Nevada SB248, which regulates the collection of certain medical debt in the state, becomes effective July 1. The bill, introduced in March 2021, was rushed through the Legislature before it went out of session on June 1. The result is that SB248 is a broken piece of legislation bound to cause harm to medical consumers, the medical collections industry, and health care providers.
WHO IS COVERED?
The new law, which amends Chapter 649 of Nevada law governing collection agencies, applies only to “collection agencies,” which in Nevada must be licensed by the state’s Financial Institutions Division. Health care providers themselves are not covered, nor are attorneys and debt buyers who have not been licensed by Nevada as “collection agencies.”
WHAT DEBT IS COVERED?
SB248 applies to “medical debt” which it defines as “any debt owed for goods or services provided by a medical facility, a provider of health care or a provider of emergency medical services.” A “medical facility” means those entities defined by NRS 449.0151. A “provider of health care” means the entities identified in NRS 629.031. And an emergency medical service provider means an ambulance or air ambulance service or “fire-fighting agency which provides transportation for persons in need of emergency services and care to hospitals.” These definitions capture a broad number of health care providers including a doctor, dentist, hospital, “athletic trainer, perfusionist, doctor of Oriental medicine in any form,” among others.
As originally introduced, the definition of “medical debt” would have encompassed credit card, home equity loans and other third-party financing if used, at any time, to pay for “medical debt.” Just days before passage an amendment was adopted that excluded “an open-end or closed-end extension of credit made by a financial institution to a borrower that may be used by the borrower, at his or her own discretion, for any purpose other than the purchase of” medical debt. Third-party financing provided solely for the purchase of medical debt is covered by SB248.
PRE-COLLECTION, WRITTEN NOTICE
SB248 requires a collection agency to “send” a written notice to the consumer by certified or registered mail before it can collect a medical debt. The notice must include (1) the name of the entity that provided the goods or services that constitute the medical debt; (2) the date the goods or services were provided; (3) the principal amount of the medical debt; (4) the name of the collection agency; and (2) that the debt has either been assigned to the collection agency for collection or has otherwise obtained it for collection.
There is no requirement that the notice must be received by the medical debtor – SB248 only mandates it being sent by registered or certified mail.
CONFLICT BETWEEN THE SB248 PRE-COLLECTION NOTICE AND THE FDCPA
The plain language of SB248 prohibits a collection agency from “taking any action to collect a medical debt” prior to the expiration of 60 days following the sending of its pre-collection written notice. At the same time, section 1692g of the federal Fair Debt Collection Practices Act requires a debt collector to provide debtors with particular information either in the “initial communication” with the debtor or within five days of the “initial communication” if that initial communication was made “in connection with the collection of any debt.” And among the disclosures required by the FDCPA is “that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.”
Some could construe the new pre-collection notice as triggering the FDCPA’s disclosure requirement, which itself would appear contrary to SB248’s prohibition against collection activity during the 60-day period. Following inquiries to the Nevada Financial Institutions Division (NFID) (the state agency charged with regulating collection agencies), it stated:
The FDCPA language and SB248 language may be combined in the 60-day notification letter. Suggested language for the letter, in addition to the requirements in SB248 and FDCPA:
This is a notification that ABC Collection Company will not make any actions to collect this debt within 60 days from the date of this letter. Any payments made toward the debt during this timeframe are considered voluntary and will not void the 60-day notification period described above. We will take no other action to collect this debt until 60 days from the date of this letter.
All letters need to be approved by NFID.
CONFLICT BETWEEN SB248’s 60-DAY NOTICE PERIOD AND FDCPA VALIDATION
While NFID’S response may resolve the issue for form notices, it does not address what a debt collector can do if a consumer requests, within the 60-day pre-collection period, validation under § 1692g(b) in response to a combined SB248/1692g notice. While the collection agency could sit on the request until the expiration of the 60-day period, it is not a consumer-positive action to do so, particularly when consumer engagement could correct deficiencies in the collection process or assist the consumer in resolving debt. NFID must issue public guidelines covering not only greenlighting combined notices but also permitting collection agencies to respond to requests for validation made by consumers in the 60-day period and engage with consumers concerning those communications.
VOLUNTARY PAYMENTS WITHIN 60-DAY NOTIFICATION PERIOD
Voluntary payments are permitted by section 7.5 during the 60-day period if:
- The medical debtor initiates the contact; and
- “The collection agency discloses to the medical debtor”
- “A payment is not demanded or due; and
- The medical debt will not be reported to any credit reporting agency during the 60-day notification period.”
Voluntary Payments by Persons Other Than the Medical Debtor
It is not clear whether the disclosures must be made if a person other than the medical debtor, for example the medical debtor’s spouse, parent or child, initiates contact with the collection agency. After all, the disclosures are required to be given to the “medical debtor” who is defined as the person owing the medical debt.
Voluntary Payments Made by Web Portals, Mail or Other Means Where There is No Contact at the Time of Payment
The disclosures do not have to be made at the time the payment is made under the text of SB248; however, regardless of how the medical debtor makes the voluntary payment, NFID has unofficially stated:
Pursuant to Section 8.5, the protections set forth in sections 7, 7.5 and 8 of SB248 are for the benefit of medical debtors and cannot be waived. The disclosure must be made to the debtor.
Negotiations in Connection With Voluntary Payments
The legislation provides no guidance on negotiations for payment surrounding voluntary payments. Imagine a consumer in the midst of a mortgage refinance who needs to clear old debts as a condition to closing in 10 days. One of the debts is a $10,000 medical debt identified in a 60-day notification letter she just received from a Nevada collection agency. The consumer calls the collection agency and offers to pay $5,000 in full settlement. The collection agency contacts its client health care provider who instructs it would accept $6,000 in full payment. Section 7 can be read to prohibit the negotiation because “[n]o action by a medical debtor to initiate contact with a collection agency may be construed to allow the collection agency to take action to collect the medical debt before the expiration of the 60-day notification period . . .”
NFID should provide guidance permitting payment negotiations when initiated by the debtor during the 60-day period.
FORBIDS CREDIT FURNISHING WITHIN 60-DAY PERIOD, CREATES CONSUMER CONFUSION
The legislation does not address credit furnishing by collection agencies other than the referenced disclosure to be made in connection with voluntary payments. Still, the legislation can be interpreted to prohibit credit furnishing by a collection agency concerning medical debt within the 60-day notification period. Others, such as health care providers, can continue to furnish.
Confusion Arises When the Health Care Provider Furnishes to Credit Reporting Agencies
This leaves open the common scenario where a health care provider is furnishing information to a credit reporting agency and then assigns the account to a collection agency. Under this scenario, the disclosure: “[t]he medical debt will not be reported to any credit reporting agency during the 60-day notification period” is not correct as the health care provider may be furnishing during the 60-day period. NFID should issue guidance allowing the disclosure to indicate that the collection agency will not furnish during the 60-day period.
Confusion Can Occur if the Collection Agency Never Furnishes Information
Another scenario is where the collection agency never furnishes information. The disclosure could lead some consumers to believe that credit furnishing can occur after the 60-day period expires. NFID has unofficially stated:
Suggested language: Pursuant to NRS 649, medical debt cannot be reported until 60 days from the date of the letter. However, ABC Collection agency does not report to credit reporting agencies.
PROHIBITS THE COLLECTION AGENCY FROM BRINGING A “CIVIL ACTION” ON MEDICAL DEBT WITHIN SMALL CLAIMS COURT JURISDICTIONAL LIMITS
The prohibition contained in section 8 applies only to collection agencies and prohibits their filing of a “civil action” to collect a medical debt if the debt, exclusive of “interest, late fees, collection costs, attorney’s fees and any other fees or costs, is less than the maximum jurisdictional amount set forth in subsection 1 of NRS 73.010.” The maximum jurisdictional limit under that provision is currently $10,000. Health care providers can continue to file such claims.
The reference to “civil action” is open to interpretation. Under Rule 3 of the Nevada Rules of Civil Procedure “[a] civil action is commenced by filing a complaint with the court.” One might believe that it was the Legislature’s intent to not include private arbitrations.
Although it appears that the plain text of section 8 applies only to collection agencies (“a collection agency shall not . . .”), and that attorneys collecting debt are not collection agencies under Nevada law, opposition to SB248 filed by the Creditor’s Rights Attorney Association of Nevada (CRAAN) suggests that the provisions of SB248 covers their activities as well. CRAAN states:
Section 8 of the bill would likely deny recovery of the bill to all medical providers in Nevada to Courts in cases with amounts less than $10,000.00. We take the position that this is a direct infringement of the first amendment right to petition the court for redress of grievances as well as a constitutional takings problem. We do not think it would survive direct challenge.
CAPS FEES IMPOSED BY OR COLLECTED BY COLLECTION AGENCIES
Section 8 also makes it unlawful for a collection agency when collecting medical debt to “charge or collect a fee of more than 5 percent of the amount of the medical debt, excluding interest, late fees, collection costs, attorney’s fees and any other fees or costs, as a collection fee or as an attorney’s fee.”
The prohibition applies again only to collection agencies and regulates what they can “charge or collect” from a medical debtor. A collection agency can continue to charge its client whatever fee agreed to. However, if that agreed fee is more than 5 percent of the medical debt, exclusive of “interest, late fees, collection costs, attorney’s fees and any other fees or costs,” it cannot collect the sum which exceeds that amount from the medical debtor. To be sure, even if the health care provider imposes the fee (which it can), the collection agency cannot “collect” it.
But because section 8 only applies to collection agencies, a health care provider that imposes a fee that is greater than the five percent cap would be able to collect it itself or have an attorney collect it. But again, CRAAN’s opposition letter suggests that its member attorneys believe they too can be restricted from recovering fees more than the five percent cap:
We also oppose the proposals to regulate attorney fees caps . . . As it exists currently, an attorney must apply to a court for an award of attorney’s fees, and these must be objectively reasonable based on the time, issues, and the complexity of work.
Notably, no opposition was received from the Nevada Bar Association to SB248.
CREATES ABSURD OUTCOMES IN CALCULATING LIMITATIONS PERIODS
SB248 provides that when a section 7.5 voluntary payment “is made by a medical debtor to a collection agency” during the 60-day period, it does not extend the statute of limitations applicable to the debt. There are several oddities that arise from this provision.
First, although the payment does not extend the limitations period, it is silent as to whether the payment revives an expired limitations period. Other law would arguably still control.
Second, the effect on the limitations period applies only when a payment is made during the 60-day period “to a collection agency.” Collection agencies may direct consumers seeking to make such payments to make the payments directly to the health care provider.
Third, for compliance with the soon-to-be-effective Regulation F disclosures concerning time-barred debt or for the purpose of filing a lawsuit, any debt collector subject to the federal FDCPA must be sure to exclude payments subject to section 7.5 from any limitations calculation.
Fourth, it harms consumers with medical debts that are nearing the expiration of the applicable limitations period. A health care provider will likely sue to collect the medical debt if the limitations period will expire during or soon after the expiration of the 60-day period.
GUIDANCE ON SB248
For those seeking clarification from NFID, on June 11, the Nevada Financial Institutions Division emailed its licensed collection agencies stating, “SB248 is for medical debt collections only and may not apply to your agency. Should you have any questions, please email [email protected] with a subject line of SB248.”