Blue Flower

Once a dispute is resolved, it’s resolved, at least according to a court in the Northern District of Illinois. In a recent victory for debt collectors, a consumer alleged that a debt buyer should have known about a previously resolved dispute and thus violated the Fair Debt Collection Practices Act (FDCPA) by reporting the debt to the credit bureaus without reflecting said dispute. In the court's eyes, however, since the consumer never conveyed the dispute to the debt buyer, reporting the debt without it did not violate the FDCPA.

In Wood v. Security Credit Services (Case No: 2020-CV- 02369, N.D. Ill. 2023), the consumer disputed the debt with the original creditor. The original creditor determined the debt to be valid and informed the consumer about the results of its investigation. Using the Metro 2 Format, the original creditor reported the account with an XH code stating that the debt was previously disputed and that the debt collector had completed its investigation. The original creditor did report any other Metro 2 code with respect to the debt, including “XB,” which signifies that a consumer disputes the debt, or “XC,” which reflects that the creditor completed its investigation of a consumer’s dispute, but the consumer disagrees with the results.

Security Credit Services (SCS) subsequently purchased the account and reported it to the credit bureaus. The consumer filed an FDCPA suit against SCS, alleging that he still disputed the account thus SCS had not properly reported the debt. Upon receipt of the FDCPA lawsuit, SCS reported the debt using XB to signify the consumer disputed it. SCS moved for summary judgment, arguing that after the consumer failed to respond to the original creditor's validation letter, the debt was no longer disputed under the FDCPA.

The court agreed with SCS and ruled in its favor. The deciding factor in the case was that the consumer did not continue disputing the debt after it was validated.


Per the Fifth Circuit Court of Appeals: the Consumer Financial Protection Bureau’s (CFPB) funding structure is unconstitutional, and the 2017 Payday Lending Rule, which was a direct result of this unconstitutional funding mechanism, must be vacated.

Does this mean that the CFPB itself is unconstitutional? What does this mean in the long run for the CFPB? And what does this bombshell decision mean for the ARM industry?

To assess where we are headed, here are three things you need to know about the October 19, 2022 Opinion in Community Financial Services Association of America v. CFPB (Case No. 21-50826, 5th Cir. 2022):

1. The Court said the CFPB’s funding structure was unconstitutional. Does that mean that the CFPB itself is unconstitutional? 


The Community Financial Services Association of America (CFSA) argued that the CFPB’s “vague and sweeping” rulemaking authority is too broad without guiding principles and therefore violates the Constitution’s separation of powers. The Court disagreed. Instead, it held that though the boundaries set for the CFPB’s rule-making authority are broad, they exist and are delineated. Further, because Congress’s grant of rulemaking authority to the CFPB was accompanied by a specific purpose, objectives, and definitions to guide its discretion, granting authority to the CFPB passes muster and is sufficient.

That said, though the CFPB has the authority to make rules, the Court held its funding structure was unconstitutional. Under the Appropriations Clause of the constitution, as part of our system of checks and balances, congress has the “power over the purse.” Most other executive agencies rely on annual appropriations for funding. The CFPB, however, is not required to rely on appropriations. Instead, it simply requests an amount from the Federal Reserve that the CFPB director determines is reasonably necessary to carry out the CFPB’s business. So long as that request doesn’t exceed 12% of the Federal Reserve's total operating expenses, the request must be granted. According to the Fifth Circuit, this “double insulation from congress’s purse strings,” is unconstitutional. 


Regarding the severity of the unconstitutional funding mechanism of the CFPB, the Court referenced an Alexander Hamilton quote and minced no words, stating, “ An expansive executive agency insulated (no, double-insulated) from Congress’s purse strings, expressly exempt from budgetary review, and headed by a single Director removable at the President’s pleasure is the epitome of the unification of the purse and the sword in the executive—an abomination the Framers warned 'would destroy that division of powers on which political liberty is founded.'”


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.


On January 13, 2022, the CFPB released a bulletin to remind debt collectors of their obligations under the No Surprises Act, which protects consumers from certain unexpected medical bills. The bulletin reminds companies that if they attempt to collect on prohibited debts, they face potential liability under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). 

The No Surprises Act protects participants, beneficiaries, and enrollees in group health plans and group and individual health insurance coverage from surprise medical bills associated with certain emergency services, non-emergency services from non-participating providers, and air ambulance services. It also requires certain healthcare facilities to disclose Federal and State patent protections against balance billing and includes protections for uninsured (or self-pay) individuals. 

“Too many Americans have been shocked by surprise medical bills and forced to pay up through credit report coercion,” said CFPB Director Rohit Chopra. “Our action today should serve as a reminder not to collect on or furnish credit reporting information about invalid medical debt.”


Click HERE for more.



How collection agencies can work with their clients on Reg F compliance.

As accounts receivable management (ARM) industry professionals make final preparations for Reg F compliance before Nov. 30, there are long-term takeaways to remember when it comes to health care collections and communication with clients and consumers.

In the ACA International 2021 Fall Forum session Managing Client Communications—Reg F Communication for Dummies, speakers Jack Brown III, president Gulf Coast Collection Bureau of Tim Haag, president of State Collection Service Inc., and Courtney Reynaud, president of Creditors Bureau USA, discussed tips and suggestions on how to communicate what creditors need to know about Reg F and its impact on their revenue cycle.

For Reynaud, it started with email communications with clients when Reg F was released and engaging with them on the front end to determine their needs and expectations.

For many, the last year has been about drilling down into the itemization date and helping clients navigate challenges with Reg F, such as the application of consent requirements to enable the debt collector to communicate with the consumer via text, email, and social media platforms. Brown said one of the key takeaways is that you can never overcommunicate with your clients.

The speakers found that communication opens you to opportunities to learn about clients’ other preferences and questions.

It’s also a good reminder to review those expectations regarding Reg F during your next compliance audit with your clients.  READ MORE HERE