Court Finds Entity Partnering With Medical Provider Does Not Qualify as a Debt Collector Under the FDCPA

In Palacio v. Med. Fin. Sols., No. 21 CV 1288 (N.D. Ill. June 14, 2022), the court granted summary judgment in favor of the defendant, finding that it did not qualify as a “debt collector” under the Fair Debt Collections Practice Act (FDCPA).

Defendant Medical Financial Solutions (Medical Financial) works with medical care provider Amita Health to provide “early-out” servicers to patients. These services include assistance with registration, insurance verification, and authorization of physician referrals. Additionally, after treatment, Medical Financial helps with billing, payment processing, and coordinating with third-party collection agencies for accounts in default.

Plaintiff Nisha Palacio (Palacio) received treatment from Amita Health in June 2020. Following the treatment, Medical Financial sent Palacio a series of billing statements, including statements in December 2020 and January 2021 that indicated she owed a balance of $495.

Palacio filed suit against Medical Financial, asserting that the statements violated the FDCPA. Specifically, she alleged that each of the letters failed to include the required disclosure stating that it was “an attempt to collect a debt and any information would be used for that purpose” and otherwise constituted an “unfair and unconscionable means” of collecting a debt. In response, Medical Financial moved for summary judgement, arguing: (1) Palacio lacked standing to assert her claims; and (2) it did not qualify as a “debt collector” under the FDCPA.

In ruling on the motion, the court rejected the argument that Palacio lacked standing. The evidence showed that Palacio’s parents saw the letters at issue, causing her to have to explain that she was being contacted by what she believed to be a debt collector. The court held that disclosure to a third party, as well as the reputational harm that comes from explaining to others that you are in significant financial trouble, qualifies as a harm that is “sufficiently concrete to confer standing.”

However, the court determined that Medical Financial was not acting as a debt collector when it sent the letters to Palacio. Under FDCPA § 1692a(6)(F)(iii), the definition of “debt collector” excludes “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person.” Because the uncontradicted evidence established that Palacio’s debt was not in default at the time it was acquired by Medical Financial, the court held that Medical Financial was not a debt collector under the statute. It therefore granted Medical Financial’ motion and entered summary judgement against Palacio.