Minnesota Debt Collection Reforms

June 26, 2024
By Cornerstone Staff

Minnesota Governor recently signed into law Senate Bill 4097 introducing a series of reforms for Debt Collection relating to collection agency licensing, coerced debt, medical debt limitations, property exemptions, and wage garnishment. The provisions that were passed into law affecting the receivables industry are summarized as follows:

Waiver of Collection Agency License Requirement

The Commissioner of Commerce can exempt a nonresident collection agency and its affiliated collectors from licensing and registration requirements if two conditions are met:

  1. There is a written reciprocal licensing agreement between the commissioner and the licensing officials of the nonresident collection agency’s home state.
  2. The nonresident collection agency holds a valid license in good standing in its home state.

This will go into effect August 1, 2024.

Despite the waiver, debt collectors must still adhere to the Minnesota Fair Debt Collection Practices Act and other relevant regulations. Maintaining a thorough understanding of these requirements is crucial to ensure a compliant debt collection process.

Coerced Debt

With the passing of SB 4097, an amendment is made to the coerced debt statute enacted in 2023 to:

  1. Eliminate harassment as a form of coercion.
  2. Define the rights of creditors to take legal action against the individual responsible for causing someone to incur a coerced debt.
  3. Specify the necessary content of written communication from the victim to the creditor before seeking legal redress.

Effective Jan. 1, 2025.

Debt collectors must exercise heightened diligence when dealing with cases that may involve coerced debt. Implementing robust screening processes and training staff to identify potential instances of coercion can help mitigate the risk of inadvertently pursuing illegitimate debts.

Limiting Medical Debt Collection Practices

Another key aspect is the introduction of limitations on medical debt collection practices. The law, effective from October 1, 2024, prohibits individuals or entities from:

  1. Reporting medical debt to a credit reporting agency.
  2. Imposing interest, fees, charges, or expenses related to charged-off medical debt unless expressly authorized by the agreement creating the medical debt or permitted by law.
  3. Challenging a debtor’s claim of exemption to garnishment or levy in a manner that is baseless, frivolous, or in bad faith
  4. Violating a list of prohibitions parallel to existing state and federal collection prohibitions.

The law defines “medical debt” as debt primarily incurred for medically necessary health treatment or services, including debt charged to a credit card or other credit instrument specifically for health treatment or services after October 1, 2024. Notably, the law states that medical debt does not include non-health-related credit card debt, services provided by a veterinarian or dentist, or debt charged to a home equity line of credit.

Expanding Property Exemptions

Effective from August 1, 2024, the property exemptions are revised to adjust the range of items and their corresponding value limits that individuals can safeguard from seizure. This includes, but is not limited to, religious artifacts, musical instruments, household goods, jewelry, and motor vehicles. Furthermore, new exemptions are introduced for books, federal or state tax credits for eligible low-income taxpayers, household tools, and a wildcard exemption in bankruptcy.

Debt collectors must carefully review and adapt their asset seizure and garnishment practices to align with the new property exemption rules. Failure to do so can result in legal challenges and potential penalties, underscoring the importance of staying up-to-date with the evolving regulatory landscape.

Wage Garnishment Limitations

The passed law also revises limitations on wage garnishment. Starting April 1, 2025, the wage garnishment limits are revised to ensure that the maximum portion of an individual’s total disposable earnings subject to garnishment in any pay period does not exceed the lesser of:

  1. 25% of the debtor’s disposable earnings if the debtor’s weekly income exceeds 80 times the greater of the hourly wage exemption requirement.
  2. 15% of the debtor’s disposable earnings if the debtor’s weekly income exceeds 60 times but is less than or equal to 80 times the greater of the hourly wage exemption requirement.
  3. 10% of the debtor’s disposable earnings if the debtor’s weekly income exceeds 40 times but is less than or equal to 60 times the greater of the hourly wage exemption requirement.

Debt collectors must carefully review and adjust their wage garnishment practices to comply with the new limitations. This may involve revising their internal policies, updating their systems, and providing training to their staff to ensure compliance.


The passage of this law has ushered in a wave of debt collection reforms that should be examined by legal, compliance and operations employees of agencies that collect on accounts owed by Minnesota.
By understanding the key provisions of the legislation, implementing effective strategies, and maintaining a solutions-oriented approach, debt collectors can not only ensure compliance but also enhance their overall effectiveness and customer satisfaction.


Cornerstone Staff

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