The rules of debt collection

September 19, 2008

Simply because you are in compliance with federal debt collection laws does not mean that you are in compliance with all state laws.

Key Points

Medical practices commonly ask what they can do to collect debts from patients. Many of them prefer to maintain some level of an "in-office" collection system.

For example, a physician may choose to mail letters to patients from "The Collection Center," which is simply a dedicated person in the office who sends out notices of past-due accounts. If your staff members plan to send out letters that suggest someone other than the physician is attempting to collect the debt (such as a separate collection agency), they must be familiar with the Fair Debt Collection Act, which was enacted by Congress to help ensure that collectors treat debtors fairly.

The act applies to all "debt collectors," which includes anyone who collects on behalf of someone else, as well as anyone who collects his own debts by using "any name other than his own, which would indicate that a third person is collecting or attempting to collect such debts."

The Fair Debt Collection Act specifically addresses how a collector can properly communicate with the debtor. For example, a collector cannot:

If a debtor tells the collector to stop communicating with him or her, the collector must stop all communications, except to notify the debtor that some specific action is being undertaken, e.g., the filing of a lawsuit.

A debt collector cannot discuss the patient's medical bill with anyone other than the patient and cannot discuss the outstanding debt with relatives or friends of the patient without the patient's consent. Of course, HIPAA already restricts what can be discussed with anyone other than the patient.

Violations of the Fair Debt Collection Act can render a practice liable for actual damages, in addition to as much as $1,000 per individual. Actual damages could be significant if the collection method somehow harmed the debtor's credit. Attorney fees could also turn a small debt into a significant expense.

While it is permissible to use letterhead that has a fictitious name such as "The Collection Center," the practice should take the time to become intimately aware of the limitations of the Fair Debt Collection Act.

In addition to the federal law, many states have regulations governing the collection of debts. Simply because you are in compliance with federal law does not ensure that you are in compliance with all state laws.