The Consumer Financial Protection Bureau has ordered a medical debt collector to pay more than $5.4 million to consumers affected by its debt collection practices and a $500,000 penalty. The CFPB imposed this substantial penalty because the medical debt collector (1) failed to respond timely to consumer credit disputes and (2) failed to send debt-validation notices to more than 10,000 consumers.

A copy of the CFPB press release discussing the enforcement action is available here.

Finds Both FCRA, FDCPA Violations

Regarding the details of the alleged violations, the CFPB stated that the medical debt collector failed to respond to more than 13,000 credit-report disputes within the 30-day window. In fact, on average, the company took more than 90 days to respond to the disputes. In the most severe violations, the medical debt collector took more than one year.

The root of this problem was the medical debt collector had no policy or procedure in place for investigating consumer credit-report disputes. It treated the disputes like a standard consumer complaint and did not even have an internal deadline for responding to them. We have previously reported on the CFPB’s concerns over the failure of debt collectors to comply with the Fair Credit Reporting Act’s Furnisher Rule.

Additionally, the medical debt collector failed to send required Fair Debt Collection Practices Act mandated debt-validation notices to more than 10,000 consumers. Yet, it still collected more than $2 million from some of these consumers during this time period.

Medical Debt Collection a CFPB Priority

The CFPB found that these violations prevented consumers from exercising their right to contest debts and investigating the validity of the debt sought to be enforced. Moreover, the CFPB found that these violations were particularly problematic given that they were in the medical field, for two reasons.

First, medical bills often involve insurance payments, so consumers needed the required information to determine if the insurance payments had been applied properly. Second, medical debt accounts for a significant portion of consumer debt. Specifically, more than 43 million Americans have medical debt. And, the CFPB believes that medical debt “can overly penalize consumer credit scores.”

Large Penalty, Plus Restitution

For these violations, the CFPB ordered the medical debt collector to take a number of actions.

  • The medical debt collector needed to make the $5.4 million payment mentioned above. The details of that payment highlight the dangers of not following statutory requirements regarding debt collection.
  • Some consumers did not receive a debt-validation notice but still made payments to the medical debt collector. The medical debt collector has to refund their payments and forgive the remaining account balances.
  • Other consumers did not receive a debt-validation notice and did not make any payments. The medical debt collector has to pay each of them $100.
  • Along those lines, the medical debt collector will also have to pay between $100 and $1,000 to every consumer who did not receive a timely response to his or her credit-report dispute.
  • Beyond these payments to consumers directly, the medical debt collector also has to pay a $500,000 fine.
  • But the CFPB did not just make the medical debt collector pay money to consumers. It also required the collector to correct errors in credit reports, end its “illegal practices,” and establish policies to prevent future violations.