End of Year Regulatory Update

CFPB Medical Debt Advisory Opinion

The Consumer Financial Protection Bureau (CFPB) recently issued an advisory opinion on medical debt collection, which it also described as an “interpretive rule.” The effective date of that advisory opinion/interpretive rule was January 2, 2025. According to the CFPB, the advisory opinion/interpretive was intended to serve as a reminder to debt collectors of their responsibilities under the Fair Debt Collection Practices Act (FDCPA) and Regulation F. The CFPB expressed particular concern that some debt collectors may be:

1. Attempting to collect invalid debts,
2. Misrepresenting legal obligations, and
3. Failing to verify the legitimacy of medical debts before collection.

The CFPB emphasized that debt collectors are accountable for errors made by their creditor-clients, even if the errors are unintentional. If a debt is mistakenly sent to collections—for instance, due to unreported payments or adjustments—the collector may violate the FDCPA by trying to collect it. Noting the complexities of medical billing, the CFPB suggests that medical debt collectors should take extra steps to ensure the debts are valid before pursuing collection. This may include substantiating debts before starting the collection process, as well as auditing the healthcare providers’ accounts to ensure compliance with any legal requirements (i.e. charity care/financial assistance, the No Surprises Act, and state workers’ compensation laws).

Notably, there have been two lawsuits filed by the medical debt collection industry challenging the validity of the advisory opinion/interpretive rule. Also, President Trump recently fired the Director of the CFPB, and appointed a new Acting Director. While the fate of the advisory opinion/interpretive rule is uncertain, many in the debt collection industry expect that some of the states will step in and pick up any perceived slack that results from a change in leadership at the CFPB.

CFPB Medical Debt Credit Reporting Rule

The CFPB has indicated throughout the past few years that it does not believe medical debt should be eligible to appear on consumers’ credit reports. As a step in that direction, the CFPB published a final rule on January 7, 2025, which would have the practical effect of banning medical debts from appearing on credit reports. The rule is currently scheduled to become effective March 17, 2025, but two lawsuits have been filed seeking to prevent the rule from going into effect.

State Changes (NYC, OR Exemption Increases, CA Medical Debt Credit Reporting)

New York City Debt Collection Rules

New York City recently adopted amendments to their rules relating to debt collection. Those rules were scheduled to take effect on April 1, 2025, but the City has recently announced that it will be delaying the effective date until at least October 1, 2025. Also, the City has announced that it is going to re-release the rules for a second round of public comments, with the hope of addressing some of the concerns expressed by the industry. The expected changes include new disclosure requirements, limits on frequency of communications with consumers, new rules related to handling disputes and providing verification of debt, and new requirements related to the collection of medical debts.

For instance, the amendments are expected to introduce a requirement that debt collectors provide verification of a debt within 45 days of receiving a consumer’s dispute. If verification cannot be obtained from the creditor and provided to the consumer during that time period, the debt collector would be required to send the consumer an “Unverified Debt Notice.” That notice would advise the consumer that the debt collector was unable to provide timely verification of the debt, and, as a result, the debt collector would not be able to continue to collect the debt in the future.

With respect to medical debt, there would be new requirements that would apply where the debt collector has any reason to believe that the debt should have been eligible for financial assistance. In those instances, the debt collector would be required to take immediate corrective measures, including notifying the creditor within one business day that the account may be subject to the covered entity’s financial assistance policy. The debt collector would also be required to send written notification to the consumer that a financial assistance policy may apply to the medical debt. New York City would also make it a prohibited practice to include a medical debt in a consumer’s credit report.

Oregon Exemption Increases

Effective January 1, 2025, there were changes to certain exemptions under Oregon law. Those changes increase the minimum wage exemption that is applicable to wage garnishments, with steady increases scheduled over the next few years until the state will adopt a formula of 30 times the state minimum wage. There was also a change to introduce a minimum protected account balance that will apply to any bank garnishments. Going forward, a consumer must have full and customary access to at least $2,500 in their accounts with a particular financial institution. That means that a judgment creditor planning to issue a garnishment to a judgment debtor’s financial institution will only be entitled to receive nonexempt funds in excess of that $2,500 amount. Lastly, the homestead exemption increased from $40,000 (or $50,000 for married persons) to $150,000 (or $300,000 for married persons).

Medical Debt Credit Reporting in California

Effective January 1, 2025, California joined a growing list of states to prohibit the inclusion of medical debt on consumers’ credit reports. With some uncertainty surrounding potential legal challenges to the CFPB’s medical debt credit reporting rule, we expect to see other states pass similar bans during their 2025 legislative sessions.

Disclaimer:

The information provided above is intended for informational purposes only and should not be construed as legal advice. The information is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.