, in fact, owes at the 
time of a debt collection action after all appropriate deductions for 
partial payments by the consumer or third parties are made. The amounts 
due on a medical bill can often be adjusted multiple times, in light of 
payments made by consumers themselves or by third parties, such as 
insurers. Providers may also agree to accept a reduced amount in full 
satisfaction of the bill, or reduce the amount billed pursuant to a 
financial assistance policy or program.
    Under the FDCPA, the ``amount [ ] expressly authorized by the 
agreement creating the debt'' refers only to the remaining balance on a 
debt that is fully owed by the consumer after any payments that reduce 
the debt's remaining balance are deducted because such payments reduce 
the amount that the consumer is obligated to pay under the original 
agreement. Accordingly, seeking to collect an amount that does not 
account for partial payments or changes to the bill made by the 
provider would violate the FDCPA's prohibitions against unfair or 
unconscionable debt collection practices because the amount has not 
been expressly agreed to. In other words, once a partial payment has 
been made toward an agreed-to amount, collection or attempted 
collection of the full amount without accounting for the partial 
payment is collection of an amount greater than that agreed to or 
permitted by law. Such collection or attempted collection would also 
violate the FDCPA's prohibitions against deceptive or misleading debt 
collection practices because it would misrepresent the amount of the 
debt actually owed.\41\ Because payments toward a debt might be made at 
any time, debt collectors are responsible for ensuring that the correct 
collection amount is sought during each attempt at collection.
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    \41\ See Vangorden v. Second Round, L.P., 897 F.3d 433, 437-38 
(2d Cir. 2018) (consumer stated claim under FDCPA sections 807 and 
808 when debt collector sought to collect debt that consumer had 
already settled with creditor); Gonzalez v. Allied Collection 
Servs., Inc., No. 216CV02909MMDVCF, 2019 WL 489093, at *8-9 (D. Nev. 
Feb. 6, 2019), aff'd, 852 F. App'x 264 (9th Cir. 2021) (debt 
collector violated FDCPA sections 807 and 808 when it sought to 
collect full amount of debt that had been partially paid); see also 
Complaint for Permanent Injunction and Other Equitable Relief, FTC 
v. Midwest Recovery Systems, LLC, No. 12-00182 (E.D. Mo. Nov. 25, 
2020), https://www.ftc.gov/system/files/documents/cases/01_-_complaint.pdf (pleading violation of FDCPA section 807 where, among 
other things, ``[t]he debt was medical debt in the process of being 
re-billed to the consumer's medical insurance'').
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B. Collection of Amounts Not Owed Due to Federal or State Law

    Section 808(1) of the FDCPA prohibits, in relevant part, the 
collection of any amount ``unless such amount is expressly authorized 
by the agreement creating the debt or permitted by law.'' \42\ An 
``amount expressly authorized by the agreement creating the debt or 
permitted by law'' means only a debt that the consumer is legally 
obligated to pay. If a Federal or State law relieves consumers of the 
obligation to pay for medical costs, in whole or in part, then 
collection of those costs is not ``permitted by law'' but rather 
prohibited by law. Thus, any amount that a consumer is not obligated to 
pay by operation of Federal or State law, is not an ``amount . . . 
permitted by law.'' Nor is the amount collectible as an ``amount [ ] 
expressly authorized by the agreement creating the debt'' since 
contractual terms that contravene Federal or State law are 
unenforceable as contrary to public policy.\43\
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    \42\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
    \43\ See Restatement (Second) of Contracts sec. 178 (``A promise 
or other term of an agreement is unenforceable on grounds of public 
policy if legislation provides that it is unenforceable. . . .''); 
see also, e.g., United States v. Blue Cross/Blue Shield of Ala., 999 
F.2d 1542, 1547 (11th Cir. 1993) (``The application of a regulatory 
statute that is otherwise valid may not be defeated by private 
contracts.'') (citing Connolly v. Pension Benefit Guaranty Corp., 
475 U.S. 211, 224 (1986)); SodexoMAGIC, LLC v. Drexel Univ., 24 
F.4th 183, 219-20 (3d Cir. 2022) (``[A] voluntarily-agreed-to 
contract term is enforceable unless a statute or the common law 
specifically prevents enforcement of that term.'') (applying 
Pennsylvania law); Metcalfe v. Grieco Hyundai LLC, 698 F. Supp. 3d 
239, 2442 (D.R.I. 2023) (``Because the [Rhode Island State statute] 
explicitly allows collective actions, the class action waiver 
provision in the Leasing Agreement is unenforceable as against 
public policy in Rhode Island.'') (applying Rhode Island law).

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[[Page 80719]]

    A range of laws protect consumers from the legal obligation to pay 
medical bills in certain circumstances. For example, a State workers' 
compensation scheme may provide that a medical provider only has 
recourse against a patient's employer or workers' compensation insurer 
for the treatment of a work-related injury.\44\ And the Federal Nursing 
Home Reform Act prohibits, among other things, nursing care facilities 
that participate in Medicaid or Medicare from requesting or requiring a 
third-party guarantee of payment as a condition of admission, expedited 
admission, or continued stay in the facility, and thus nursing care 
facilities cannot collect the debt from third parties in violation of 
this law.\45\
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    \44\ See, e.g., Kottler v. Gulf Coast Collection Bureau, Inc., 
460 F. Supp. 3d 1282, 1293 (S.D. Fla. 2020), aff'd, 847 F. App'x 542 
(11th Cir. 2021) (debt collector violated section 807(2)(A) when it 
attempted to collect a debt for which consumer had pending workers' 
compensation claim); Young v. NPAS, Inc., 361 F. Supp. 3d 1171, 1196 
(D. Utah 2019) (debt collector violated FDCPA sections 807(2)(A) and 
808(1) when it attempted to collect a debt that consumer did not owe 
under Utah workers' compensation law); Raytman v. Jeffrey G. Lerman, 
P.C., No. 17 CIV. 9681 (KPF), 2018 WL 5113952, at *5-6 (S.D.N.Y. 
Oct. 19, 2018) (consumer stated claim for violations of FDCPA 
sections 807 and 808 when debt collector sought to collect debt that 
consumer did not owe under New York Medicaid payment rules).
    \45\ See generally CFPB Circular 2022-05: Debt collection and 
consumer reporting practices involving invalid nursing home debts 
(Sept. 8, 2022), available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/.
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    A debt collector that collects or attempts to collect a debt from a 
consumer who is not legally obligated on the debt by operation of State 
or Federal law violates the FDCPA's prohibitions against unfair or 
unconscionable debt collection practices because the amount is not 
expressly authorized by the agreement creating the debt or permitted by 
law \46\ and also violates the FDCPA's prohibitions against deceptive 
or misleading debt collection practices because it would falsely 
represent the amount of the debt. Debt collectors are responsible for 
ensuring that they do not collect or attempt to collect debts that are 
not legally owed by the relevant consumer, whether by operation of 
State or Federal law.
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    \46\ This may be the case even if terms of the contract creating 
the debt would make a given consumer liable. See, e.g., Tuttle v. 
Equifax Check, 190 F.3d 9, 13 (2d Cir. 1999) (noting that it would 
be a violation of section 1692f(1) to collect a fee if State law 
expressly prohibits such fees, even if the contract allows it).
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C. Collection of Amounts Above That Permitted by Federal or State Law

    Section 807 prohibits any false representation of ``the character, 
amount, or legal status of any debt.'' \47\ Section 808(1) of the FDCPA 
prohibits, in relevant part, the collection of any amount ``unless such 
amount is expressly authorized by the agreement creating the debt or 
permitted by law.'' \48\ Debt collectors would violate the FDCPA when 
they collect or attempt to collect amounts that exceed limits or 
calculation methods provided by State or Federal law, thus 
misrepresenting the consumer's obligation to pay the debt and 
collecting or attempting to collect an amount not permitted by law. 
Here again, a range of laws may operate to limit or control the amount 
that a medical provider may bill a patient in certain circumstances. 
For example, the Federal No Surprises Act of 2020 restricts the charges 
that certain medical providers can bill to certain patients depending 
on a number of factors such as their insured status and whether a 
billing provider is in- or out-of-network for a patient's health 
insurance plan.\49\ As the CFPB has previously stated, the FDCPA's 
prohibition on misrepresentations includes misrepresenting that a 
consumer must pay a debt stemming from a charge that exceeds the amount 
permitted by the No Surprises Act.\50\ Thus, for example, a debt 
collector who represents that a consumer owes a debt arising from out-
of-network charges for emergency services would violate the prohibition 
on misrepresentations if those charges exceed the amount permitted by 
the No Surprises Act. Relatedly, if a Federal law limits or caps the 
amount a consumer may be billed in a given circumstance, then 
collection or attempted collection of an amount over the relevant limit 
or cap would run afoul of the FDCPA's prohibition on collection of 
amounts unless permitted by law.
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    \47\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
    \48\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
    \49\ See Requirements Related to Surprise Billing; Part II, 86 
FR 55980 (Oct. 7, 2021).
    \50\ See CFPB Bulletin 2022-01: Medical Debt Collection and 
Consumer Reporting Requirements in Connection With the No Surprises 
Act, 87 FR 3025, 3026 (Jan. 20, 2022).
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    State law may also provide a limit on the allowable amount that a 
medical provider can bill a consumer. Many States have enacted laws to 
protect consumers from unexpected medical bills in much the same vein 
as the Federal No Surprises Act and which may provide additional 
protections beyond those in the Federal law.\51\ While State laws vary 
considerably, many include limits on the amounts that medical 
providers, both emergency and non-emergency, can bill certain consumers 
and provide specific standards to guide billing calculations.\52\ As 
with the Federal statute, where one of these State laws applies to 
limit the amount that a medical provider can bill a consumer, a debt 
collector that collects or attempts to collect an amount that exceeds 
the relevant limits would violate the FDCPA's prohibition against 
misrepresenting the amount of the debt owed and the prohibition against 
collecting or attempting to collect an amount unless permitted by law.
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    \51\ See State Surprise Billing Laws and the No Surprises Act, 
accessible at: https://www.cms.gov/files/document/nsa-state-laws.pdf, at 2 (``The No Surprises Act supplements State surprise 
billing law protections; it does not replace them.'').
    \52\ See, e.g., Conn. Gen. Stat. secs. 38a-477aa, 20-7f; Mich. 
Comp. Laws sec. 333.24507.
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    Finally, State contract or common law may also provide limits on 
the allowable amount that a medical provider can bill a consumer in 
certain circumstances. For example, consumers are sometimes billed by 
medical service providers that the consumer did not enter into an 
express agreement with prior to receiving the services. In these 
circumstances, some courts have held that State contract law provides 
that the relationship between the consumer and provider is governed by 
an implied-in-fact agreement, the price term of which may be limited to 
a ``reasonable'' amount.\53\ Courts have also interpreted some States' 
laws to require that when an express contract for medical services 
contains no explicit price term, a ``reasonable'' price term should be 
inserted.\54\ Courts have even invalidated

[[Page 80720]]

explicit price terms in contracts when those terms were determined to 
be unconscionable under State law, often limiting the price that must 
be paid to some ``reasonable'' amount as a remedy.\55\
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    \53\ See, e.g., Leslie v. Quest Diagnostics, Inc., No. 
CV171590ESMAH, 2019 WL 4668140, at *7 (D.N.J. Sept. 25, 2019) 
(``Plaintiffs sufficiently allege that Quest's chargemaster prices 
are unreasonable based on Quest's internal cost structure, the usual 
and customary rates charged, and payments received for these 
services by both Quest and other laboratory testing services.'').
    \54\ Colomar v. Mercy Hosp., Inc., No. 05-22409-CIV-SEITZ, 2007 
WL 2083562, at *4 (S.D. Fla. July 20, 2007) (``Florida law is 
settled that when the price term in a contract for hospital services 
is left `open' or undefined, then the courts will infer a reasonable 
price.'').
    \55\ See, e.g., Ahern v. Knecht, 563 NE2d 787, 793 (Ill. App. 
1990) (price term in contract for appliance repair was 
unconscionable and repairman would be allowed only ``the actual 
value of his services''); Toker v. Westerman, 274 A.2d 78, 81 (N.J. 
Super. 1970) (price term in contract for sale of refrigerator was 
unconscionably high; court refused to enforce term, relieving the 
defendant-consumer from obligation to pay remaining balance owed); 
Restatement (Second) of Contracts sec. 208--Unconscionable Contract 
or Term, cmt. g (1981) (``the offending party [to an unconscionable 
contract] will ordinarily be awarded at least the reasonable value 
of performance rendered by him''); see also De La Torre v. CashCall, 
Inc., 422 P.3d 1004, 1009 (Cal. 2018) (``As long established under 
California law, the doctrine of unconscionability reaches contract 
terms relating to the price of goods or services exchanged.'').
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    The CFPB reminds debt collectors that State law may determine or 
limit the amount that medical providers may charge to consumers, and 
that collection of or an attempt to collect an amount that exceeds the 
allowable amount under State law (including applicable State case law) 
may misrepresent the amount of the debt in violation of the FDCPA. 
Collection or an attempt to collect an amount that exceeds the 
allowable amount under State law may also violate the prohibition 
against collecting or attempting to collect an amount unless permitted 
by law. These State law cases make clear that the collection amount 
that is ``permitted by law'' may be much less than the amount asserted 
to be owed by the medical provider. Debt collectors are responsible for 
ensuring that they do not collect or attempt to collect amounts above 
that which the relevant consumer(s) can be charged under applicable 
State and Federal laws. Because, as noted above, the FDCPA imposes 
strict liability, debt collectors should ensure that they only collect 
or attempt to collect amounts that may be charged under applicable 
State law.\56\
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    \56\ Debt collectors may be able to minimize risk of 
misrepresentations in these circumstances by working with client 
medical providers to ensure that pricing and billing practices 
comply with applicable legal limits.
---------------------------------------------------------------------------

D. Collection of Amounts Not Owed Because Services Not Received

    Section 808(1) of the FDCPA prohibits, in relevant part, the 
collection of any amount ``unless such amount is expressly authorized 
by the agreement creating the debt or permitted by law.'' \57\ And 
section 807(2)(A) prohibits any false representation of ``the 
character, amount, or legal status of any debt.'' \58\ As relevant 
here, the ``amount [] expressly authorized by the agreement creating 
the debt'' means amounts due for services actually rendered under the 
relevant agreement. Similarly, a ``false representation of the . . . 
amount . . . of any debt'' includes a representation to a consumer that 
they owe an amount for services that have not been rendered.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 1692f(1); 12 CFR 1006.22(b).
    \58\ 15 U.S.C. 1692e(2)(A); 12 CFR 1006.18(b)(2)(i).
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    Courts have held that it is a violation of the FDCPA for debt 
collectors to collect or attempt to collect amounts for services that 
were not rendered.\59\ Medical bills, especially for services rendered 
in hospitals, are frequently calculated by reference to a standardized 
set of codes that indicate the type and degree of medical care a 
patient received. Typically, providers will seek greater compensation 
for more serious, more urgent, or more involved forms of care. As noted 
above, if a medical provider designates an aspect of a patient's care 
with a code that denotes a higher or more involved level of care than 
was actually received, the provider is said to be ``upcoding.'' \60\
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    \59\ Langley v. Statebridge Co., LLC, No. CIV.A. 14-6366 JLL, 
2014 WL 7336787, at *3 (D.N.J. Dec. 22, 2014) (consumer stated claim 
under FDCPA section 807(2)(A) when debt collector attempt to collect 
debt for tax and insurance payments not actually made by creditor); 
Fitzsimmons v. Rickenbacker Fin., Inc., No. 2:11-CV-1315 JCM PAL, 
2012 WL 3994477, at *3 (D. Nev. Sept. 11, 2012).
    \60\ See Centers for Medicare & Medicaid Servs., Common Types of 
Healthcare Fraud, at 2 (2016), https://www.cms.gov/files/document/overviewfwacommonfraudtypesfactsheet072616pdf. (``Upcoding is a term 
that is not defined in [] regulations but is generally understood as 
billing for services at a higher level of complexity than the 
service actually provided or documented in the file.''); U.S. ex 
rel. Harris v. Bernad, 275 F. Supp. 2d 1, 4 (D.D.C. 2003) (``The 
government alleges that the defendants engaged in `upcoding'--that 
is, submitted claims with CPT codes that represented a level of care 
higher than the defendants actually provided.'').
---------------------------------------------------------------------------

    A debt collector that collects or attempts to collect a debt that 
has been ``upcoded'' violates the FDCPA's prohibitions against unfair 
or unconscionable debt collection practices because the amount is not 
expressly authorized by the agreement for services actually rendered 
and also violates the FDCPA's prohibitions against deceptive or 
misleading debt collection practices because it would falsely represent 
the amount of the debt. Debt collectors are responsible for ensuring 
that they do not collect or attempt to collect amounts that have been 
charged for services that have not actually been rendered.\61\
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    \61\ Nothing in this Advisory Opinion should be interpreted to 
mean that in order to mitigate risk of violations of the FDCPA debt 
collectors should obtain access to documents beyond relevant patient 
contracts or bills. Again, debt collectors may be able to minimize 
risk of misrepresentations in these circumstances by working with 
client medical providers to ensure appropriate billing practices.
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IV. Misrepresentation of the Nature of Legal Obligations

    Section 807(2)(A) prohibits any false representation of ``the 
character, amount, or legal status of any debt.'' A ``false 
representation of the . . . legal status of any debt'' includes 
representations to a consumer about the legal nature of the provider's 
claim for payment and the legal rights and obligations that arise under 
that particular type of claim.
    As described above, there are a variety of ways in which medical 
bills and the amounts demanded therein differ from consumer 
transactions where a consumer agrees to a known and definite price in 
exchange for goods or services. In medical billing, consumers sometimes 
enter agreements that have undefined price terms or are billed by 
providers with whom the consumer has never entered into an express 
agreement. The legal basis for a provider's claim for payment in such 
circumstances therefore also varies, and each such basis may have 
different implications for a consumer's legal rights or obligations. 
For example, under some States' laws, providers sometimes demand 
payment for services on the basis of an account stated theory, whereby 
a party presents another with an alleged statement of account and a 
legal obligation to pay that amount arises if the receiving party does 
not object within a reasonable period of time.\62\ The inverse is also 
true under these State's laws: an account stated claim cannot be 
maintained if the receiving party disputes the alleged statement of 
account within a reasonable period of time before making payments on 
the account.\63\
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    \62\ See, e.g., Univ. of S. Ala. v. Bracy, 466 So.2d 148, 150 
(Ala. Civ. App. 1985) (stating elements of account stated claim 
under Alabama law in medical context); Egge v. Healthspan Servs. 
Co., No. CIV. 00-934 ADM/AJB, 2001 WL 881720, at *2 (D. Minn. July 
30, 2001) (elements of account stated claim under Minnesota law in 
medical context).
    \63\ See, e.g., Grandell Rehab. & Nursing Home, Inc. v. Devlin, 
809 N.Y.S.2d 481 at *3 (N.Y. Sup. Ct. 2005) (rejecting nursing 
home's account stated claim because, among other reasons, receiving 
consumer disputed their liability and the amounts) (citing Abbott, 
Duncan & Wiener v. Ragusa, 214 A.D.2d 412, 413 (N.Y. App. Div. 
1995)).
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    However, the variations in medical billing and the associated legal 
consequences are not readily apparent or known to most consumers.\64\ 
Most

[[Page 80721]]

consumers understand a demand for payment from a debt collector to mean 
that they owe the full amount demanded. The least sophisticated 
consumer presented with a demand for payment may believe that the full 
demanded amount is legally owed.\65\ In particular, a consumer may be 
unlikely to know that, in the absence of an express agreement and 
definite price term, a debt collector's demand for payment may not 
accurately reflect the consumer's actual legal obligation to the 
provider under State law.\66\
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    \64\ When evaluating a claim under section 807 of the FDCPA, 
courts apply the ``least sophisticated debtor'' standard. See, e.g., 
Jensen v. Pressler & Pressler, 791 F.3d 413, 420 (3d Cir. 2015) 
(applying ``least sophisticated debtor'' standard to evaluate 
liability under section 807); McCollough v. Johnson, Rodenburg & 
Lauinger, LLC, 637 F.3d 939, 952 (9th Cir. 2011) (same); Jeter v. 
Credit Bureau, Inc., 760 F.2d 1168, 1177 n.11 (11th Cir. 1985) 
(same).
    \65\ See, e.g., Miller v. Carrington Mortgage Servs., LLC, 607 
B.R. 1, 5-6 (D. Me. 2019) (consumer alleged fear that ``he would 
never be free from demands for payment'' or that debt collector had 
``found a way of getting around the bankruptcy discharge 
protections.''); cf. Daugherty v. Convergent Outsourcing, Inc., 836 
F.3d 507, 513 (5th Cir. 2016) (``[A] collection letter seeking 
payment on a time-barred debt (without disclosing its 
unenforceability) but offering a `settlement' and inviting partial 
payment (without disclosing the possible pitfalls) could constitute 
a violation of the FDCPA.''); Buchanan v. Northland Grp., Inc., 776 
F.3d 393, 399 (6th Cir. 2015) (consumer stated claim under section 
807(2)(A) when debt collector offered to ``settle'' time-barred debt 
at a discount and noting that rule under Michigan law that partial 
payment revives a time-barred debt ``is almost assuredly not within 
the ken of most people, whether sophisticated, whether reasonably 
unsophisticated, or whether unreasonably unsophisticated'').
    \66\ C.f. Shula v. Lawent, 359 F.3d 489, 491-92 (7th Cir. 2004) 
(affirming finding of liability under section 807 where debt 
collector attempted to collect amount of court costs that were not 
in fact awarded in State law action); Van Westrienen v. 
Americontinental Collection Corp., 94 F. Supp. 2d 1087, 1101-02 (D. 
Or. 2000) (consumer stated claim under section 807(2)(A) when debt 
collector's communications suggested that wage garnishment or asset 
seizure would occur ``within 5 days'' when such legal action was not 
procedurally possible in that time span); Biber v. Pioneer Credit 
Recovery, Inc., 229 F. Supp. 3d 457, 473-74 (E.D. Va. 2017) 
(consumer stated claim under section 807(2)(A) when debt collector 
threatened to garnish wages without disclosing that it had not in 
fact taken preliminary procedural steps required to do so).
---------------------------------------------------------------------------

    A debt collector that collects or attempts to collect a debt where 
the amount is not based on an express contractual price term risks 
violating the FDCPA's prohibitions against deceptive or misleading debt 
collection practices if the debt collector gives the misleading 
impression that the amount demanded is final and that precise amount is 
legally owed. Moreover, because, as noted above, the FDCPA imposes 
strict liability, debt collectors are responsible for ensuring that 
they do not collect or attempt to collect debts in a way that deceives 
or misleads a consumer, explicitly or impliedly, about the legal status 
of the medical provider's claim and a consumer's right to object to 
claims, as appropriate; a debt collector may misrepresent the legal 
status of the debt even if the collector is relying on information 
provided by the medical provider. When dealing with uncertainty arising 
from the lack of express agreement, debt collectors may be able to 
minimize their risk of engaging in violations by communicating clearly 
and conspicuously with consumers about the legal status of the debt and 
the amount owed, for example, as appropriate, that an enforceable 
payment obligation may not exist until proven in court.

V. Substantiation of Medical Debts

    Section 807(2)(A) prohibits any false representation of ``the 
character, amount, or legal status of any debt.'' When a debt collector 
makes a demand for payment of a debt or otherwise represents that a 
consumer owes a debt, the collector makes an implied representation 
that it has a reasonable basis to assert the character, amount, and 
legal status of the debt.\67\ A debt collector violates the prohibition 
against false representations if the collector has no reasonable basis 
on which to represent that the specific amount demanded is due and 
legally collectible.
---------------------------------------------------------------------------

    \67\ See Debt Collection Practices (Regulation F), Final Rule, 
85 FR 76734, 76857 (Nov. 30, 2020) (codified at 12 CFR part 1006) 
(``[I]it is clear that a debt collector must have (or have access 
to) records reasonably substantiating its claim that a consumer owes 
a debt in order to avoid engaging in deceptive or unfair collection 
practices in violation of the FDCPA when it attempts to collect the 
debt.'').
---------------------------------------------------------------------------

    The many unique features of the markets for medical care and 
services present particularly acute risks of uncertainty as to the 
``character, amount, or legal status'' of debts that are incurred in 
these markets. As described above, the health care market is complex, 
variable, and opaque. Prices charged by providers vary widely even for 
the same treatment or procedure and are often conditional, changing 
based on factors that often cannot be known before services are 
rendered. A variety of State and Federal laws may impact a consumer's 
liability for payment, in whole or in part, or for the amount that may 
be charged. Billing and payment are complicated by the involvement of 
third-party payors such as insurers, public compensation programs, or 
tortfeasors. And the nature or legal basis of a provider's claim for 
payment may be unclear, often due to a lack of express agreements. 
While this level of uncertainty may arise from the inherently complex 
reality of medical care and the broader heath care system, it 
underscores the need for debt collectors to properly substantiate the 
character, amount, and legal status of medical debt before they begin 
collection, in accord with consumer's expectations that debt collectors 
have a reasonable basis for their demands.\68\
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    \68\ As noted above, nothing in this Advisory Opinion should be 
interpreted to mean that in order to mitigate risk of violations of 
the FDCPA debt collectors are encouraged to obtain access to 
documents beyond relevant patient contracts or bills as permitted 
under applicable privacy laws.
---------------------------------------------------------------------------

    Although a debt collector must be able to substantiate claims 
regarding the amount and validity of the debt made to a consumer, 
including those made at the outset of collection, the type and amount 
of information that is necessary to substantiate a particular 
representation will vary depending upon the claim itself, the 
circumstances surrounding the claim, and the need to observe patients' 
privacy rights under relevant law. The inherently uncertain and 
conditional nature of the costs of and payments for medical care means 
that debt collectors should exercise heightened care to ensure that 
they have a reasonable basis to assert that the debt is legally 
collectible and the specific amount is owed. For example, consider a 
debt collector that receives summary information concerning accounts 
for collection from a provider group that operates within a hospital. 
An initial reasonable step to substantiate the debts prior to 
collection may include obtaining any relevant patient agreements or 
contracts executed by the relevant patients. If, as is often the case, 
there is no contract between patients and the provider group, the debt 
collector may need documents sufficient to make a prima facie case for 
the demanded amount under the applicable State law. Consider another 
example where a debt collector is onboarding a hospital client. The 
debt collector may reduce risk of liability if it has access to full 
payment histories for the patient accounts, including any payments from 
third parties covering any portion of an overall demanded amount, and 
to confirm the hospital's compliance with any affirmative legal 
obligations, such as requirements to assess consumers under financial 
assistance policies if the hospital is a non-profit \69\ or otherwise 
participates in financial assistance programs, to ensure that there is 
a reasonable basis for the demanded amount.\70\
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    \69\ See 26 U.S.C. 501(r).
    \70\ This example is provided merely as an illustration of the 
kinds of information that may be necessary to properly substantiate 
debt collection information in a given circumstance and is not 
offered as a complete or exhaustive list that would guarantee 
compliance in all circumstances.
---------------------------------------------------------------------------

    Regulators, including the CFPB, have brought actions against debt 
collectors for failing to substantiate collection

[[Page 80722]]

information for accuracy and completeness before beginning collection 
efforts when there were indications that the information suffered from 
a high degree of uncertainty or unreliability.\71\ For example, many 
debt collectors operate as ``debt buyers,'' purchasing large portfolios 
of debts from creditors or other debt collectors at significant 
discounts from the face value of the underlying debts.\72\ These 
``portfolios'' of debts may functionally be little more than 
spreadsheets containing purported information concerning debts and may 
not be accompanied by underlying contracts, customer agreements, or 
other documentation evidencing the existence and amount of the 
debts.\73\ This information may be facially unreliable, such as when 
the sellers of the debt explicitly disclaim its accuracy or 
collectability or when it is readily apparent that the information is 
inaccurate.\74\ In these circumstances, the CFPB and other regulators 
have alleged that the debt collectors were on notice that collecting or 
attempting to collect the purported debts based on the information in 
their possession could lead to widespread or repeated violations of 
section 807(2)(A).\75\ Proceeding to collect the purported debts based 
on that unsubstantiated information misrepresented to the affected 
consumers that the collectors had a reasonable basis for their 
collection attempts.\76\ Importantly, this misrepresentation did not 
rely on a finding that the claimed amount was incorrect--for which a 
debt collector can be separately liable, see generally section II, 
supra--but on their failure to substantiate the validity and amounts of 
the debts that were sought.
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    \71\ See, e.g., Complaint for Civil Penalties, Injunctive and 
Other Relief, United States v. Asset Acceptance, LLC, No. 12-00182 
(M.D. Fla. Jan. 30, 2012), ECF No. 1 (Asset Acceptance Compl.); 
Consent Order, Encore Capital Grp., Inc., CFPB No. 2015-CFPB-0022 
(Sept. 9, 2015) (Encore Consent Order); Consent Order, Portfolio 
Recovery Assocs., LLC, CFPB No. 2015-CFPB-0023 (Sept. 9, 2015) (PRA 
Consent Order).
    \72\ See Asset Acceptance Compl. ]] 9-10; Encore Consent Order, 
] 22; PRA Consent Order, ] 24.
    \73\ See Asset Acceptance Compl., ] 11; Encore Consent Order, ] 
23; PRA Consent Order, ] 27.
    \74\ See Asset Acceptance Compl., ] 11-16, 49-52; Encore Consent 
Order, ]] 24-35; PRA Consent Order, ]] 28-32.
    \75\ See Asset Acceptance Compl., ] 81-83; Encore Consent Order, 
] 112-114; PRA Consent Order, ] 103-105.
    \76\ See Asset Acceptance Compl., ] 54-55; Encore Consent Order, 
] 45-47, 78-81, 103-105; PRA Consent Order, ] 63-66, 94-96,.
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    Debt collectors working with medical debts are responsible for 
ensuring that they possess a reasonable basis for collecting or 
attempting to collect those debts. Collecting or attempting to collect 
medical debts without substantiation violates section 807(2)(A).

VI. Defining Default Under the FDCPA

    The prohibitions imposed by sections 807 and 808 of the FDCPA apply 
only to ``debt collectors.'' \77\ As relevant here, Section 803 of the 
FDCPA defines ``debt collector'' in two ways: (1) ``any person who uses 
any instrumentality of interstate commerce or the mails in any business 
the principal purpose of which is the collection of any debts,'' or (2) 
any person ``who regularly collects or attempts to collect, directly or 
indirectly, debts owed or due or asserted to be owed or due another.'' 
\78\ The statute also provides a limited number of exemptions from the 
definition of ``debt collector.'' One of those exemptions carves out of 
the definition ``any person collecting or attempting to collect any 
debt owed or due or asserted to be owed or due another to the extent 
such activity . . . concerns a debt which was not in default at the 
time it was obtained by such person.'' \79\ In the context of medical 
debt collection, for purposes of section 803(6)(F)(iii)'s exemption, 
whether a debt is ``in default'' is determined by the terms of any 
agreement between the consumer and the medical provider under 
applicable law governing the agreement.\80\
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 1692e (``A debt collector may not use any false, 
deceptive, or misleading representation or means in connection with 
the collection of any debt.) (emphasis added); 15 U.S.C. 1692f (``A 
debt collector may not use unfair or unconscionable means to collect 
or attempt to collect any debt.'') (emphasis added).
    \78\ 15 U.S.C. 1692a(6). Section 803 also provides that the term 
``debt collector'' ``includes any creditor who, in the process of 
collecting his own debts, uses any name other than his own which 
would indicate that a third person is collecting or attempting to 
collect such debts'' as well as, ``[f]or the purpose of section 
808(6), . . . any person who uses any instrumentality of interstate 
commerce or the mails in any business the principal purpose of which 
is the enforcement of security interests.'' 15 U.S.C. 1692a(6). The 
term ``creditor'' is defined as ``any person who offers or extends 
credit creating a debt or to whom a debt is owed, but such term does 
not include any person to the extent that he receives an assignment 
or transfer of a debt in default solely for the purpose of 
facilitating collection of such debt for another.'' 15 U.S.C. 
1692a(4).
    \79\ 15 U.S.C. 1692a(6)(F)(iii). The exemptions under section 
803a(6)(F)--including the exemption for debt collection activity 
that ``concerns a debt which was not in default at the time it was 
obtained by such person''--explicitly apply only to persons 
collecting or attempting to collect debts ``owed or due another.'' 
Compare 15 U.S.C. 1692a(6)(F) (exemption that references ``owed or 
due another'') with 15 U.S.C. 1692a(6)(A)-(E) (exemptions that do 
not use ``owed or due another'' language).
    \80\ De Dios v. Int'l Realty & Invs., 641 F.3d 1071, 1074 (9th 
Cir. 2011). Outcomes for non-express agreements may vary 
considerably under relevant State law, and this Advisory Opinion 
takes no position on the correct interpretation of those laws.
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    The term ``default'' is not specifically defined in the FDCPA, so 
the meaning of the term should first be determined by its ordinary 
meaning.\81\ ``Default'' is commonly defined as the failure to satisfy 
an agreement, promise, or obligation, especially a failure to make a 
payment when due.\82\ These definitions are consistent with the 
longstanding common law use of the word as a party's failure to perform 
contractual obligations at the time they come due.\83\ Further, 
applicable law--typically State contract law--may determine when 
obligations are due under a contract.
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    \81\ See, e.g., Lawson v. FMR LLC, 571 U.S. 429, 440 (2014); see 
also, e.g., Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560, 566 
(2012) (``When a term goes undefined in a statute, we give the term 
its ordinary meaning.'').
    \82\ See, e.g., Default Merriam-Webster.com Dictionary, https://www.merriam-webster.com/dictionary/default/ (accessed Aug. 19, 2024) 
(``failure to do something required by duty or law . . . a failure 
to pay financial debts''; Default, Black's Law Dictionary (11th ed. 
2019) (``The omission or failure to perform a legal or contractual 
duty; esp., the failure to pay a debt when due.''); Default, 
Ballentine's Law Dictionary (3d ed. 1969) (``Fault; neglect; 
omission; the failure to perform a duty or obligation; the failure 
of a person to pay money when due or when lawfully demanded.'').
    \83\ See, e.g., The Restatement (First) of Contracts Index D80 
(1932) (``Default: See Breach of Contract.''); Restatement (Second) 
of Contracts sec. 235(2) (1981) (``When performance of a duty under 
a contract is due any non-performance is a breach.''); 23 Williston 
on Contracts sec. 63:16 (4th ed.) (``It is a material breach of a 
contract to fail to pay any substantial amount of the consideration 
owing under the contract.''); Butler Mach. Co. v. Morris Constr. 
Co., 682 NW2d 773, 778 (S.D. 2004) (``Morris was to make monthly 
payments of $5,547 and its failure to make such monthly payments 
constituted a default under the terms of that agreement.'').
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    However, some third-party firms collecting on past-due medical 
bills have argued that the bills were not in default because the firm 
or the creditor did not consider or treat the accounts as in default 
until some later date.\84\ To the contrary, under the plain meaning of 
``default,'' when a ``default'' has occurred for purposes of section 
803(6)(F)(iii) with respect to medical bills is determined based on the 
terms of the relevant consumer-provider

[[Page 80723]]

agreements under applicable law. It is the terms of the contract--the 
``[o]bjective indicators of the debt's status'' at the time it was 
obtained \85\--that governs when collection of medical debts is covered 
by the FDCPA, not the subjective state of mind of the medical debt 
collector.\86\
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    \84\ See Ward v. NPAS, Inc., 63 F.4th 576, 583-84 (6th Cir. 
2023) (Though medical provider's bill said ``due on receipt'' court 
considered evidence that provider ``didn't treat Ward's failure to 
pay immediately as a breach'' dispositive to the question of whether 
debt was in default when placed with third-party.); Prince v. NCO 
Fin. Servs., Inc., 346 F. Supp. 2d 744, 749 (E.D. Pa. 2004) (``This 
evidence of Capital One's State of mind with regard to whether the 
debt was in default is a satisfactory initial showing that Capital 
One did not consider Prince's account to be ``in default.''); 
Roberts v. NRA Grp., LLC, No. CIV.A. 3:11-2029, 2012 WL 3288076, at 
*6 (M.D. Pa. Aug. 10, 2012) (``[W]hether Plaintiff's account was in 
default will be determined by looking at the `state of mind' of the 
creditor to see whether the creditor considered the debt to be in 
default.'').
    \85\ Mavris v. RSI Enters., 86 F. Supp. 3d 1079, 1088 (D. Ariz. 
2015).
    \86\ Echlin v. Dynamic Collectors, Inc., 102 F. Supp. 3d 1179, 
1185 (W.D. Wash. 2015) (rejecting defendant's argument that it did 
not ``consider'' plaintiffs debt to be in default until a particular 
dunning letter was sent because ``Dynamic's belief that Echlin's 
account was not in default is not dispositive of whether default had 
in fact occurred''); Hartman v. Meridian Fin. Servs., Inc., 191 F. 
Supp. 2d 1031, 1043-44 (W.D. Wis. 2002) (holding that defendant did 
not meet section 803(6)(F)(iii) exception and rejecting argument 
that defendant does not ``consider'' a buyer to be in default before 
end of 30-day cure period when buyer's contract with creditor 
expressly provided that buyer would be in default ``if he fails to 
pay on time'').
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    In addition to being consistent with the term's plain meaning, 
reading ``default'' as coextensive with contractual breach under 
applicable law is consistent with Congress's intent to apply this 
exemption to ``servicers'' of debt that is not in default at the time 
the person obtains it. The FDCPA's legislative history explains that 
Congress ``[did] not intend the definition [of debt collector] to cover 
the activities of . . . mortgage service companies and others who 
service outstanding debts for others, so long as the debts were not in 
default when taken for servicing.'' \87\ These references make clear 
the intended distinction between a consumer who has failed to meet 
their contractual obligation to pay and a consumer who has an 
outstanding debt but under their contract repays it over a defined 
period of time (i.e., their failure to pay the entire outstanding 
balance on a payment due date does not breach the contract).\88\ Courts 
and the Federal Trade Commission (FTC) have likewise recognized a 
distinction between a debt that may yet be ``outstanding'' but for 
which a consumer is not necessarily ``in default.'' \89\
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    \87\ S. Rep. No. 95-382, at 3-4 (1977), as reprinted in 1977 
U.S.C.C.A.N. 1695, 1698. In its section-by-section discussion of the 
bill, the report reiterates that ``The term [debt collector] does 
not include . . . persons who service debts for others.'' S. Rept. 
No. 95-382, at 7, 1977 U.S.C.C.A.N. 1695, 1701.
    \88\ Of course, an entity that operates as a mortgage servicer 
does not enjoy a blanket exemption from the FDCPA for all its 
activities and can still satisfy the definition of ``debt 
collector'' for those debts that were in default when they were 
obtained by the entity. See, e.g., Babadjanian v. Deutsche Bank 
Nat'l Tr. Co., No. CV1002580MMMRZX, 2010 WL 11549894, at *5 (C.D. 
Cal. Nov. 12, 2010) (collecting cases); S. Rep. No. 95-382, at 3-4 
(1977), as reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (``so long as 
the debts were not in default when taken for servicing).
    \89\ See, e.g., Alibrandi v. Fin. Outsourcing Servs., Inc., 333 
F.3d 82, 86 (2d Cir. 2003) (collecting cases that ``distinguish[] 
between a debt that is in default and a debt that is merely 
outstanding''); FTC, Annual Report to Congress on the Fair Debt 
Collection Practices Act (2000), (available at: https://www.ftc.gov/reports/annual-report-congress-fair-debt-collection-practices-act-0) 
(``[Section 803(6)(F)(iii)] was designed to avoid application of the 
FDCPA to mortgage servicing companies, whose business is accepting 
and recording payments on current debts.'') (emphasis in original) 
(citing S. Rep. No. 95-382).
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    In the context of medical debt, amounts owed are not typically paid 
on a regular, recurring schedule over time pursuant to the terms of a 
contract. To the contrary, as noted above, medical debts are 
contractually generally due in full at a given time. Medical debt 
collectors therefore do not ``service'' debts on an ongoing basis like 
the mortgage servicers intended to be covered by this exemption.
    To be sure, the terms of a given contract or the principles of 
applicable law may differentiate between one (or more) missed payments 
and contractual breach, in which case the debt may not be ``in 
default'' if a single payment is missed. But absent such terms or 
applicable legal principle, failure to make full payment by the given 
time constitutes a breach of the consumer's contractual obligation. If 
a person obtains that debt (or the right to collect it) after that 
failure to make full payment, that person has obtained a debt ``in 
default at the time it was obtained'' and therefore does not qualify 
for the section 803(6)(F)(iii) exemption.
    Finally, defining ``default'' for purposes of section 
803(6)(F)(iii) by reference to relevant consumer-provider agreements 
and background legal principles also best effectuates the statute's 
purpose and Congress' intent, closes off avenues for regulatory 
evasion, and is consistent with prior regulatory interpretations. The 
FDCPA is a remedial consumer protection statute aimed at curbing 
abusive and unscrupulous conduct by debt collectors and establishing 
comprehensive national standards for the debt collection industry.\90\ 
As such, the statute's provisions are interpreted liberally in favor of 
consumers' interests.\91\ Defining ``default'' by reference to the 
relevant consumer agreements and applicable governing law advances 
consumer interests because it is an objective, transparent standard 
that a consumer or their advocate can apply to ascertain the status of 
a party seeking to collect money that is claimed to be owed by the 
consumer. Relatedly, an objective standard for defining ``default'' 
prevents debt collectors from attempting to expand the section 
803(6)(F)(iii) exemption by reference to the subjective intent or 
belief of the collector or creditor or by reference to agreements or 
policy documents that the consumer has no access to.\92\ And this 
interpretation is consistent with prior staff advisory opinions on this 
definition issued by the FTC in the period when that agency had primary 
regulatory authority over the FDCPA.\93\
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    \90\ See 15 U.S.C. 1692(e) (``It is the purpose of this 
subchapter to eliminate abusive debt collection practices by debt 
collectors, to insure that those debt collectors who refrain from 
using abusive debt collection practices are not competitively 
disadvantaged, and to promote consistent State action to protect 
consumers against debt collection abuses.'').
    \91\ See, e.g., Salinas v. R.A. Rogers, Inc., 952 F.3d 680, 683 
(5th Cir. 2020) (``Because Congress intended the FDCPA to have a 
broad remedial scope, the FDCPA should be construed broadly and in 
favor of the consumer.'') (internal quotations omitted); Brown v. 
Card Serv. Ctr., 464 F.3d 450, 453 (3d Cir. 2006) (``Because the 
FDCPA is a remedial statute . . . we construe its language broadly, 
so as to effect its purpose. . . .''); Johnson v. Riddle, 305 F.3d 
1107, 1117 (10th Cir. 2002) (``Because the FDCPA, like the Truth in 
Lending Act (TILA), 15 U.S.C. 1601 et seq., is a remedial statute, 
it should be construed liberally in favor of the consumer.'').
    \92\ See. e.g., Alibrandi v. Fin. Outsourcing Servs., Inc., 333 
F.3d 82, 88 (2d Cir. 2003) (rejecting argument by debt collector 
that default status of debt should be determined by a ``letter 
agreement'' between the collector and creditor); Echlin v. Dynamic 
Collectors, Inc., 102 F. Supp. 3d 1179, 1185 (W.D. Wash. 2015) 
(``Dynamic's belief that Echlin's account was not in default is not 
dispositive of whether default had in fact occurred.''); Mavris v. 
RSI Enters., 86 F. Supp. 3d 1079, 1086 (D. Ariz. 2015) (``[T]he 
lender's subjective choice that the debtor has not defaulted cannot 
be dispositive of whether default has in fact occurred. If it were, 
debtors' access to FDCPA protections would be subject to the whim of 
creditors, who could leave debtors completely in the dark about 
when, if ever, those protections commence. Objective indicia of a 
creditor's treatment of a debt are entitled to greater weight.'').
    \93\ See, e.g., FTC, Staff Opinion Letter, 1989 WL 1178045 at *1 
n.2 (Apr. 25, 1989) (``Whether a debt is in default is generally 
controlled by the terms of the contract creating the indebtedness 
and applicable state law.'').
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VII. Regulatory Matters

    The CFPB has concluded that the advisory opinion is an interpretive 
rule in part and a general statement of policy in part. Insofar as the 
advisory opinion constitutes an interpretive rule, it is issued under 
the CFPB's authority to interpret the Fair Debt Collection Practices 
Acts and Regulation F, including under section 1022(b)(1) of the 
Consumer Financial Protection Act of 2010, which authorizes guidance as 
may be necessary or appropriate to enable the CFPB to administer and 
carry

[[Page 80724]]

out the purposes and objectives of Federal consumer financial laws.\94\
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    \94\ 12 U.S.C. 5512(b)(1).
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    Insofar as the advisory opinion constitutes a general statement of 
policy, it provides background information about applicable law and 
articulates considerations relevant to the CFPB's exercise of its 
authorities. It does not confer any rights of any kind.
    The CFPB has determined that this rule does not impose any new or 
revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.\95\
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    \95\ 44 U.S.C. 3501-3521.
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    Pursuant to the Congressional Review Act,\96\ the CFPB will submit 
a report containing this interpretive rule and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this interpretive rule as a ``major 
rule'' as defined by 5 U.S.C. 804(2).
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    \96\ 5 U.S.C. 801 et seq.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-22962 Filed 10-3-24; 8:45 am]
BILLING CODE 4810-AM-P


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