Idaho Supreme Court ruling could change charges and fees
The Idaho Supreme Court’s recent decision regarding attorney’s fees could change how you charge collection fees. The Idaho Department of Finance recently issued guidance to help licensed collection agencies comply with the Idaho Collection Agency Act. In May, the high court unanimously ruled that collection agency Medical Recovery Services could not ask for attorney’s fees 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 attempt 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 ruled 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. The Supreme Court further ruled that 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)
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 pre-authorized 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.”
This entry is to be considered informational only and should not be interpreted as legal counsel. 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.
Lex Patterson joined the DAKCS team in 1988. In 2006, he was named President and has worked to cultivate new markets, enhance product offerings, connect people, cut costs, and further DAKCS’ legacy of delivering astonishing customer service. He has a deep interest in technology and the ARM business, but understands that the relationships developed through interaction with people are really how business gets done. An avid fly fisherman, photographer and motorcycle enthusiast, Lex enjoys the great Utah outdoors.