Nevada’s S.B. 248 Medical Debt Collection Law Barely Survives Constitutional

Two years ago, the ACA, several debt collectors, debt buyers and a debt collection law firm filed a lawsuit through Sessions, Israel & Shartle, LLC and Brownstein Hyatt Farber Schreck, LLP seeking to prohibit S.B. 248 from becoming effective. 

S.B. 248 was the law that became effective July 1, 2021. The new law upended the collection of Nevada medical debt by requiring a debt collector to send a 60-day “breather” notice using only certified or registered mail before active collection activity could begin.

After a preliminary injunction trial in Las Vegas federal court, the trial court denied the request for a temporary injunction. An appeal was docketed last year to the 9^th Circuit Court of Appeals. 

Yesterday, the Ninth Circuit issued its long-anticipated decision in Aargon Agency, Inc. v. O’Laughlin. In a 2-1decision, the appeals court affirmed the denial of the debt collectors' request for an injunction, finding that S.B. 248 did not violate the debt collectors' First Amendment free speech rights, and that the new law was not preempted by either the FCRA or the FDCPA. 

As it relates to the FCRA, the 9^th Cir. found that S.B. 248 was not preempted as it only prohibits the credit reporting of a medical debt during the 60-daybreather period, causing the court to find (speculate?) that the pause will actually increase the accuracy of consumer credit reports, thus helping comply with the FCRA. 

The court also found that S.B. 248 did not require a debt collector to violate the FDCPA by sending the mandatory breather notice without the FDCPA disclosures. Surprisingly, that ruling required the conclusion that the breather notice is not an FDCPA communication seeking to collect a debt - so no FDCPA disclosures required.

The heated dissenting opinion by Judge Van Dyke rejected nearly all of the legal and factual conclusions of the majority. Instead, Judge Van Dyke found that S.B. 248 both “prohibits a debt collector from complying with the FDCPA and undermines a central purpose of the FCRA.” 

The dissent went further, criticizing the majority opinion's finding that the breather notice is not an FDCPA communication. The dissent wrote that such a finding “requires setting aside common sense” because the only reason for a debt collector to send any notice is “in pursuit of his goal of ultimately obtaining payment for (i.e., collecting) the debt.” 

Judge Van Dyke continued his critique, writing that the majority’s conclusion that the FCRA does not preempt S.B.248 “is unrealistic” because delaying the reporting of unpaid debts interferes with the FCRA’s purpose of ensuring accurate credit information by not accurately providing a current snapshot of the consumer’s credit worthiness.

All is not lost. The Nevada legislature recently passed a bill, likely in response to this case that removes the certified or registered mail requirement for sending the 60-day notice. This statutory change becomes effective October 1 (assuming the bill is signed by the governor) and removes the primary expense obstacle to collect Nevada medical debts. Legal obstacles still exist based on the Ninth Circuit decision. 

Concerned about how to resume medical collection in the Silver State? We are here to help?

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