Federal Truth-in-Lending Act
All policies and procedures used in collection must conform with both federal and state law, and any applicable ethical obligations. At the federal level, physicians who want to extend credit regularly or charge interest may be subject to the Federal Truth-in-Lending Act (the Act) (15 United States Code ’1601 et. seq.). The rules for the Act are set forth in the Federal Reserve System’s Regulation Z (12 Code of Federal Regulations ’226).
In order to be subject to the Act, four basic conditions must be met:
- Credit must be extended;
- The extension of credit must be done “regularly,” which is defined as more than 25 times per year;
- The credit must be subject to a finance charge or payable by a written agreement in more than four installments; and
- The credit must be extended primarily for personal, family or household purposes.
Credit extensions by physicians do not usually fulfill all of the four requirements.
Although physicians may extend credit to patients for personal purposes, most physicians do not either extend credit 25 times annually or by written contract payable in four or more installments. Additionally, excluded from the definition of “finance charge” are “charges for actual unanticipated late payment, for exceeding a credit limit or for a delinquency, default or similar occurrence.”
If an interest payment is charged less than 25 times per year in the unusual cases of delinquency, a physician will probably not be subject to the Act. If an interest payment is charged on all accounts that remain unpaid within a normal 30-day billing cycle, a physician will probably be subject to the Act. If there is any doubt, a physician should consult an attorney familiar with this area of law to ensure compliance with the notice and billing requirements of the Act.