The Idaho Department of Finance recently issued guidance to assist licensed collection agencies in complying with the Idaho Collection Agency Act. The department issued the guidance in response to an Idaho Supreme Court decision that impacts the way collection agencies are required to operate under the provisions of the act. The Supreme Court decision specifically addressed a collection agency’s ability to collect fees and other charges related to a consumer’s debt.
Summary of the Idaho Supreme Court Decision
In Medical Recovery Services, LLC v. Strawn, 321 P.3d 703 (2014), the Idaho Supreme Court found that the collection agency’s attempt to add attorney’s fees in the amount of $350 to a consumer’s medical debt was impermissible, even though the consumer signed a Patient Sign-In Form that specified the attorney’s fees.
In reaching its decision, the Supreme Court looked at the plain language of Idaho Code § 26-2229A(4), which states the following:
(4) No collection agency licensee, or collection agency required to be licensed under this act, or agent of such collection agency shall collect or attempt to collect any interest or other charges, fees, or expenses incidental to the principal obligation unless such interest or incidental fees, charges, or expenses:
(a) Are expressly authorized by statute;
(b) Are allowed by court ruling against the debtor;
(c) Have been judicially determined;
(d) Are provided for in a written form agreement, signed by both the debtor and the licensee, and which has the prior approval of the director with respect to the terms of the agreement and amounts of the fees, interest, charges and expenses; or
(e) Reasonably relate to the actual cost associated with processing a demand draft or other form of electronic payment on behalf of a debtor for a debt payment, provided that the debtor has preauthorized the method of payment and has been notified in advance that such payment may be made by reasonable alternative means that will not result in additional charges, fees or expenses to the debtor.
The Supreme Court reasoned that the term “principal obligation” was limited to the amount that the consumers owed the creditor for the medical services provided, and did not include the contractual attorney’s fees specified in the Patient Sign–In Form. Rather, the Supreme Court ruled the attorney’s fees were “subordinate to the debt,” and therefore, “incidental to the principal obligation,” and could only be collected by the collection agency if the fees met one or more of the five exceptions enumerated in Idaho Code § 26-2229A(4) (provided above).
Department Interpretation of Idaho Supreme Court Ruling
The Department of Finance’s guidance states that it is the department’s interpretation of the Idaho Supreme Court’s ruling that collection agencies are limited to collecting amounts that equate to the “principal obligation,” and may only collect fees or charges incidental to the “principal obligation” if collection of those fees or charges is authorized because of the application of one or more of the five exceptions enumerated in Idaho Code § 26-2229A(4).
During its compliance examinations, the department will apply the Idaho Supreme Court’s definition of “principal obligation” as being only what the consumer owed to the creditor for the product(s) or service(s) provided. The Department of Finance specifically opined: “[T]he term ’principal obligation,’ as used in Idaho Code § 26-2229A(4), never includes ’any interest or other charges, fees, or expenses’ however labeled, and therefore, such charges are always ’incidental’ to the principal obligation.”
The guidance cautions that all charges and fees, however labeled, that are subordinate to the debt will be deemed incidental to the “principal obligation” for purposes of applying the provisions in Idaho Code § 26–2229A(4). Such charges include, but are not limited to, attorney’s fees, collection fees, and service charges, regardless of whether such charges are included in the creditor’s written contract with the consumer.
To comply with the Idaho Collection Agency Act, it is the department’s position that no collection agency, including debt buyers, operating in Idaho, may lawfully collect, or attempt to collect, “any interest or other charges, fees, or expenses,” no matter how labeled, against an Idaho consumer that are incidental to the consumer’s principal obligation, unless one or more of the exceptions set forth in Idaho Code § 26-2229A(4) apply. Collection agencies collecting from Idaho consumers must be able to substantiate to the Department of Finance the legal basis underlying attempts to collect fees or charges that are “incidental to the principal obligation.”
Collection agencies operating in Idaho are advised to consult with their own legal counsel before claiming application of any of the exceptions listed at Idaho Code § 26-2229A(4). The guidance also advises collection agencies to review the department’s previous Policy Statement 2007-6, which addresses the application of the provision to settlement of collection lawsuits.
The guidance document can be found on the department’s website at http://finance.idaho.gov/ under “News and Announcements.” Questions may be directed to email@example.com or (208) 332-8002.