ACA Member Defeats FDCPA Claim Involving Medical Debt Credit Reporting in Case Supported by ACA's Industry Advancement Program

The Seventh Circuit threw out the lower court’s decision in the Rhone case, ruling that the FDCPA does not require multiple debts owed to the same creditor to be aggregated when reported to a consumer reporting agency.

2/8/2019 8:00 AM

ACA Member Defeats FDCPA Claim Involving Medical Debt Credit Reporting in Case Supported by ACA's Industry Advancement Program

The Seventh Circuit Court of Appeals handed the accounts receivable management industry a significant win Feb. 7 when it ruled unanimously that ACA International member Medical Business Bureau, LLC did not misrepresent the “character” of the consumer’s debt when it reported to consumer reporting agencies that a consumer owed a single medical provider nine unpaid bills of $60 each rather than a single aggregate debt of $540. Holding that the statutory reference to the “amount” of a debt is the attribute of a debt that governs reporting a debt’s size, the appellate court concluded that Medical Business Bureau was not liable under the Fair Debt Collection Practices Act for how it treated the consumer’s indebtedness for credit-reporting purposes because the credit report was factually correct.

ACA supported its member’s initiative to obtain this important, precedent-setting FDCPA decision positively impacting ACA’s members and the accounts receivable management industry by providing Industry Advancement Funds to help defray the cost of litigation. ACA also filed an amicus (friend of the court) brief with the Seventh Circuit April 27, 2018, urging it to reverse the district court’s erroneous decision. 

In the case Rhone v. Medical Business Bureau, LLC, No. 17-3408, 2019 WL ------- (7th Cir. Feb. 7, 2019), the consumer asserted FDCPA class claims against the collection agency related to medical debt credit reporting. The consumer alleged she received medical services from a medical provider between October 2012 and December 2013. She visited the medical provider no less than nine times during this period. Insurance covered some but not all of the charges therefore leaving an outstanding balance. According to the consumer, these charges resulted in a “single debt, owed to a single medical provider, under a single account number.” The FDCPA violation allegedly occurred when the collection agency reported the consumer’s debt as nine separate accounts. The consumer alleged that by breaking down the single debt into nine separate debts it caused a drop in their credit score. [The consumer never produced any evidence as to her credit score before or after the collection agency reported her debts.]  The consumer alleged that this inaccurate duplicative credit reporting constituted false, deceptive, or misleading representation in violation of the FDCPA.  

On Oct. 25, 2017, the district court granted the consumer’s motion for summary judgement. In doing so, the district court held that the collection agency violated § 1692e of the FDCPA, causing harm to the consumer’s credit, when it improperly characterized nine separate charges relating to the same treatment course for an injury as nine separate debts and simultaneously reported the same to the consumer reporting agencies as nine separate debts instead of reporting one debt for the “apparent” single (aggregate) debt. The district court reasoned that although the medical provider presented the collection agency with nine separate debts, it was incumbent on the collection agency to look past the number of invoices and take reasonable steps to comply with the FDCPA. The district court explained that based on the facts in the case, it should have been obvious that there was one debt that should have been reported as one debt because:

It is undisputed that MBB notified Rhone of the amount owed for the nine therapy sessions in a single letter long before MBB reported to Equifax. If Rhone truly owed nine debts, it would not have been improper [for] MBB to send a letter for each debt. In fact combining information concerning nine separate and distinct debts in one collection letter could result in consumer confusion and run afoul of the FDCPA. Yet, MBB’s representative indicated at his deposition that he did not send nine letters because MBB would be sued “for harassment for doing something like that.” MBB would not have violated the FDCPA by consolidating the therapy session charges into one debt. Rhone correctly points out that MBB would not have filed nine separate legal actions to collect the Debt. MBB would have filed a single action for a single debt.

On appeal, the Seventh Circuit reversed the district court’s decision that the collection agency was required to “report the aggregate debt of $540 rather than nine $60 debts." In doing so, the appellate court held that “arithmetic does not affect a debt’s ‘character.’ The statutory word ‘amount’ rather than the word ‘character’ is what governs reporting the debt’s size." The appellate court explained that while the statutory word “character” references “the kind of obligation” such as “a secured auto loan, . . . an unsecured credit-card debt . . . a judgment debt, . . . [or] a subordinated debenture,” the “character” of a debt does not concern “the number of transactions” between a consumer and a creditor. Therefore, the appellate court reasoned that the collection agency did not misstate the “character” of the consumer’s debt when it accurately reported the “amount” of the consumer’s debt as $60 for each of nine medical treatments.  

Notably, the Seventh Circuit adopted the argument ACA advanced in its amicus brief that if the district court’s “decision were correct, then it could have adverse consequences for [the consumer] – for example, if she made a partial but not a full payment toward her outstanding indebtedness. If the entire indebtedness were a single account, then her partial payment would toll the statute of limitations as to the entire indebtedness. But if the indebtedness were nine separate accounts, then a partial payment might pay off some of them, while leaving the benefit of the statute of limitations intact with respect to the others.” Writing for the Seventh Circuit panel, Justice Frank H. Easterbrook described that “[p]er-transaction reporting also shows whether some of the debts are stale (that is, whether the statute of limitations bars collection) Consumers and credit bureaus alike may find that information valuable.” 

ACA is pleased it was able to help stop the consumer’s effort to create unfavorable precedent for the accounts receivable management industry by aiding its member agency as it fought an uphill battle against yet another aggressive consumer attorney. And as a result of the effort, the Seventh Circuit’s decision in Rhone created exactly what the appellate court said it needed – “a rule of law” for “a court (or for that matter a debt collector)" . . . to apply. As such, ACA appreciates the Seventh Circuit’s thoughtful review of the arguments, and its ruling in favor of sound legal principles that support legitimate, law-abiding collection agencies, providing them with compliance clarity on this issue. Finally, ACA is likewise delighted that the Rhone decision raises the industry-favorable decisions (wins) ACA has helped to achieve for its members through the Industry Advancement Program to 46 in five years.

ACA International’s efforts to proactively support the credit and collection industry are part of the association’s Industry Advancement Program and are made possible by funding through ACA’s Industry Advancement Fund. 

If you missed any of the articles previously published in ACA Daily that provided more detailed information about Industry Advancement Program supported cases, like the Rhone case, you can always see the archived articles on the Industry Advancement Program website. Watch for updates when decisions are issued in these cases and learn more about new cases supported by the Industry Advancement Program in the future by reading ACA Daily and logging onto the Industry Advancement Program website throughout the year.

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