In one situation, a homeowner attempted to refinance his mortgage, only to discover that two unpaid medical bills totaling less than $50 had caused his credit score to drop.  As a result of the lowered credit score the refinancing bank demanded over $4,000 in closing costs.

In another situation, less than $500 of medical debt reported to a collection agency disqualified a homeowner from a favorable interest rate, which would have resulted in tens of thousands of extra interest charges.

In many of these situations, the consumer never knew about the unpaid medical debt – the provider simply turned the claim over to a collection agency which immediately reported it to the credit reporting agencies as delinquent debt.

According to the Journal, “otherwise well-qualified borrowers with good loan-to-value ratios and steady employment are increasingly finding it difficult to refinance because of medical billing mistakes marring their credit.”

If you or a loved one has been in the hospital, you probably know that a single visit can result in five, ten or even more bills from separate vendors – the hospital, the hospital pharmacist, the anesthesiologist, the ambulance service, etc.  I do not find it surprising at all that a patient would not know about one or more bills.

I think that an important point here has to do with the cascading effect of negative credit.   Even a small late payment on an account can result in a dramatic lowering of your credit score.  Other creditors will receive electronic notice about your lowered credit score and when permitted, they will increase your interest rate, lower your credit limit and increase penalties and fees.

Lenders Often Cause Delinquencies by Changing Terms Unexpectedly

On more than one occasion I have met with a potential bankruptcy client who was forced into Chapter 7 or Chapter 13 because of changed terms, not because of any delinquency.   These changed terms can arise from a tiny delinquency – like the unknown, unpaid medical bill issue discussed in the WSJ story, or for other reasons.  Recently I met with a small business owner who was completely current on his personally guaranteed revolving line of business credit.  His bank was taken over by another bank which conducted an audit and, without warning, the business loan was “called in.”

One minute, my client was operating a viable, functioning small business that was current on its obligations – and literally within a matter of days, that business was shut down by a bank for no apparent reason.

The point here: examine your credit reports regularly and challenge even tiny delinquency reports as the damage to your credit will arise from the existence of the delinquency as opposed to the amount of the late payment.  Even small downgrades to your credit score can result in a negative debt snowball.

Two of the protections provided by the FDCPA include:

• a prohibition against communicating with a debtor when the collection agency employee does not identify himself as a debt collector; and
• communicating about your debt with third parties

The 11th Circuit Court of Appeals (which provides controlling precedent for Georgia) recently issued an important decision that struck down a somewhat bizarre argument by a debt collector regarding phone messages.  This case benefits consumers by clarifying the rules about telephone messages by bill collectors.

The case of Edwards v. Niagara Credit Solutions involved a situation in which the debt collector (Niagara) left “bare bones” messages on a phone answering machine asking Ms. Edwards to call back about an “important matter.”

Niagara argued that its employee did not identify itself as a debt collector because someone other than the debtor might hear the message, thus violating the “third party communications” prohibition.

The 11th Circuit rejected Niagara’s argument, stating that it is not permissible to violate one provision of the FDCPA in order to comply with another provision.   The Court further noted that the FDCPA does not guarantee a debt collector the right to leave answering machine messages.

What does this mean to you?  If an unknown party leaves you a message asking that you call about an “important matter” you should save the message and contact a lawyer knowledgeable about FDCPA actions.   If a debt collector leaves you a message and identifies himself as a representative of a collection agency or otherwise discusses a debt that you may owe, save that message as well.  You may have a cause of action for damages.