Medical debt is not voluntary – often consumers accrue unaffordable medical debt as a result of a serious medical condition that is not sufficiently covered by health care insurance or due to an unforeseen medical emergency occurring during a lapse in coverage. Section 1692k of the Fair Debt Collection Practices Act (FDCPA) prohibits abusive and unfair debt collection practices by providing consumers with a private cause of action to seek actual, statutory attorneys’ fees and costs. However, consumers who do not prevail on claims for harassing and unlawful debt collection actions may now be subjected to an award of costs – even if their claims were brought in good faith.
A recent 7-2 majority decision of the United States Supreme Court raises concerns, particularly within the context of a consumer protection statute. In general, any prevailing party may be entitled to costs as determined by the district court judge, unless a federal statute or rule provides otherwise. FRCP 54(d)(1). Ordinarily, the ‘provides otherwise’ language together with a relevant federal statute containing a fee-shifting provision serves to displace a district court judge’s discretionary award of costs against a consumer.
Section 1692k(a)(3) of the FDCPA expressly states that costs to a prevailing defendant may only be imposed where the plaintiff acted in bad faith and for harassment. It does not address an imposition of costs against a good faith plaintiff who loses – the consumer fee-shifting provision is silent on that issue.
On February 26, 2013, the U.S. Supreme Court issued its opinion n Marx v. General Revenue Corp., 568 U.S. ___ (2013) (http://www.supremecourt.gov/opinions/12pdf/11-1175_4fc5.pdf), resolving a conflict among the Circuit Courts regarding the circumstances under which a prevailing FDCPA defendant may be awarded costs even if the consumer acted in good faith and without the purposes of harassment. No one asserted that the consumer acted in bad faith; nor was a finding of bad faith made. According to statutory construction, ‘provides otherwise’ means ‘contrary.’ Slip op., at p. 5 (stating that “a statute is contrary to the Rule if it limits that discretion” found in FRCP 54(d)(1)). The Court reasoned that FDCPA, 15 U.S.C. § 1692k(a)(3), was not an express provision but was permissive only. Where a court finds the consumer action was brought in bad faith and for the purpose of harassment, the court may award the attorney’s fees and costs to the prevailing defendant. FDCPA § 1692k(a)(3). Thus, because §1692k(a)(3) was silent with respect to costs against a good faith FDCPA plaintiff, then its fee-shifting provision cannot be said to be contrary to the FRCP. Id. at 7-9.
In the dissenting opinion, Justices Sotomayor and Kagan reasoned that the FDCPA’s fee-shifting provision “described with specificity a single circumstance in which costs may be awarded. Far from merely restating a district court’s discretion to award costs, this provision imposes a prerequisite to the exercise of that discretion: a finding by the court that an action was brought in bad faith and for the purpose of harassment.” Dissenting, Slip op. at 5. The dissent reasoned that "to displace Rule 54(d)(1), a federal statute need only address costs in a way different from, but not necessarily inconsistent with, the default.” Id. at 3.
Considering that many consumers experience third party collection action as a result of unaffordable medical debt, the SCOTUS decision may serve to disenfranchise already disadvantaged populations. Low and moderate income consumers will exercise heightened caution before presenting with valid and meritorious claims for legal considerations. And, aggrieved consumers acting in good faith may now be less inclined to proceed with lawsuits.
Disadvantaged consumers experiencing unlawful debt collection activity, however, should not be deterred from litigation, especially where the debt arose from medical necessary services.