The credit and collection game

Oct. 1, 1996
Traditionally, the collection of delinquent account receivables has been an unavoidable necessity in dental practice management. The entire process consumes a vast amount of limited resources and creates major concerns in the areas of management, staff utilization and patient relations.

Federal and state standards govern the collection process. Is your practice playing by the rules?

Larry R. Abdullah, DDS

Traditionally, the collection of delinquent account receivables has been an unavoidable necessity in dental practice management. The entire process consumes a vast amount of limited resources and creates major concerns in the areas of management, staff utilization and patient relations.

How are these accounts collected in your practice? Does your organization utilize the services of a third-party agency or is it managed through an in-house system? If your facility designates this task to a third party, how do you determine whether they are operating within established federal guidelines? Despite the importance of this critical management function, many offices are unaware of the federal and state standards that govern the collection process.

The method that we chose to collect debt falls under the scrutiny of the Fair Debt Collection Practices Act (FDCPA), a federal statute enacted to regulate third-party debt collectors. The act governs issues such as when and how to communicate with debtors and how payments must be processed.

It became law in 1978 and generally prohibits any harassment, abusive conduct and the use of false or misleading statements in the collection of patient debt by third-party debt collectors. While the provisions of the FDCPA do not apply to businesses that collect their own debt, it does apply to collection agencies, law firms and any other third parties who, in the regular course of business, collect debt for others.

Under the act, patient debt is defined as an obligation of a patient to pay. This obligation arises out of a transaction in which money or services are primarily for personal, family, or household purposes. A debt collector is a person or entity who uses interstate commerce or the mail to collect debts owed to another.

Collecting patient debt through an in-house collection system does not guarantee unlimited protection against litigation since some state laws may be stricter than the federal law. The Fair Debt Collection Practices Act does not pre-empt state law if it offers greater patient protection than the federal statute.

For instance, in Illinois, a medical provider can be held liable for the acts or omissions of its collection service. A provider`s defense that it did not know the exact type of conduct in which its collection service was engaged does not constitute a defense under either the FDCPA or the Illinois Collection Agency Act.

In Massachusetts, a debt collector is allowed to call a debtor at home only twice a week for each debt. Other states, such as Texas and Wisconsin, extend the law`s provision to all creditors. In addition, organizations may be penalized for appearing to represent a third-party collector.

In order to avoid severe federal penalties, dental-practice managers must know the legal boundaries. A violator can be sued for actual damages plus additional damages of $1,000 for each individual involved. Additional damages can be calculated to the lessor of $500,000 or 1 percent of the collector`s net worth.

In a class action suit, the provider may be held liable for any other incidental damages incurred by the debtor as a result of the violation under other state and federal statutes. Violations of prohibited acts also may subject a debt collector to administrative action from the Federal Trade Commission.

Besides the expense associated with federal litigation, one of the major drawbacks to violations of the FDCPA is the obvious risk of being exposed to potential lawsuits arising out of the patient collection process. In addition, organizations face the very real risk of countersuits which often result from being in court.

The prohibited acts of collectors have been grouped into several categories:


In contacting third parties such as relatives, neighbors or credit references to attempt to confirm or correct location information about a debtor, a collector must not: (1) state the identity of its employer, (2) contact a third party more than once, unless asked, (3) state that the patient owes a debt, (4) use a post card or any language or symbol on the communication that indicates the debt collector is a debt collector, or (5) use the words collection, collector, or debt, in the collecting organization`s name. These rules apply whether the patient communicates by telephone or by mail.


The act limits communication with the patient in several ways: A collector cannot call a debtor before 9AM nor after 8PM. (2) The collector must not call the patient`s place of employment if the debtor is not allowed to have calls there. (3) If the collector knows that an attorney represents the patient, he cannot further communicate with the patient unless the attorney fails to respond within a reasonable time. (4) If the patient advises the collector in writing that he is not going to pay a bill, or that he wishes the third party collector to cease communication with him, the collector must break contact.

Harassment Or Abuse

The use of obscene or abusive language, the threat of violence or the threat to publish a list of persons who do not pay their debts, constitute harassment or abuse under the act.

False/ Misleading Statements

A collector cannot make any false or misleading statement to collect a debt. Prohibitions include: the use of badges or symbols which imply legal authority, allegations that failure to pay a debt is a crime, the use of a document that simulates a court instrument or legal process, and the use of deception.

Unfair Practices

A collector may not use any unconscionable or unfair means to collect a debt. This includes (1) charging a fee which is not authorized by the instrument creating the debt, (2) obtaining a post-dated check for improper use, or (3) the use of collect calls or collect telegrams. Collectors may not use thin envelopes combined with bold printing inside which could be read through the envelope. Section 15, U. S. C. Sec. 1692a et seq. of the FDCPA stipulates that a collection service may not threaten to take any action against a debt that cannot be taken or not intended to be taken. In addition, a collector must not threaten to report the debtor to the Credit Bureau if it does not have the consent to make such reportings.

Validation Of Debt

Within five days after the initial contact, the collector must notify the patient in writing of the amount of the debt and the name of the creditor. A patient then has 30 days after first being contacted to contest the debt in writing. If the patient files a written request during this period, the collector must obtain validation of the debt and notify the patient of the name of the original creditor. In addition, the collector must cease communication with the debtor.

Multiple Debts

If a patient owes more than one debt to a creditor, the third-party collector must apply the payment as directed by the patient.

Suits By Collectors

If real property secures the debt, a collector can only sue where the real property is situated. If an unsecured debt is involved, the collector can only sue in the jurisdiction where the contract was signed or where the debtor resides when the lawsuit commences.

Deceptive Forms

A creditor may not use any form or letter which implies that an individual other than the creditor is collecting a debt if a collector is actually doing the collecting.

Dental-practice administrators should become fully aware of the statutes that define the Federal Debt Collection Practices Act as well as the substantial consequences which result from violations. Even when a ruling by the courts clears an organization of any illegal practices, standard defense of federal suits can pose both a huge financial burden and a considerable waste of valuable resources for a practice.

For your protection, be sure to:

Stay abreast of exactly how your practice`s collection service goes about its task of collecting patient debt by establishing an ongoing means to monitor its collection policies and procedures.

Correct violations as rapidly as possible after they are detected.

Ensure that those responsible for collecting patient debt for your practice know the rules and operate within the guidelines of the Fair Debt Collection Practices Act.

The author has worked in private practice for 23 years in the Chicago, IL, area.

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