Idaho Issues Collection Agency Guidance

The Idaho Department of Finance has issued guidance to help licensed collection agencies comply with the Idaho Collection Agency Act, a response to an Idaho Supreme Court decision that impacts the way collection agencies must operate.

The high court in May unanimously ruled that collection agency Medical Recovery Services could not ask for attorney's fee that are higher than what patients paid for their care.  

Medical Recovery Services v. Strawn involved three patients treated between December 2010 and April 2011 at an urgent and primary care clinic. Medical Recovery argued it was owed $350 in attorney’s fees per patient, which in each case was more than the cost of the care provided.

The Supreme Court found that the agency's attempts to add the attorney's fees was impermissible, even though the consumers signed a Patient Sign-In Form that specified the attorney’s fees.

The Supreme Court reasoned that the term "principal obligation" was limited to the amount 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 below).

In reaching the decision, the Supreme Court looked at the plain language in Idaho Code § 26-2229A(4), which states:

(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.

To comply with the Idaho Collection Agency Act, the Department of Finance's position is 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 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.