J. Russell Gibson, III
Dear Mr. Gibson:
This is in response to your recent letter concerning whether certain debt collection activities are covered by the Fair Debt Collection Practices Act. You represent a client named EBO which was formed to provide "pre-collection" services for hospitals, clinics and physician's groups, referred to collectively as Hospital for purposes of your inquiry. You characterize EBO as an extended business office of Hospital which handles accounts not deemed to be in default. EBO's "pre-collection" activities include billing insurance companies, contacting medical insurance firms to establish amounts which may be paid by these companies, sending statements to patients or their guarantors, resubmitting accounts incorrectly coded, handling patient service requests, obtaining copies of remittance advances, handling telephone and written correspondence from patients and other matters necessary to establish the amounts to be paid by insurance companies or other sources. The main thrust of EBO activities is to determine whether medical insurance coverage is available and to appropriately bill each account by classification and diagnosis. Once an amount an individual patient owes is determined, EBO contacts individuals in writing and by telephone for payment; EBO will accept either payment in full or multiple payments according to a payment schedule set by Hospital. The services provided by EBO are styled "day" 1 billing, i.e., EBO provides its services at the outset of the billing process by Hospital. Bills are sent by EBO as agent of Hospital on Hospital letterhead.
These activities are conducted pursuant to a written contract between EBO and Hospital whereby EBO is made the agent to perform these services. The contract also specifically provides that the accounts are not in default at the time they are turned over to EBO.
In the event of non-payment by the patients, EBO returns the accounts to Hospital which then decides whether they should be declared in default and forwarded for collection. Accounts that are in default are referred to a separate collection organization.
You ask whether the activities of EBO when engaged in "day 1 pre-collection activities" are governed by the Fair Debt Collection Practices Act ("Act"). The ultimate issue is whether EBO acts as a "debt collector" under the Act when it engages in these activities.
The term "debt collector" is defined in Section 803(6) of the Act as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another . . . . " While the term "regularly" is not defined in the Act or in the legislative history, it is intended to include collecting debts in the ordinary course of business, but not in isolated instances.(1) It is the nature and frequency of a firm's collection activities and whether these activities are an established part of a firm's business that determine whether a firm regularly collects for others.(2)
You state that once the amount that a patient is required to pay is established, EBO contacts individuals, both in writing and by telephone, to request payment. Once the individual patients have been contacted, EBO may only accept payment in full or payment based upon a schedule according to the terms of the credit policy of each hospital. Such collection contacts with patients or their guarantor appear to be an essential component of EBO's "pre-collection" program. Since the ultimate goal of EBO's program is to obtain payment of patients' hospital bills, and written and oral demands for payment are an established component of EBO's "pre-collection" program, it is clear that EBO is regularly engaged in collecting, or attempting to collect, directly or indirectly, debts owed to others. As such, this collection effort brings EBO's actions within the definition of "debt collector" set out in Section 803 (6) of the Act.
However, Section 803(6)(F)(iii) exempts from the definition any person who collects debts owed or due another to the extent that such activity concerns debts that are not "in default" at the time they are obtained by such person. Whether a debt is in default is generally controlled by the terms of the contract between the hospital and patient creating the indebtedness or applicable state or federal law that may define when a loan is in default, (e.g., as in the case of direct or guaranteed loans made or insured by government agencies).(3) You state that if EBO cannot collect a debt, it returns the account to Hospital which then decides whether the debt is in default. Thus, the efforts of EBO, when engaged in "Day 1 billing," appear to be in the nature of servicing outstanding debts for Hospital which are not yet in a default status. As such, they are exempt under Section 803(6)(F)(iii); no section of the Act would be applicable to the activities of EBO as outlined in your letter of inquiry.(4) Please be advised, however, that accounts obtained significantly later than "day 1" are less likely to be covered by the exemption especially if they are seriously delinquent. As such, collectors of these accounts might be covered by the Act.
The opinions expressed herein are based upon the facts outlined in your request for advice as to whether or not EBO's pre-collection activities are governed by the Act. Any change in these facts may, of course, alter the conclusions set out herein.
The opinions are unofficial and not binding on the Commission; however, they do represent the current enforcement position of the staff.
I hope this information will be helpful.
Roger J. Fitzpatrick
1. See S. Rep. No. 95-382, 95th Cong. lst Sess. 3 (1977). "The requirement that debt collection be done "regularly" would exclude a person who collects a debt for another in an isolated instance, but would include those who collect for others in the regular course of business." See also attached Statements of General Policy or Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50102, (Dec. 13, 1988).
2. See attached informal staff opinion dated April 12, 1988, to Bruce A. Nants, Esq., discussing the level of activity necessary to bring a collector within the purview of Section 803 (6).
3. See, e.g., attached informal staff opinion to Michael Heninburg, Health Resources and Services Administration, dated July 13, 1989.
4. See Statements of General Policy or Interpretation, Staff Commentary on Fair Debt Collection Practices Act, 53 Fed. Reg. 50103 (Dec. 13, 1989); see also attached informal staff opinion to Nathaniel E. Butler dated Oct. 22, 1984 and informal staff opinion for Joe L. Silver, July 13, 1987.