Aggressive Debt Collection - Is it the Answer in Today' Economic Climate?

By: John A. Riolo, PhD, LICSW

These days one hears regularly about people who have amassed staggering debt and are so deep in the financial hole that there appears to be no way they can get themselves out of debt. They may have mortgages that are worth more than their house, or they may have lost a job or run up debt resulting from medical or health care needs.

It’s understandable that some of these people will seek therapy to cope to deal with the stress of mounting debt that can take a toll on marriages and families. But what happens when the therapy itself adds to their debt and compounds their stress?

To the average working family, psychotherapy is not cheap. Even when provided by social workers who tend to charge less than other disciplines or even if some offer reduced fees, bills can mount up.  Clients lucky to have insurance coverage are in a better situation, but there are often still deductibles and co-payments.  We can argue that is why we need national health insurance. But even if we achieve that goal, there will still most likely be deductibles and co-payments, and of course, we don’t have national health insurance now.

In this economy, many of our clients—but also many of us—are hurting. Many social workers and psychotherapists are feeling the effects of this recession, also.  One does not have to look far to find colleagues who face the very same difficulties of debt, foreclosure, and even bankruptcy. 

Therefore, if our clients owe us money for our services, do we not have every right to collect what is due?  Of course we do. In fact, in some cases we have a legal obligation to collect what is due.  For example, we may not waive or fail to make a good faith effort to collect a patient’s co-payment or deductible except for documented and extraordinary reasons of hardship. This would be insurance fraud. But what is a reasonable and good faith effort in collecting fees, be they co-payments, deductible, or the balance? 

Whenever this question is discussed among social workers and other therapists, the question of using collection agencies comes up.  Is it ethical to use a collection agency? Is it true that if a social worker or other therapist uses a collection agency that doing so will increase the chances of a patient filing a malpractice suit or licensing board complaint against them? Or, as some social workers have claimed, is this a myth perpetrated by lawyers and risk managers who have a vested interest in creating fears of litigations to sell books and CE courses on ethics?  Where, they ask, are the actual cases of therapists being sued as a result of using a collection agency, inferring that if there is not a direct correlation it must be okay.

The odds are that there are few, if any, licensing board complaints or litigations accusing clinicians of contracting with collection agencies, because in and of itself, that is not illegal or unethical.  So even if a patient made such a charge, it would unlikely be heard.

There is ample evidence, however, that turning debt over to a collection agency can trigger a complaint or litigation. Dr. Ofer Zur, a psychologist who has also represented clinicians at licensing board hearings, states, “We have known the answer for that for decades.  When (some) ex-clients are being harassed by a collection agency, they call the licensing boards and complain NOT about the collection, but about other things that involve sub-standard care—unfair change in fees, bad treatment, etc.  Such complaints are often traumatizing to most therapists and can take years to resolve.”

Dr. Bryant Welch, a psychologist and attorney, stated he would not go so far as to say to never use them, but in calculating the cost-benefit analysis, one must consider that it can precipitate a complaint for an unrelated matter. Thus, if it is a small sum of money and/or the patient is potentially litigious, I would definitely not do it. Whether there is liability for illegal methods used by the collection agency is very fact dependent, but it is certainly a risk.

Social work ethics expert Frederic Reamer tells audiences of continuing education workshops, students, and others REPEATEDLY that fee disputes are high-risk territory and may trigger a complaint about other issues (e.g., alleged failure to treat properly, boundary violations).  His standard advice is to handle fee disputes delicately, diplomatically, and skillfully; practitioners should do their best to avoid enraging clients/former clients with regard to fees.

It’s virtually unanimous among experts that using a collection agency is simply dangerous and may hardly be worth the risk. 

Why, then, would debt collection trigger such a seemingly strong response from  some patients that they would go so far as looking for things to file complaints to licensing boards about us? Are they borderline patients?  Some might be, but not necessarily.  To understand their motivation, we need to examine what happens how collection agencies collect debt. 

First, the clinician often sees only a very small amount of return on debt turned over to collections.  The most successful collection agencies rarely collect more than 50% of all debt, and they often keep a substantial percentage of what they collect. So a clinician is lucky to see much more than 25% of what was owed and, as often as not, nothing at all.

However, to the client who is the subject of debt collection, a number of adverse things occur. First, they can expect to receive dunning letters and phone calls that under the best of circumstances feel harassing.  It would be understandable if they got angry about the person(s) who initiated the process.

The other thing it will do is wreak havoc with the client’s credit rating.  That is the well known credit score that will determine if you can obtain credit for a mortgage, car, and so forth. and what interest rate you will have to pay if you get it.  When one has debt turned over to collections, one can guarantee dunning and that it will have a negative impact on obtaining future credit.  If little else, we have learned as a nation in our current economic crisis that whether we are a bank, an organization, an individual, or a family, credit is like life’s blood. Therefore, if we take any action that will have a negative impact on a client’s ability to obtain credit, we are potentially putting them and their family in peril, and they may interpret our action as a betrayal.

The above is true even if the collection agency acts legally and appropriately. However, for relatively small amounts of debt of which we at best will see only a fraction of what was owed, is it worth the damage?   Clinicians have reported turning over debt of $200 and often less to collections. That means, at best, they might actually see $50-100, if the collection agency is successful. There is one documented case of a not-for-profit agency turning over a debt of $12.68 to a collection agency.

Legal? Yes. Ethical?  Questionable. Appropriate, No! 

The above is when the collection agency is acting legally and by their own ethical standards. But, can collection agencies be relied upon to act ethically even by their own standards, let alone ours?  Can we even count on them to act legally?

Apparently not, according to an NBC Dateline exposé conducted by investigative reporter Chris Hanson.  On March 27, 2009, Dateline aired a show depicting some of the disreputable tactics that, despite laws to the contrary, are common in the debt collection industry.  These tactics include harassing phone calls at all hours, embarrassing calls to family members and employers, calls by agents impersonating law officers and attorneys, and threats that included one woman being asked if she knew what it felt like to be raped.

Hanson used hidden cameras to document collection agents admitting to tactics such as the above and claiming that the chances of getting caught was minimal. When the head of the trade association of collection agencies was shown the tapes, she expressed shock, but admitted that complying with the law was an apparent problem for the industry. This would be like Betsy Clark of NASW being forced to admit that a substantial number of social workers were dishonest.

Even if one did find a collection agency that acted legally and responsibly, debt is a commodity. Like mortgages, it can and often is sold to third parties for collection. That makes it virtually impossible for a clinician to have any assurances that debt they turn over to collection agencies will be handled in a manner that respects the dignity of the client.

It then becomes understandable why clients might feel betrayed by their therapists and then reexamine their entire treatment and perceive other evidence of bad treatment. They are not necessarily borderline, but may be simply hurt and angry and fight back in any way available to them.

A question for another article is why any therapist would allow debt to mount up in the first place. It’s bad clinical and ethical practice.

John A. Riolo, Ph.D., is the editor of Civil Discourse Blog, The Insider, Your Advocate Online, Law and Ethics In Mental Health , and Listen to The Insider Podcast Series.