CFPB Releases Report and Issues Circular on Nursing Home Debt Collection

If you’re collecting debt for nursing home care, you might want to double check who is responsible for payment.  Last week, in conjunction with a field hearing, the CFPB issued a new Consumer Financial Protection Circular and an Issue Spotlight on Fair Debt Collection Practices Act (FDCPA) and Fair Credit Reporting Act (FCRA) violations in connection with nursing home debt.  The CFPB also released a letter sent jointly with the Centers for Medicare & Medicaid Services (CMS) on third-party guarantees of nursing home debt.

Issue Spotlight

Motivated by concern about the increasing cost of nursing home care and the financial challenges faced by consumers in paying for such care, the report discusses efforts by nursing facilities to obtain payment from non-residents.  The Nursing Home Reform Act (NHRA) prohibits a nursing facility that participates in Medicaid or Medicare from requesting or requiring a third-party guarantee of payment as a condition of admission, expedited admission, or continued stay in the facility.  Provided a resident’s representative does not incur personal liability, the NHRA does permit a nursing facility to require a representative with legal access to a resident’s available income or resources to sign a contract to provide payment to the facility from the resident’s income or resources.  

The report finds that some nursing facilities include terms in their admission contracts that try to hold a third party financially liable for the resident’s nursing home costs and discusses different forms that such terms may take.  The report states that many third parties are unaware that there are legal restrictions on nursing home admission contracts and may also lack the resources to properly respond to a lawsuit seeking to collect a resident’s costs based on such contract terms.  As a result, courts may enter default judgments, thereby enabling debt collection firms to use wage garnishment or foreclosure to collect residents’ costs from third parties.  The report also states that nursing homes and debt collectors may also report a resident’s debts to credit reporting companies as a third party’s personal debt as a way of creating pressure on the third party to pay such debts.

The report also discusses claims made in debt collection lawsuits that a third party engaged in financial wrongdoing, such having intentionally misused, hidden, or stolen the resident’s funds.  As an example, the report references boilerplate language used in many New York lawsuits alleging that a third party had engaged in fraudulent conveyances.

Circular

The circular discusses the risk of FDCPA and FCRA violations based on debt collection and consumer reporting practices relating to debts that are invalid under the NHRA or state law analogues to the NHRA that contain similar prohibitions.  

The CFPB acknowledges that it does not enforce compliance with the NHRA and is generally not responsible for overseeing the activities of nursing facilities.  However, it warns that a debt collector, including a law firm in litigation, that represents that a third party must personally pay a nursing facility resident’s debt may violate the FDCPA prohibition on misrepresentations where the debt is based on a contract provision that is unenforceable under the NHRA or a state law analogue.  The CFPB also warns that a debt collector can violate the FDCPA prohibition on misrepresentations by making baseless allegations in a lawsuit that a third party engaged in financial wrongdoing.

With regard to FCRA liability, the CFPB warns that because it is inaccurate to report that a consumer owes a debt that is based on an illegal contract provision, a debt collector who furnishes information about nursing home debts or a consumer reporting agency (CRA) that includes such information in a consumer report can violate FCRA accuracy requirements if the debts are invalid under the NHRA or a state law analogue.  (The question of whether a CRA can be held liable for violating the FCRA’s accuracy requirements when the accuracy of a debt reported by the CRA requires a legal determination as to the debt’s validity is raised in a case currently pending before the Second Circuit.)  A furnisher or consumer reporting agency can also violate the FCRA by failing to meet its dispute obligations with respect to information related to nursing home debts. 

Joint Letter  

CMS, together with the Department of Health and Human Services, has issued rules implementing the NHRA and, along with DHHS, is responsible for enforcement of the NHRA.  Their joint letter discusses the potential  FDCPA and FCRA violations described in the Circular and sets forth the expectations of the CFPB and CMS for nursing facilities and their debt collectors to comply with the NHRA, FDCPA and FCRA.

None of the three new items on nursing home debt collection mention the Affordable Care Act (ACA), which the CFPB discussed in a blog post about the connection between eligibility for financial assistance under policies mandated by the ACA and medical collections.  The ACA requires nonprofit hospitals to establish financial assistance policies for consumers who are unable to pay for their medical expenses.  It also prohibits nonprofit hospitals from reporting medical debts as collections to credit reporting companies, or from selling the debt to another party, without first trying to determine whether the patient would be eligible for their financial assistance policies.  In the blog post, the CFPB suggested that nonprofit hospitals may not be providing low income consumers with the financial assistance for which they are eligible and may be reporting medical debts in violation of the ACA.  (Based on the CFPB’s position with regard to the NAHA, it seems likely that the CFPB would similarly assert that attempts to collect medical debts incurred due to hospital’s failure to provide financial assistance required by the ACA can violate the FDCPA and that the reporting of medical debts where prohibited by the ACA can violate the FCRA.)