CFPB Announces Consent Order with Third-Party Collector of Medical Debt

On June 8, 2023, the CFPB announced that it had entered into a consent order with Phoenix Financial Services, LLC (Phoenix), a third-party debt collector that collects primarily past-due medical debts and furnishes information to consumer reporting agencies (CRAs), to settle alleged violations by Phoenix of the Fair Credit Reporting Act and its implementing Regulation V, the Fair Debt Collection Practices Act, and the Consumer Financial Protection Act.  In addition to requiring the payment of consumer redress by Phoenix, the consent order requires the company to pay a $1.675 million civil money penalty to the CFPB.  It is noteworthy that the consent order also includes a provision pursuant to which Phoenix agrees to be subject to the CFPB’s supervisory authority for the consent order’s five-year duration.

The consent order includes the following CFPB findings and conclusions:

• Phoenix violated the FCRA by failing to conduct reasonable investigations of indirect disputes from CRAs and direct disputes from consumers.  Phoenix had inadequate dispute investigation procedures that included Phoenix’s reliance when investigating disputes on data points received from its clients at account placement that Phoenix had not verified as accurate and that Phoenix failed to review other potentially relevant information in its records.  It did not have a sufficient number of employees and contractors to effectively handle the volume of disputes it received, with the result that its employees and contractors often spent “mere seconds on average” to resolve the hundreds of disputes that Phoenix received each day.
  
  
• Phoenix violated the FCRA and Regulation V by failing to establish and implement reasonable written procedures regarding the accuracy and integrity of information it furnishes to CRAs.  Phoenix’s audits of its dispute investigation procedures were insufficient for identifying practices that compromised the accuracy or integrity of information furnished to CRAs.
  
  
• Phoenix violated the FDCPA by sending collection letters after receiving a written dispute within 30 days of the consumer’s receipt of a debt validation notice but before obtaining verification of the debt or a copy of the judgment and mailing a copy of the verification or judgment to the consumer.
  
  
• Phoenix violated the FDCPA by sending debt collection letters to consumers after an oral dispute about the validity or accuracy of the debt without having obtained substantiation for the debt sufficient to provide a reasonable basis for asserting that the consumer owed the debt at the time Phoenix sent the letters.  The implied representation in these letters that Phoenix had a reasonable basis to assert that the consumer owed the debt was false and was a misrepresentation about the validity or accuracy of the debt because Phoenix had no such reasonable basis.  
  
  
• By violating the FCRA, Regulation V, and the FDCPA, Phoenix violated the CFPA.

In addition to payment of a $1.675 million civil money penalty, the consent order requires Phoenix to provide consumer redress by refunding all amounts paid to Phoenix on an unverified debt between January 1, 2017 and the date of the consent order by consumers who received unlawful debt collection letters from Phoenix after disputing the validity of the alleged debt.  It also requires Phoenix to abide by certain conduct provisions to prevent it from engaging in the violations found by the CFPB, including not making any representation that a consumer owes a debt unless Phoenix can substantiate the debt claim at the time of the representation.  Phoenix must also establish and implement written policies and procedures to ensure that it conducts reasonable investigations of disputes about information furnished to CRAs.

Medical debt has been a CFPB focus under Director Chopra.  In 2022, the CFPB issued three reports on medical debt along with CFPB comments strongly suggesting that the agency was headed in the direction of taking steps to block or limit the reporting of medical debt.  In February 2023, the CFPB published its report titled “Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting,” analyzing trends in credit reporting of debt in collections and its blog post named “Debt collectors re-evaluate medical debt furnishing in light of data integrity issues,” highlighting factors that create challenges for medical collections reporting.  The February report foreshadowed the announcement by Equifax, Experian, and TransUnion in April 2023 that they would remove unpaid medical collections under $500 from consumer credit reports.  In its Data Point released in April 2023 after the announcement, the CFPB estimated how the removal of certain medical collections from consumer credit reports may impact credit based on a sampling of credit reports from 2012-2020 and found that removing medical collection tradelines can significantly improve credit scores and credit availability.