By Laura Christensen-Garcia | Manager of Service Delivery | The Financial Clinic
It’s 10 PM on a Tuesday night and you just received an aggressive call from someone demanding that you pay them for the back surgery that you had eight years ago. Before you pull out your credit card to make “just a small, one-time payment,” you should stop and ask yourself what your rights are in this situation. Does this creditor have the right to collect this debt from you? Are they even allowed to be calling you at this time? Nearly one-fifth of all Americans (about 43 million people) currently have a medical debt in collections. The average for these debts is $579. According to a 2014 report by the Consumer Financial Protection Bureau (CFPB), these medical debts were the only negative mark on the credit reports of 15 million consumers. A negative mark like a bill in collections, or consequently a judgment, can affect these individuals’ ability to secure a mortgage, rent an apartment, or obtain a credit card or loan. All that to say, you are not alone in both being negatively affected by medical debt and feeling unprepared or panicked when confronting it. Consumers are taken advantage of for not knowing three important aspects of the debt collection process: debt verification, the scope of their bargaining power, and their rights with respect to the statute of limitations.
A 2013 study by the Federal Trade Commission (FTC) revealed the truly deceptive nature of debt collection and the urgent need to protect consumers from questionable collection practices. The study found that every year consumers dispute about 1 million debts. Of these disputed debts, only half (51.3%) were verified. Legal verification includes a written provision of the name of the original creditor, the total amount that remains due on the total principal balance, and each additional alleged fee that is due. Once a debt is found to be unverifiable, collection agencies cannot continue to collect, attempt to sue, or list said debts on a consumer’s credit report. It is also less likely that the agencies are able to verify the debt once it has changed hands multiple times–some debts are bought and sold upwards of four times. The dispute process is as simple as downloading a template from the internet (see CFPB), plugging in your information, and sending the letter to the respective collection agency. Many of us are neither aware of this process nor of our agency in the matter. Debt collectors rely on our lack of knowledge and intimidation by the process to collect on debts that are often unverifiable or past the statute of limitations – debts we have no legal obligation to pay.
Over $100 billion worth of medical debt is sold to collection companies each year for mere pennies, 4.5 on average, on the dollar… Despite being bought at such a low price, collectors seek to collect on the original debt amount to turn a profit. As a result, you end up giving that collection agency thousands of dollars for the back surgery that you had in 2010 when they paid only a hundred dollars to purchase the debt from your doctor.
In addition to collecting on unverifiable debts, collection agencies also attempt to collect on debts that are past the statute of limitations. The average statute of limitations is between three and six years and vary by state. Once a debt has passed the statute of limitations, it is considered “time-barred” and collectors can no longer collect on that debt or sue for it. However, the FTC found that collectors still attempt to sue or threaten to sue for time-barred debts, in part because the expiration of the statute of limitations on a debt does not itself extinguish the debt. Consumers must prove in court that a debt is time-barred before the court will dismiss further collection actions. 90% of consumers sued for time-barred debts fail to show up in court, which often results in a default judgement and a renewed statute of limitations, sometimes as long as 20 years.
The cards are consistently stacked against consumers at every turn. Despite the Federal Trade Commission and the CFPB’s recommendations for increased regulation of the practices of debt collection agencies, the pendulum is swinging in the opposite direction. This past June, the Supreme Court ruled that debt collection agencies are exempt from the Fair Debt Collection Practices Act (FDCPA) in Henderson v. Santander. Even when changes are made to help consumers, there is little public dissemination of the changes, and we are unable to take advantage of the supposed expansion of our rights. A 2015 settlement between the New York Attorney General, Eric Schneiderman, and the three national credit reporting agencies determined that medical debt can no longer be reported to the agencies until they are over 180 days late. In addition to the 180-day grace period, all paid medical bills must be removed from credit reports–they are no longer frozen on the reports for the full 7 years. Although this is great news, most consumers remain in the dark and have no idea that more often than not they will need to ask the credit bureaus directly to remove this harmful information. In addition to the enactment of additional consumer protection laws, there needs to be a public information campaign. If you yourself are being negatively impacted by medical debt, don’t allow creditors to intimidate you into paying what you don’t owe. If you’re ever contacted, the most important thing to ask for is verification of the debt, and the most important thing to know is your state’s statute of limitations.
According to the CFPB, over half of all overdue debt on credit reports is from medical debt, so please share this article, along with these great resources from the CFPB, with someone who may benefit from knowing more about the statute of limitations for medical debts. Below are a few tips sheets with some valuable next steps for you to take to address your medical debts.
Free Change Machine Tipsheets: