Are Early Out Services Banned in Texas? An Examination of How Texas Debt Collection Requirements Apply to Early Out Entities

The term “early out entity” is generally defined as a third party that performs business office services (“extended office services” or “EBO services”) on behalf of hospitals and other medical service providers on non-delinquent patient accounts.  An early out entity receives the accounts for servicing from the hospital or medical service provider prior to the accounts being in default and does not perform collection services on accounts deemed to be in default.  The early out entity typically services the accounts in the name of the hospital or medical service provider. Based on a plain reading of the above law, Texas likely prohibits early out entities from engaging in EBO services in the name of the hospital or medical service provider.  Read on to learn why.

Early Out Entities are Likely Considered Debt Collectors Under the Texas Finance Code

The Texas Debt Collection Act (“TDCA”) distinguishes between a “creditor”, “debt collector” and “third party debt collector.”  Tex. Fin. Code § 392.001(3), (6) and (7).   The TDCA defines a “creditor” as a “party, other than a consumer, to a transaction or alleged transaction involving one or more consumers.  Id. at (3).  A “debt collector” is a “person who directly or indirectly engages in debt collection . . . .”  Id. at (6). “‘Debt collection”, in turn, means an action, conduct or practice in collecting, or soliciting for collection, consumer debts that are due or alleged to be due a creditor.”  Id. at (5).  There is no qualification that the consumer debt must be in default or delinquent. 

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