Earlier this month, the State of Nevada passed a law to regulate medical debt collection (SB 248). The hastily passed new law, which goes into effect July 1, 2021, is, as we say in the south, clear as mud. Of course, some might say using the word “clear” in the same sentence as SB 248 is too generous, and they wouldn’t be wrong.
On June 25, 2021, due to the lack of clarity in SB 248, a group comprised of collection agencies, law firms, and industry associations (plaintiffs) filed a lawsuit against Sandy O’Laughlin in her capacity as Nevada State Commissioner. The lawsuit asks the District Court of Nevada to declare SB 248 is unenforceable and grant preliminary and permanent injunctive relief to stop the enforcement of SB 248 because (a) it violates the U.S. Constitution, and (b) its provisions are preempted by federal law. More specifically, in addition to several constitutional arguments, the plaintiffs allege that SB 248 is (a) impermissible and unconstitutionally vague; (b) preempted by the Fair Debt Collection Practices Act (FDCPA); (c) preempted by the Fair Credit Reporting Act (FCRA).
To illustrate that the law is impermissibly vague, the plaintiffs allege that SB 248:
- Fails to define numerous key terms, including the phrase “action to collect a medical debt” while at the same time prohibiting such “actions.”
- Is silent as to what a debt collector may or may not do when a certified letter required by the law is returned undeliverable or is refused by the intended recipient.
- Allows a consumer to make a voluntary payment under certain circumstances but fails to address whether a voluntary payment can be accepted from a third person acting on behalf of the medical debtor, such as an insurance company.
- Requires the debt collector to make certain disclosures when accepting a voluntary payment, but fails to state whether the requirement applies to mailed-in payments when a debt collector does not have the opportunity to make these disclosures.
- Conflicts with its own language since it simultaneously requires a debt collector to identify the medical provider “for which the medical debt is owed” yet also requires debt collectors to state the debt “is not demanded or due.”
- Fails to address whether the law applies to attorneys.
- Does not state whether it applies on a forward basis or retroactively.
- Conflicts with other existing Nevada law provisions, including provisions requiring a debt collection agency to send certain disclosures to medical debtors within five days of the initial communication.
In support of their assertion that SB 248 is preempted by the FDCPA, the plaintiffs allege that SB 248 is inconsistent with the FDCPA because it:
- contradicts with the FDCPA’s required Mini-Miranda disclosures, both in the initial communication and in subsequent communications.
- Interferes with the FDCPA’s required validation notice.
- interferes with a debt collector's Express federal rights to engage in debt collection and communicate with debtors after sending the validation notice.
- prevents a debt collector from providing verification of a debt, thus hurting Nevada consumers.
- Places debt collectors at risk of forced misrepresentation under the FDCPA.
In support of their assertion that SB 248 is preempted by the FCRA, the plaintiffs allege that SB 248 is inconsistent with the FCRA in the following respects:
- Its prohibitions on credit reporting differ from the FCRA’s detailed and comprehensive statutory scheme.
- Its restrictions and prohibitions actually violate the FCRA, which expressly preempts any state law “with respect to any subject matter” concerning credit reporting.
- It interferes with and undermines the purpose of the FCRA by preventing accurate information from being furnished timely.
Finally, plaintiffs alleged SB248 constitutes a prior restraint on constitutionally protected free speech and violates the equal protection clause of the United States Constitution.
The thoughts we shared on SB 248 have not changed since we published them in this article on June 9, 2021. The law is extremely ambiguous (to put it kindly) and has very little guidance regarding what a collection agency can or cannot do.
However, what is clear from the law is that the Nevada legislature intended to help medical debtors. Unfortunately, the failure to define basic elements of the law and failure to address SB 248’s interaction with long-standing federal law will cause significant harms to consumers, including the following:
- By failing to define “action to collect a medical debt,” it prohibits collection agencies from responding to non-payment-related inquiries from medical debtors. Thus, consumers will not receive timely responses to legitimate questions.
- By failing to address and outright conflicting with the FDCPA, it deprives medical debtors of notice of their federal debt collection rights. Thus, based upon receipt of the 60-day notice letter required by SB 248, consumers may choose to voluntarily pay a debt without knowing they had any federal rights at all.
- It will harm medical debtors who attempt to pay via mail during the 60-day notice period. SB 248 does not allow collection agencies to deposit voluntary payments without providing certain disclosures. Therefore, collection agencies must either (a) return payments to consumers asking them to incur a second mailing cost if they truly wish to pay; or (b) delay depositing payments until disclosures are provided, delaying the withdrawal from the consumer’s account.
- The credit reporting disclosure requirements will cause undue stress to consumers if the collection agency will not be reporting the debt. Specifically, the verbiage of section 7.5 requires collection agencies to imply that the debt will be reported after 60 days, which may not be accurate, causing harm to consumers.
- Failing to clarify the effective date will cause inconsistencies in debt collection, confusing consumers.
Hopefully, the Nevada District Court will be able to see the numerous flaws with SB 248. We will keep you posted as this litigation progresses.