Can a debt collector legally demand payment and threaten a credit score effect without validation of the debt until requested?

Question

I live in the state of Maryland. Several years ago I went to the ER to have an injury treated. I presented my insurance at the time of the injury. About a month ago (several years after the ER visit) I was contacted by Phoenix Financial Services, a debt collection agency saying I owed a significant amount of money for the physician portion of the services (the hospital was paid separately).

Recently, I found out from my insurance that the physician's billing services never billed them. My insurer notified me that per the insurer's contract with this physician group, the physician group may not bill the patient until they have submitted a claim. So, not only should this group have never sent this bill to a debt collector, they shouldn't have sent me a bill in the first place.

I called the physician group today and they agreed they will write the bill off after confirming that I am eligible for my insurance.

I have Googled around and learned briefly about the concept of debt validation. Here is what I don't understand. Per the Fair Debt Collection Practices Act, it appears that a debt collector can demand payment (with the threat of harming your credit score) until you request a debt validation. Is it true that a debt collector has no responsibility to validate the debt (e.g. make sure it's legit) until after you ask them?

Answer 1

It is correct, per 15 USC 1692g, that the collector can wait until the consumer files notifies the collector of the debt, before sending verification. The law does not state what form that verification must take, and it would suffice if the collector provided evidence that services were rendered and not paid for. The verification can't just be a restatement that "you owe $10,000", but it does not have to be in the form of a court's judgment that the consumer owes money. Taking all of the provisions of the act together, the debt-holder's ultimate recourse is to take you to court, so that you will be ordered to pay the debt. One of your options is to tell the debt collector to not contact you, which forces the debt-holder to sue you. Demanding verification of the debt is an option, potentially useful in case of a mistake, especially in overcoming the assumption that the collector can otherwise make, that the debt is valid. At some point, one might need to prove in court that the debt is not valid (and it didn't come to that in your case). In this case, the debt is valid (you did receive the services), the problem is something else.

There is no statutory requirement that an ER must submit claims to a person's insurance company. They may be required to do so as part of their contract with Acme Insurance, if they have a contract with Acme. That is a matter between Acme and the ER, and you cannot sue the ER for failing to follow the terms of their contract with Acme. You might sue Acme if they fail to perform a contractual obligation with you, but they have no obligation to sue an ER to keep you happy. Suing your insurance company would be pointless, because Acme didn't fail to do what they were supposed to do. Suing the ER would also be pointless, because (or, assuming) they didn't promise to bill your insurance first. You would need to look carefully at the terms of your contract with the ER Physicians Group (not the hospital). It is likely that they have some kind of liability disclaimer stating that they are not liable for damage arising from insurance screw-ups. And finally, suing the debt collector would be also pointless because from your report of the facts, they didn't violate the law and you don't have a contractual relationship with the collector.

One can always get a free initial consultation with an attorney to see if he thinks there is a case.

Answer 2

Under the FDPC sec 809 (15 USC 1692h) a debt collection must send to the person from whom it is trying to collect the following information, within 5 days of the initial contact, if the info is not in the initial contact document:

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Item (4) in this list is supposed to notify the alleged debtor of his or her right to dispute the debt. The collector is not required to obtain verification of the debt beyond its initial assignment and the info in (1)-(3) above, unless the debtor requests it or disputes the debt (or part of it).

If the debt is disputed the collector must "verify" it. This can be a court judgment, but can also be a simple statement from the creditor that the debt is valid. Whatever verification it obtains must be provided to the alleged debtor.

There is also a Maryland Consumer Debt Collection Act (MCDCA), but it deals mostly with prohibiting threats by the collector, and does not impose any additional requirement to verify or validate the debt beyond what the FDPC requires.

If the debt collector complied with the FDPC, it is not liable for having attempted to collect an invalid debt. Note that under sec 807 of the FDPC a collector may not make false statements, including an attempt to collect a debt which the collector knows is not owed, and under sec 808 various "unfair practices" are prohibited. (This includes threatening a report to a credit agency if no such report is intended.) But if the collector does not know that the debt is invalid, it is not required to try to find out, and it is not an unfair practice to try to collect a debt that eventually proves to be invalid.

So the answer to your Q1 is yes, the collector has no such responsibility. Such laws are often a compromise between the regulated industry (in this case, collection agencies) who want minimal regulation, and consumer advocates.

As to your Q2, if the physician or the billing agents for the physician were negligent, or knowingly in violation of their contract, you may have a claim of action against them. But the amount you could collect would probably be limited to any actual damages you sustained, and if you did not have to actually pay the invalid debt, you would need to establish what actual costs were imposed on you. This would probably not be a huge sum.

There are lawyers who will take a case 'on contingency" where they are paid only if the claim is successful. But most will only do this if the potential judgment is large enough to pay their overhead if the case is won, and the chance of winning seems reasonable. Each law firm will have its own standards and policies in such matters.

Many lawyers offer free or low cost initial consultations, in which you could present the facts and the lawyer could say whether s/he would take the case, and on what basis, and give you an estimate of possible recovery and probable expenses. It might be a good idea to explore such an inquiry. The risks of that would be low.

Answer 3

You may want to find out whether your HIPAA protects have been violated. Generally, information as to the diagnosis and treatment is protected under HIPAA. The collector should not be in possession of such information ‒ only the date and amount of the debt. Any unauthorized disclosure of such information is grounds for (threat of) filing a HIPAA complaint, which can result in penalties for the physicians group or collector.