Controversial Minnesota Debt Fairness Act Signed into Law

This February the Minnesota Legislature looked poised to strike a major blow to the debt collection industry with its proposed language for the Minnesota Debt Fairness Act. As we reported, the original bill included a drastic reduction in the statute of limitations for consumer debt and judgments on consumer debt, a prohibition on credit reporting medical debt, and changes to attorney’s fees and garnishments. The final version of the bill (see full text here) is set to become law as it was signed by the Minnesota Governor on May 21, 2024. Thankfully it doesn’t include all of what was originally proposed. Below we will break down the major changes enacted by this bill and when they will go into effect.

Terms and Definitions: This portion of the bill goes into effect on October 1, 2024.

• “Collecting Party” – This new term is defined simply as “a party engaged in collecting medical debt.” Note that the original language did not limit the term to medical debt and specifically expanded the definition of collecting party to include attorneys.
• “Medical Debt” – Includes “[m]edical debt charged to a credit card or other credit instrument,” but, it also excludes “debt charged to a credit card or other credit instrument…that is not offered specifically to pay for health treatment or services[.]” This definition is also limited to “medically necessary health treatment or services[,]” and only applies to debts charged from October 1, 2024 on.
• “Medically Necessary” – Safe and effective, not experimental or investigational, ordered by qualified personnel, used to diagnose or treat a condition, and does not exceed patient’s medical need.

Medical Debt: This portion of the bill goes into effect on October 1, 2024.

• A prohibition on credit reporting medical debt.
• Reasonable costs and attorney’s fees to consumers who successfully defend against a medical debt claim (does not include consent orders or mutual agreements.)
• Collecting Party not liable if their violation was due to incorrect information provided to them by the health care provider or a previous collecting party.
• Removal of spousal liability for debts.

Garnishment and Exemptions: This portion of the bill goes into effect on April 1, 2025.

The original proposed bill made major changes to the amount that could be garnished but, the final bill toned down some to these changes as follows:

• 25% of a consumer’s earnings are garnishable if the consumer’s weekly income exceed 80 times the federal minimum hourly wages.
• 15% of a consumer’s earnings are garnishable if the consumer’s weekly income is 60 and 80 times the federal minimum hourly wages.
• 10% of a consumer’s earnings are garnishable if the consumer’s weekly income is at or below 60 times the federal minimum hourly wages.

Notable Omissions from Final Bill:

• Ban on renewing consumer debt judgments.
• Reduction of consumer debt judgment statute of limitation from 10 to 5 years.
• Reduction of consumer debt statute of limitations to 3 years.
• $5,000 exemption for money in a bank account.
• Private right of action for consumers to enforce debt collection statute (now only applies to student loan servicers.)
• Ability for consumers to recover costs and attorney’s fees for successfully defending against collection suits (now only applies to medical debt claims.)

insideARM Perspective:

While the original proposed language of this bill sent alarm bells ringing throughout the ARM industry, this final bill should be seen as both a win for collectors and proof of how much impact the industry can have when it comes together for a common cause. The final bill still includes some unfavorable changes to garnishment and a ban on credit reporting medical debt but, through the work of advocacy groups and pressure from the ARM Industry, the bill does not include many of the extreme measures originally presented, positively altered many others, and includes a reasonable definition of medical debt.