For Nonprofit Hospitals Who Sue Patients, New Rules

By Paul Kiel, ProPublica. Originally posted here. Republished here under a Creative Commons license.

Non-profit hospitals get big tax breaks for providing care for patients who can’t afford it. Under new IRS rules these hospitals must take extra steps to inform poor patients they may qualify for financial assistance.

Last month, ProPublica and NPR detailed how one nonprofit hospital in Missouri sued thousands of lower income workers who couldn’t pay their bills, then seized their wages, all while enjoying a big break on its taxes.

Since then, the IRS has released long-awaited rules designed to address such aggressive debt collection against the poor. Largely because these new rules fill a void — there were hardly any rules at all — patient advocates agree they are a major step forward.

Even so, they have easily exploitable gaps. It remains up to each hospital, for example, to decide which patients the new rules should apply to. And because the rules only apply to hospitals that have been granted tax-exempt status by the IRS, they don’t apply to for-profit hospitals or most public hospitals. ProPublica reported last month that public hospitals can be even more aggressive in collecting debt than nonprofits.

Most hospitals in the U.S. are charitable organizations. They don’t pay taxes because they are supposed to be a key part of the safety net for the nation’s poor patients. In theory, patients who aren’t covered by Medicaid and can’t afford insurance — or who are underinsured and can’t afford their out-of-pocket costs — can receive necessary care from a nonprofit hospital without facing financial ruin. Each hospital is required to offer services to lower-income patients at a reduced cost and to have a financial assistance policy that states who qualifies for aid, known as “charity care.”

But while hospitals are required to have this policy, there have been very few rules on how they publicize it or how they treat patients who qualify. That’s where the new rules, which go into effect in 2016, will make the biggest difference. The rules were required as part of the 2010 Affordable Care Act.

At Heartland Regional Medical Center in St. Joseph, the hospital featured in our story, many patients had been sued despite apparently qualifying for financial assistance. In interviews, patients either didn’t know the hospital had charity care or wrongly believed they didn’t qualify.

Under the new rules, all nonprofit hospitals will be required to post their financial assistance policies on their websites and offer a written, “plain language summary” of them to patients when they’re in the hospital. If patients don’t apply for assistance or pay their bills, then the hospitals are required to send at least one more summary of the policy, along with mentioning it on billing statements.

And if hospitals plan to sue patients over unpaid bills, they must attempt to verbally tell the patients about their policies, as well as send notices that they are planning to sue and that the patients may qualify for financial assistance.

Hospitals that don’t take these steps before suing patients could face the ultimate penalty of losing their tax-exempt status.

That sounds clear enough. But the first catch is that the IRS does not have a history of aggressive enforcement.

“That’s always been the problem with the charitable hospital rules,” said Corey Davis, an attorney with the National Health Law Program, a nonprofit patient advocacy organization. “The IRS doesn’t enforce them and nobody else can enforce them.”

The second catch is that hospitals are still responsible for setting their own financial assistance policies, and these protections are only helpful to patients who qualify for help.

“There’s all sorts of discretion because [hospitals] just have to have a policy,” said Chi Chi Wu of the National Consumer Law Center. The rules don’t set a baseline for the type of assistance hospitals must provide, she said.

A hospital could limit aid to uninsured patients with income below the federal poverty line — $11,670 for a single person with no dependents.  A hospital could also restrict aid to uninsured patients, excluding patients with bare-bones insurance policies who might face huge out-of-pocket payments.

For patients excluded by the policy, all these protections would be effectively moot. Even those covered by the policy might receive some reduction on cost, but still find themselves pursued over the outstanding balance.

The hospital industry’s reaction to the new rules has been muted. A spokeswoman for the American Hospital Association said it had no comment. But best practices for the industry, set by the Healthcare Financial Management Association, urge hospitals to take steps beyond the new rules to ensure patients eligible for financial assistance aren’t the target of lawsuits. For example, as we noted in our story, some hospitals automatically identify some patients as eligible without them having to apply.

Jessica Curtis, an attorney with Community Catalyst, a national nonprofit consumer organization, joined other advocates in stressing that the new rules were welcome. But, as before, she said, there will be large variation among hospitals in how generously they treat lower-income patients. “It will come down to: How seriously does the hospital take this issue?” she said.

 

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Can Debt Buyers Use Forced Arbitration Clauses After Suing Consumers In Court?

Midland Funding, a subsidiary of Encore Capital Group, is the world’s largest debt buyer and one of the most prolific users of Maryland’s District Court. It has filed tens of thousands of suits against Marylanders. But when one of those consumers, Mr. Cain, sued Midland Funding, Midland convinced the trial court and the intermediate appellate court to throw his case out of court and into forced arbitration on an individual basis, rather than as a class action.  In a March, 2017 watershed opinion, Maryland’s highest court overruled the lower court and held that when it originally sued Mr. Cain in a collection action, Midland waived its right to compel arbitration.   The Court of Appeals said:

Because Midland’s 2009 collection action is related to Cain’s claims, Midland waived its right to arbitrate the current claims hen it chose to litigate the collection action. In addition, Cain does not have to demonstrate that he suffered prejudice to establish that Midland waived the arbitration provision.

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Can I Sue the I.R.S for Abusive Debt Collection?

Private debt collectors are subject to a variety of laws policing their collection of private debts. The Fair Debt Collection Practice Act (FDCPA) imposes clear and strict requirements on debt collectors – such as preventing them from shaming consumers into payment by publishing the names or calling their parents, preventing them from lying to consumers or threatening them with illegal behavior.

However, FDCPA applies only to consumer transactions and does not cover matters such as tax debts. Boyd v. J.E. Robert Co., 765 F.3d 123 (2d Cir. 2014); Beggs v. Rossi, 145 F.3d 511 (2d Cir. 1998). Federal employees are also specially exempted from the FDCPA. 15 U.S.C. § 1692a(6)(C).

So, what’s left to protect taxpayers?

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Bank of America Puts Couple Through Kafka’s Trial; Must Pay $46 million

Franz Kafka Lives. This automatic stay violation case reveals that he works at Bank of America.

So says Judge Christopher M. Klein, in Sundquist v. Bank of America. What follows is a distressing story of malicious incompetence that destroyed the health of two elite athletes and cost Bank of America more than $46 million. Judge Klein continued:

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Recent Enforcement Actions Against Ocwen

Ocwen is amongst the largest mortgage servicers in the country. It holds mortgage debts with a face value more than $400 billion. Ocwen specializes in “default” servicing – meaning that it services loans where the consumer is behind. On April 20th & 21st, state and federal regulators took a range of legal actions against Ocwen that halved its share price. First, the CFPB sued Ocwen in connection with servicing abuses related to its flawed “REALServicing” software. Then members of the Multi-State Mortgage Commission – a group of 22 State mortgage servicing regulators – filed cease and desist orders against Ocwen (see below). Florida’s Attorney General filed a separate suit. So, what is going on?

The CFPB: Ocwen’s Software is Bad and Ocwen Won’t Fix it.

Ocwen has proprietary software, “REALServicing” that it uses to store data about the mortgages it services. The same software is used to make escrow calculations, generate letters, calculate balances and many other functions. No one but Ocwen uses this software and it was originally developed in-house – at Ocwen.

The CFPB complaint alleges that Ocwen executives were fully aware of the depth of the problem. It’s Head of Servicing described it as “an absolute train wreck” in 2014. When interviewed by the CFPB, the Head of Servicing Compliance from 2014-2015 testified that she “frequently” and “loudly” complained about REALServicing. Both Ocwen and external consultants it hired concluded the REALServicing is inadequate.

So, what is actually wrong with REALServicing?

The problems with REALServicing are often described in technicalities – “lack of properly managed data” or “fundamental system architecture and design flaws”. Here is concrete example of a problem: the system has more than 10,000 comment codes and flags – these are coded annotations that could be as simple as “Yes” or “No”, but could also be just numbers and letters – “011” for example of “C41”. These codes are used as short hand for information. But in some cases, Ocwen doesn’t know what the codes are shorthand for. The CFPB notes that Ocwen “lacks a complete data dictionary defining its comment codes, flags and data fields”. In other words, even Ocwen is not sure what information is recorded in its own system.

What’s the consequence of these technical problems?

  • 6,000-12,000 times per year, duplicate insurance disbursements were added to consumer’s accounts (i.e. Ocwen’s computer said that Ocwen had paid an insurance premium twice).
  • 80% of loan modifications were miscalculated.
  • In January 2016, Ocwen discovered that more than $8,000,000 had been paid by consumers, but have not been applied to their loans.
  • Ocwen left some $4,500,000 in “suspense accounts” waiting to be paid to investors for anywhere between 3 months and several years.
  • Ocwen has told an unknown number of consumers that they owe more money that they actually owe, for any one of a number of reasons, including Ocwen’s inability to correctly apply payments from the United States Trustees Office, or even failure to accurately record what the mortgage itself requires to be paid.

Not Just REALServicing

Not all of Ocwen’s problems can be blamed on REALServicing and Ocwen’s failure to fix it. Ocwen also operated a Philippines-based subsidiary as a servicer.

The States: Ocwen Gets Its Sums Wrong, Loses Money and Doesn’t Answer Questions.

The State Attorneys General each make a variety of allegations against Ocwen. The core allegations are that Ocwen mishandles mortgage escrow accounts, miscalculates and fails to pay escrow items (like insurance premiums and property taxes) on time. As explained in the CFPB complaint, Ocwen also operated an unlicensed subsidiary in some states. They state that Ocwen’s “financial condition” is bad and that Ocwen failed to co-operate with their investigations.

The emphasis varies from state to state, but these strands are common to all. Some other specific grievances were also identified:

Hubzu.com

Hubzu is an Ocwen-related short-sale auction website. Since 2012, Ocwen forced some borrowers interested in short sales to list their properties on Hubzu. Analysis by the State of Maryland indicated that Hubzu did nothing to increase the amount recovered from short sales and drove up deficiency balances. Ocwen agreed to drop the Hubzu requirement in Maryland as a result.

Property Inspection Fees

In 2014 Ocwen-associated company Altisource increased all property inspection fees to the maximum allowed by the Government Sponsored Entities (i.e. Fannie Mae and Freddie Mac). However, those fees were often more than allowed. In Maryland, these actions by Altisource resulted in Ocwen overcharging Maryland consumers by over $250,000.00.

Failure to Give Notice Prior to Transfer

Federal law requires mortgage servicers to give notice to consumers at least 15 days prior to a transfer of servicing. In 2015, when transferring a large batch of mortgages, Ocwen failed to do this – because it did not provide the third-party company it hired to mail the notices with the right information until 14 days before transfer.

What Do The Orders Do?

The State orders require Ocwen to (a) stop violating the law in the various ways identified above and (b) stop acquiring new servicing rights until the regulators are satisfied that Ocwen can follow the law, and that it won’t collapse in the near future.

There is one notable exception: Massachusetts is effectively terminating Ocwen’s operations by requiring it to transfer its servicing activities to a servicer in good standing with the regulator. That would mean about 34,000 loans, or more than 3% of Ocwen’s portfolio.

What is Ocwen’s Defense?

To the CFPB, Ocwen’s defense appears to be a general denial that the allegations are true, combined with an overtly political attack on the CFPB. Its press release said the action is “politically motivated and a reaction to the change of administration and recent scrutiny of the CFPB’s activities” and that the problems identified by the CFPB merely signs of healthy self-assessment by Ocwen. Ocwen followed up by challenging the CFPB’s constitutionality and inviting the Attorney General to intervene, presumably hoping that the deregulatory political climate will help its case.

On the state actions, Ocwen does not deny that it made mistakes in escrow accounts, but complains about the expense of reviewing every single escrow account, which it claims to be over $1billion.

Ocwen’s Investors Sue

Investors filed a class action following the federal and state actions, and alleged that Ocwen hid its problems from investors in the 2014-2017 period. Investor class actions are currently pending in Florida and Pennslyvania.

List of the State Orders

Arkansas (consumer FAQ)

Connecticut,

District of Columbia (consumer FAQ)

Florida,

Hawaii (consumer FAQ),

Idaho,

Illinois,

Maine,

Massachusetts (consumer information)

Maryland (consumer website here)

Mississippi,

Montana (consumer FAQ),

Nebraska (consumer FAQ),

Nevada,

North Carolina (go here and search for Ocwen)(consumer website here)

Rhode Island,

South Carolina,

South Dakota (Consumer FAQ),

Tennessee (Consumer FAQ),

Texas,

West Virginia,

Wisconsin (Consumer FAQ)

Wyoming

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What is a Class Action?

While the law of class actions has developed a mystique and aura of inscrutability, the concept and basic requirements are really quite simple. The idea is that one trial of a huge “class” of people is simpler, faster, and cheaper than lots of “individual” trials when the issues are the same and the damages are similar and easily calculated.

Consumer class actions are an effective way to attack widespread and uniform illegal business practices, where there are lots of victims (“numerosity”), where there are similar issues of law or fact (“commonality”), where the claims and defenses are all fairly identical (“typicality”), and where one or more “class representative” plaintiffs and their lawyers will adequately protect the interests of the entire class of consumers (“adequacy”).

The simple concept of the class action is set forth in the words of both the federal and the Maryland rules governing class actions. Under both Rules 23(a) of the Federal Rules of Civil Procedure, and 2-131 of the Maryland Rules of Civil Procedure, there are four “Prerequisites to a Class Action”:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

More recently, congress passed the “Class Action Fairness Act of 2005.” The intent and effect of this law is to make it much more likely that any class action worth more than $5 million will end up in federal court.

There is a common criticism that consumer class actions deal only with small overcharges, or that they result only in “coupon settlements” where the lawyers get rich and the victims get little of value. While there certainly has been abuse, there is also great good that can come to consumers from class actions.

In one Maryland car repossession class action, some consumers obtained a waiver of the deficiency balance (the amount still owed after the repossession sale) and a refund of up to several thousand dollars.

In the foreclosure rescue scam arena, one Maryland class action was filed on behalf of victims who have lost as much as $100,000 or more.

Even in the case of smaller claims, if consumers are allowed to aggregate their claims in a class action, then competent legal counsel can be retained to try to end illegal business practices.

What is the Procedure for a Class Action?

Class actions begin the same way as other cases: one or more people file a lawsuit. The lawsuit must explain that the plaintiff thinks it should be a class action, and why. The lawsuit must explain how the plaintiff thinks the case meets the requirements for a class action.

The case will proceed like any other case until the plaintiff asks the court to “certify” the case as a Class Action. The court will review the arguments of the plaintiff and the defendant and decide whether the case is a proper case for a class action, and whether the plaintiff and his or her lawyers are suitable representatives for the class. If a class is certify, members will be told about the class through a “Class Notice”.

If a case is settled as a class action, Class Members will also get a “Class Notice” that explains the terms of the settlement. The court must review and approved any proposed settlement in a class action – to make sure that the plaintiff and his or her lawyers have got a good deal for everyone, not just themselves.

Class Members always have the option of “opting out” or “excluding” themselves from the class. Members might do this if they want to sue independently or if they think that the settlement proposed is not good for them. Class Members can also object to a proposed settlement.

If there is no settlement, the class action can proceed to trial, just like any other case, and result in a judgment. If there is a trial, all class members are bound by the outcome.

I Received A Class Notice, What Should I Do?

If you have received a Class Notice, you should read it carefully. If, after reading it, you still aren’t sure what it means or if you have any questions about it, you should call the lawyers named as Class Counsel in the Notice or go to the website set up for the class action. If the notice proposes a settlement, but want to sue on your own, you should consult a lawyer to evaluate your case.

Be careful to note any deadlines in the Class Notice. If you miss those deadlines you may be bound by a settlement you don’t think is good and lose your right to sue on your own.

Relevant Law and Resources on Class Actions:

Federal Rule of Civil Procedure 23, on Class Actions

Maryland Rule 2-231 on Class Actions

Class Action Fairness Act of 2005

National Association of Consumer Advocates Revised Class Action Guidelines

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Class Settlement – Maryland Management Company

This page has information about the settlement in Claiborne et al v. Maryland Management Company.

What is the case about?

The case is a class action on behalf of former tenants who Maryland Management Company sued and obtained judgments against. Detailed information about the case and the settlement are in the key documents below. If you have any questions about the case, first read the Class Action Settlement Notice below. If you still have questions, call us.

Key Documents

Complaint

Class Action Settlement Notice

Preliminary Approval Order

Settlement Agreement

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How To Fight Debt Collection Harassment In Maryland

Get a copy of all three credit reports from the only government sanctioned website: www.annualcreditreport.com

  1. Review your credit reports carefully and dispute any inaccurate information in writing
  2. Write a letter to the debt collector demanding proof of the debt and the amount
  3. Submit a Complaint to the Consumer Financial Protection Bureau
  4. Submit a complaint to the Maryland Department of Labor, Licensing and Regulation
  5. If the collector violated the law, hire a lawyer to sue them in court. They may be liable for damages, court costs and attorney’s fees under federal or Maryland law
  6. Private Attorneys:
  7. Other resources:
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FTC Fines and Closes National Check Registry

National Check Registry and related companies were abusive debt collectors. Thanks to the FTC, they are no more.

National Check Registry, all the related companies and the three individuals behind the enterprise agreed to lifetime bans on working in debt collection and to give up “virtually all of their assets” to partially satisfy an $8.3 million judgment against them. Read more in the FTC’s press release

Calling from their boiler rooms in Buffalo, New York, the National Check Registry enterprise employed a “pay up or else” collection strategy in which they falsely claimed that people had committed check fraud or another crime, says the FTC. The callers also falsely threatened that people would be sued, have their wages garnished, and be arrested unless they made a payment. National Check Registry also routinely failed to provide people with legally-required notices, and charged illegal processing fees. All of these actions are against the law.

The FTC’s settlement order bans the defendants—Joseph C. Bella, III, Diane Bella, Luis A. Shaw, and nine interrelated companies they controlled, including National Check Registry—from engaging in debt collection or assisting others in the industry. The order also prohibits the defendants from making misrepresentations in the marketing, sale, or advertising of any financial-related product or service. In addition, the order enters an $8.3 million judgment against the defendants, which will be suspended after they turn over virtually all of their assets.

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Debt Buyer Collected On Already Paid and Disputed AT&T Accounts After Purchasing Them For 2 Cents on the Dollar

Debt buyer and collector EOS CCA (associated with EOS Holdings, Inc., Collecto Inc. and their wholly-owned subsidiary debt buyer, US Asset Management, all of which will be called “EOS” here) bought debts from AT&T in 2012.  According to the CFPB, EOS paid $35.4 million for debts with a face value of $2.3 billion, about two cents for every dollar. It was the largest portfolio EOS had ever purchased. Understanding that you get what you pay for, it turns out that many of the accounts, at least 10,000, had already been paid, and many were disputed.  For many more AT&T could not give EOS any proof of the debt.

In fact, this particular portfolio was so bad that EOS decided to report to the CRAs that all debts in the portfolio were disputed (even though they weren’t). After collection attempts, EOS later changed its mind and deleted all of the disputes on debts in the portfolio (even for the debts that were disputed). EOS continued to report that the debts were owed and collected on disputed accounts.

Finally, the CFPB took action against EOS, filling a lawsuit and a consent order on the same day. The Consent Order requires EOS to stop reporting the disputed debts from the AT&T portfolio, but it also imposes additional requirements on EOS’s general collection practices for 5 years, most notably:

  • EOS must not claim or imply that a consumer owes money unless EOS sees account-level documents from the original creditor that substantiate the claim if (a) the debt is disputed, (b) the debt is part of portfolio which was sold without “meaningful” warranties of accuracy or (c) (as in the case of the AT&T portfolio) they know the portfolio to be inaccurate.
  • EOS is prohibited from reselling any debts that it has bought.

TRANSLATION: It is still permissible for a creditor to sell and for a debt buyer to purchase disputed debts, and portfolios that have broad disclaimers of accuracy and reliability, and debts which are known to be inaccurate.  And in the absence of any dispute, it is permissible to collect on accounts for which there is no account-level documentation.   However, for a period of 5 years, EOS is prohibited from reselling any debts it has purchased.

The prohibition on the resale of debts is now a familiar part of CFPB consent orders – the same term appeared in settlements with the two largest debt buyers: Portfolio Recovery Associates and Encore / Midland Funding, LLC. These recent CFPB consent orders probably signal the rules that the CFPB will eventually propose to regulate debt buyers, so these kinds of terms may ultimately come to bind all large debt buyers permanently.

Although the inclusion of affirmative warranties of accuracy and reliability is a huge step forward, such warranties will be meaningless if they are not publicly available so that they can be verified by consumers and the courts as part of the adversary process.  So long as the key terms of debt-selling agreements are kept secret it will be difficult to know what the warranties actually are, or whether the accounts sold conform to the warranties.  This is why I have called repeatedly for a requirement to make forward flow agreements available to the public and to the courts.  It is just plain wrong for a bank or creditor to sell accounts with a disclaimer of warranties of accuracy or reliability, only to see the debt buyer then argue in court that the records are in fact accurate and reliable.  But in fact and in practice, this is exactly what happens every single day across the country.

It is great that the CFPB is mandating better practices through its consent orders.  But what is needed is a requirement to make the purchase and sale contracts between creditors and debt buyers public.  At a minimum, the representations and warranties must be public.   Without more transparency as to exactly what the new warranties are, the fraud will continue, unchecked by consumers or courts.

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