This week, the Court rejects a challenge to a Nevada law regulating the collection of medical debt.

The Court rejects a request for a preliminary injunction barring enforcement of a Nevada law requiring debt collectors to give 60-days notice before taking any action to collect a medical debt.

The panel: Judges Fletcher, Bybee, and VanDyke, with Judge Fletcher writing the opinion and Judge VanDyke dissenting. 

Key highlight: “The [Fair Debt Collection Practices Act]’s preemption provision confirms that S.B. 248 is not in conflict with the FDCPA. That provision provides that ‘a State law is not inconsistent with the FDCPA if the protection such law affords any consumer is greater than the protection provided by the FDCPA.’ 15 U.S.C. § 1692n. As we have explained, S.B. 248 provides consumers with the protection of a 60-day notification period before any action is taken to collect a medical debt, while the requirements of [the FDCPA] apply once debt collectors attempt to collect a debt. S.B. 248 thus extends the period of time during which consumers receive protection that enables them to verify or challenge the debt and prevents debt collectors from reporting the debt, sending repeated communications to debtors, or taking any other adverse action. The state law provides more protection than the FDCPA provides standing alone. For that reason, it is not inconsistent with the FDCPA.” (Original alterations original.)

Background: Nevada Senate Bill 248 requires debt collectors to give medical debtors written notification 60 days before taking any action to collect the medical debt. Although S.B. 248 permits debt collectors to accept voluntary payment of a medical debt before 60 days have passed, to do so they must inform the debtor that “payment is not demanded or due.”

Plaintiff Aargon Agency and other debt collectors sued the Commissioner of the Financial Institutions Division of Nevada’s Department of Business and Industry to enjoin enforcement of S.B. 248. The district court denied Aargon’s request for a TRO and preliminary injunction, finding that it was unlikely to succeed on the merits of its claim.

Result: The Ninth Circuit affirmed. It held that Aargon was not likely to succeed on the merits of any of its three arguments challenging S.B. 248.

First, the Court held that the phrase “any action to collect a medical debt” was not unconstitutionally vague. If there were any doubt that that language provided reasonable notice of the prohibited conduct, that doubt was removed by the Commission’s promulgation of regulations giving examples of what is and is not an action to collect a medical debt.

Second, the Court held that S.B. 248 does not violate the First Amendment. The Court held that S.B. 248 regulated commercial speech because an attempt to collect medical debt proposes a commercial transaction—paying past-due debt. The Court therefore analyzed S.B. 248’s constitutionality under the four-part test announced by Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980). Central Hudson directs courts to analyze (1) whether the law in question regulates expression protected by the First Amendment; (2) if so, whether the law furthers a substantial government interest; (3) “whether the regulation directly advances” that interest; and (4) whether the regulation is not “more extensive than is necessary to serve that interest.” Id. at 566. 

S.B. 248 regulated speech protected by the First Amendment because communication to collect medical debt is lawful and not inherently misleading. The Court therefore proceeded to Central Huson’s second step and found that S.B. 248 furthered a substantial government interest in protecting medical debtors from financial ruin in the wake of the COVID-19 pandemic. It directly advanced that interest because it gave debtors additional time to verify the existence of the debt and seek financial assistance. The Court rejected Aargon’s argument that S.B. 248 was constitutionally underinclusive because it did not apply to medical providers. Excluding medical providers did not defeat S.B. 248’s purpose, and it related to the asserted government interest because debt collectors have greater incentive and competency to collect medical debt than medical providers do. Finally, S.B. 248 was not more extensive than necessary. It did not completely ban speech to collect medical debt. Instead, it only prohibited such speech during the 60-day notification period.

Third, the Court held that S.B. 248 was not preempted by the Fair Credit Reporting Act or the Fair Debt Collection Practices Act. State law may be expressly preempted by federal law if the text of the federal law explictly provides for preemption. State law may also be impliedly preempted, including, as relevant here if it is impossible to comply with both the state law and federal law (conflict preemption).

Aargon argued that the FCRA expressly preempted S.B. 248 by preempting any “requirement or prohibition . . . with respect to any subject matter regulated under . . . section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies.” Section 1681s-2 in turn imposes various requirements to ensure that debt collectors and others furnish accurate information to consumer reporting agencies. S.B. 248 prohibits reporting medical debt to a consumer reporting agency within the 60-day notification period, so Aargon reasoned it was a “prohibition . . . relating to” the subject matter regulated by § 1681s-2. The Court rejected this argument. It held that the phrase “relating to” limited the FCRA’s preemptive effect to the specific requirements of § 1681s-2, none of which required debt collectors to furnish information to consumer reporting agencies by a certain deadline.

Aargon also argued that the FCRA impliedly preempted S.B. 248 because S.B. 248 was an obstacle to the FCRA’s purpose of ensuring accurate credit reporting. The Court rejected that argument too, noting that S.B. 248 might improve accuracy by giving medical debtors time to verify their debt.

Aargon argued that the FDCPA impliedly preempted S.B. 248 because it was impossible to comply with both laws. The FDCPA requires debt collectors to disclose “in the initial . . . communication with the consumer . . . that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” 15 U.S.C. § 1692e(11). It also requires that the debt collector send the debtor certain information about the debt “[w]ithin five days after the initial communication with a consumer in connection with the collection of any debt.” Id. § 1692g(a). Aargon argued that S.B. 248 prohibited it from sending the disclosures required by the FDCPA because those disclosures constitute action to collect a medical debt.

The Court rejected this argument. It concluded that the notice required by S.B. 248 was not a communication “in connection with the collection of any debt.” The S.B. 248 notice is not a demand for payment or a strategy to make payment more likely. Indeed, S.B. 248 forbids attempts to collect medical debt for 60-days after the notice is sent. Debt collectors may therefore comply with both laws by sending the notice required by S.B. 248, waiting 60 days, and then commencing with debt collection, including by sending the disclosures required by the FDCPA. S.B. 248 simply provides additional protection for debtors, which the FDCPA expressly does not preempt. A Consumer Financial Protection Bureau regulation imposing a similar disclosure requirement did not preempt S.B. 248 for the same reasons. And although some early S.B. 248 notifications approved by the Commissioner did state that they were an attempt to collect debt, the Commissioner’s approval specifically warned that it might be mistaken and was contradicted by subsequently published regulations.

Because Aargon failed to show a likelihood of success on the merits, the Court found it unnecessary to address the remaining three Winter factors governing the propriety of a preliminary injunction.

Judge VanDyke dissented. He concluded that S.B. 248 was impliedly preempted by the FDCPA because it was impossible to comply with both laws. In his view, the initial notification required by S.B. 248 was clearly a “communication . . . in connection with the collection of any debt” because it was a notice necessary to commence debt collection. It therefore triggered a debt collector’s obligation to send the disclosures required by the FDCPA, which S.B. 248 in turn prohibited. Additionally, before accepting a voluntary payment, S.B. 248 required debt collectors to inform debtors that “payment is not demanded or due.” Judge VanDyke concluded that this communication would mislead unsophisticated debtors into believing that the debt had been forgiven and was thus barred by the FDCPA’s prohibition of misleading representations.

He also concluded that S.B. 248 was impliedly and expressly preempted by the FCRA. It was impliedly preempted because it required debt collectors to wait 60 days before furnishing information about a debt to consumer reporting agencies. The delay was an obstacle to the FCRA’s goal of accurate credit reporting. And it was expressly preempted because that prohibition “related to” the FCRA’s regulation of debt collector’s furnishment of information to consumer reporting agencies. Judge VanDyke argued that the majority’s contrary conclusion mistakenly conflated conflict preemption with express preemption. The fact that a debt collector could comply with both laws spoke to conflict preemption but did not address the broad scope of the FCRA’s preemption provision.

Because he concluded Aargon had shown a likelihood of success on the merits, Judge VanDyke went on to consider the other three Winter factors. He concluded that Aargon had shown that it would suffer irreparable harm because it would be forced to choose between complying with a preempted law and suffering financial harm or being punished for its noncompliance. The equities and the public interest both weighed in favor of enjoining S.B. 248 because it made compliance with the FDCPA impossible and undermined Congress’s goals in enacting the FCRA.

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