Banking and Finance Law Daily Debt collectors’ FDCPA obligations did not include responsibility to comply with medical billing regulations
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Thursday, April 15, 2021

Debt collectors’ FDCPA obligations did not include responsibility to comply with medical billing regulations

By Nicole D. Prysby, J.D.

Letters sent in an attempt to collect medical debt were not misleading and were not required to comply with Treasury Department regulations mandating the inclusion of financial assistance policies in hospital organization billing statements.

Letters sent by debt collectors regarding medical debt were not misleading and were outside the scope of Treasury Department regulations requiring hospital organizations to include financial assistance policies in billing statements, held the federal Eighth Circuit Court of Appeals. The consumer claimed that debt collectors violated the Fair Debt Collection Practices Act (FDCPA) because the letters stated that her medical debt had been turned over to one of the debt collectors, when it was turned over to the other debt collector. Because the second debt collector was a valid assignee of the debt collection contract, the letter was not misleading. Nor did the debt collectors violate FDCPA section 1692e(5) and section 1692f(1) by attempting to collect the debt without notifying the consumer of the medical center’s financial assistance policy. Treasury Department regulations required the medical center to include its financial assistance policy in its billing statements, but debt collection letters sent by third party debt collectors are not billing statements issued by a "hospital organization"—the explicit subject of the relevant Treasury Department regulations. The medical center assigned its ability to collect debt, not its medical billing function. The FDCPA mandates that debt collectors comply with its terms in collecting debt, but that law does not impute a medical center’s responsibility to comply with Treasury Department medical billing regulations to debt collectors working on its behalf (Klein v. The Affiliated Group, Inc., April 14, 2021, Kobes, A.).

The consumer received debt collection letters from The Affiliated Group, Inc. (TAG) and Credit Management, LP (CMLP) about her medical debt owed to North Memorial Health Care. TAG’s letter to the consumer stated that "the below listed account(s) has been turned over to us by our client, who has given you an opportunity to satisfy this obligation." TAG’s letter did not mention anything about North Memorial’s financial assistance policy. When TAG sent its letter in November 2017, both TAG and CMLP were wholly-owned but separate subsidiaries of The CMI Group. After the two companies consolidated accounts under the CMLP label, CMLP restarted debt collection under its own name, and sent a substantially similar letter to the consumer in March 2018. North Memorial had an agreement with the Minnesota Attorney General requiring it to enter into written contracts with any third-party debt collection agency. The agreement required North Memorial to include contract language which would oblige debt collectors to comply with federal law and require North Memorial to confirm that the patient was given a reasonable opportunity to apply for need-based relief.

FDCPA complaint. The consumer sued TAG and CMLP, arguing that they violated the FDCPA by failing to have a written contract as required by the agreement with the Minnesota Attorney General, making false statements in the March 2018 letter, and failing to include information about North Memorial’s financial assistance policy in either the March 2018 letter or the earlier November 2017 letter. The district court granted summary judgment in favor of TAG and CMLP, and the consumer appealed that decision.

All claims failed. The consumer argued that the merger between TAG and CMLP was disputed; therefore, there was no contract between CMLP and North Memorial. The defendants claimed that the assets, employees, and contracts of TAG were assigned and transferred to CMLP as of January 2018. Under Minnesota law, the assignment of a contract is enough to put the assignee into privity with an original party to that contract. So, the record established that there was a written agreement between North Memorial and CMLP due to TAG’s assignment.

The consumer also claimed that CMLP violated the FDCPA by including false, deceptive, or misleading information when it sent the March 2018 letter, because the letter said North Memorial "turned over" her account to CMLP when her account was either never turned over or at most assigned to CMLP by TAG. The court rejected this argument because CMLP was the valid assignee of the contract between North Memorial and TAG. So CMLP could legally take action to collect that debt on behalf of North Memorial, and CMLP did not violate FDCPA section 1692e’s prohibition against misleading representations by saying as much.

Finally, the consumer argued that TAG and CMLP violated section 1692e(5) and section 1692f(1) of the FDCPA by attempting to collect her debt without notifying her of North Memorial’s financial assistance policy. Because Treasury Department regulations required North Memorial to include its financial assistance policy in its billing statements, the consumer asserted that TAG and CMLP were required to include it in their collection letters, too. The Eighth Circuit rejected that argument. Debt collection letters sent by third party debt collectors are not billing statements issued by a "hospital organization"—the explicit subject of the relevant Treasury Department regulations. North Memorial assigned only its ability to collect debt to TAG and CMLP, not its medical billing function. The FDCPA mandates that TAG and CMLP comply with its terms in collecting debt, but that law does not impute North Memorial’s responsibility to comply with Treasury Department medical billing regulations to debt collectors working on its behalf.

The case is No. 19-3562.

Attorneys: Darren Brayer Schwiebert (DBS Law, LLC) for Dina Klein. Patrick Michael Biren (Brownson PLLC), Michael S. Kreidler (Stich, Angell, Kreidler & Unke, PA) and Eugene Xerxes Martin, IV (Malone Frost Martin PLLC) for The Affiliated Group, Inc. and Credit Management, LP

Companies: The Affiliated Group, Inc.; Credit Management, LP

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