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Student, Medical Debt Vex Collections Firms Under Consumer Rules

Oct. 18, 2021, 10:01 AM

Debt collection firms are running into outdated billing procedures, particularly in student loans and medical debt, as they look to revamp their consumer communication practices as required by new federal rules.

Starting Nov. 30, the Consumer Financial Protection Bureau’s rules, the first federal regulations for the industry, require debt collectors to provide consumers with a clear description of the amount of money they allegedly owe and whom they owe, among a host of other changes.

Collections agencies rely on their clients—credit card companies, banks, student lenders, utilities, hospitals, medical providers, debt buyers and others—to provide the information that goes into enhanced disclosures, including debt validation notices.

But billing procedures in certain sectors, such as student loan servicers, hospitals and doctors’ offices, are often dated and not compatible with the requirements outlined in the CFPB’s new rules. The issue could trip up the industry’s implementation of the rules that are meant to empower consumers in dealing with debt collectors.

Debt collectors “can’t be in compliance if they’re not getting the information they need from their clients,” said Jan Stieger, the executive director of the Receivables Management Association International, an industry group. “If they don’t have that on Nov. 30, debt collection for those clients will come to a screeching halt.”

Validating Debts

The centerpiece of the enhanced disclosures is the validation notice, which is the initial contact a collector has with an alleged debtor. The CFPB will require collectors to provide a so-called “itemization date” so consumers can have a picture of how much they owe and when the charge was made.

The CFPB provided five different options for setting an itemization date, including the last statement sent to a consumer or the charge-off date when a business determines that the past-due bill should be sent to a collection agency.

The CFPB provided a model validation notice that, if followed exactly, shields the collections agency from both enforcement actions and consumers’ private lawsuits that would allege improper disclosures or attempts to collect illegitimate debts.

The model validation form requires a wholesale change to the way medical offices do their billing, said Joann Needleman, the head of Clark Hill PLC’s consumer financial services practice.

“There’s just a lot of heartburn around medical, because unfortunately the form doesn’t address the nuances” of how medical charges are done, she said.

Doctors’ visits and hospital stays are typically billed by the procedure, meaning that a consumer can get multiple bills on multiple accounts for the same visit, said Stefanie Jackman, a partner at Ballard Spahr LLP.

There are also delays for insurance payments and other factors that can complicate medical billing and make it difficult to conform with the CFPB’s model validation, she said.

The CFPB model validation notice also doesn’t include a place where the collector can include the person financially responsible for a procedure conducted on a minor, or for a deceased person, said Missy Meggison, general counsel and executive director of the Consumer Relations Consortium, an industry group representing both collections agencies and creditors.

Student loans can be similarly complicated for reporting debts to collectors because many borrowers take out more than one loan. Student loans have their own issues with third parties, such as loan guarantors—often parents or relatives—who are responsible for payments if the borrower defaults.

“Student loan, medical debt, some of these concepts don’t fit well,” Jackman said.

Better Fit

The CFPB rule and the model validation form will likely be easier for banks and other creditors seeking to collect on traditional loans and other consumer debt, Stieger said.

“Certainly, credit card debt and loans fit into the wording of the rule more clearly,” she said.

Other businesses, particularly doctors’ offices, hospitals and other medical providers and student loan servicers, are simply resisting making changes, said Richard Perr, the chair of Kaufman Dolowich Voluck LLP’s Consumer Financial Services Practice Group.

“You get some blowback from people who have been doing something for 50 years and are now being told to do it differently,” he said.

Debt collectors are hoping that the CFPB will provide a grace period as they and their clients get used to the new rules.

Private litigants are less likely to provide that sort of respite if debt aren’t properly validated under the rules, industry lawyers say.

Given that, collections agencies will have two options when the rules take effect, if they don’t have the proper documentation.

“Either go ahead and send collection letters without using the model form, and take the risk—or stop collecting for those creditors,” Meggison said.

Ready to Roll

Debt validation notices are just one part of the first set of regulations interpreting the 1977 Fair Debt Collection Practices Act, enacted long before emails, texts, and mobile phones. The rules prohibit collectors from calling a consumer more than seven times within a consecutive seven-day period. But those limits don’t apply to texts and emails unless the consumer specifically opts out of those communications.

The contact limits will also require some negotiations between debt collection agencies and their clients, Stieger said.

“They need to understand the call cap. They can’t put in their contracts that we want you calling two times a day,” she said.

The new rules also bar collectors from suing or threatening to sue over debts too old to collect.

The CFPB in April proposed delaying the Nov. 30 effective date because of the Covid-19 pandemic, but the industry largely said that wasn’t necessary. The bureau withdrew that proposed delay in July.

“This has been in the making for nine or ten years now, and it’s time to go on it,” Stieger said.

To contact the reporter on this story: Evan Weinberger in New York at

To contact the editors responsible for this story: Michael Ferullo at; Roger Yu at