In conjunction with its field hearing today on medical debt collection, the CFPB released a study that “describes characteristics of the medical and non-medical collections tradelines on consumers’ credit reports and the processes by which they appear and disappear.” However, what deserves to be the headline grabber is the CFPB’s accompanying announcement that “the major consumer reporting agencies will be required to provide regular accuracy reports to the Bureau on how disputes from consumers are being handled.” Although the CFPB did not specify what “major” consumer reporting agencies (CRA) means, presumably the CFPB is referring to the CRAs that are subject to CFPB examination because they qualify as “larger participants” under the CFPB’s larger participant rule for the credit reporting industry.
The CFPB has labeled the “accuracy reports” which the CRAs must complete a “Consumer Reporting Agency Data Request.” The information requested for the relevant reporting period includes:
- Names of the 25 furnishers with the largest number of consumer disputes and the number of disputes received as to each such furnisher
- Names of furnisher industries and the number of disputes received about furnishers in each such industry
- Names of the 10 furnishers in each industry with the largest number of consumer disputes
- Information about the outcome of disputes
- Information about collection account disputes, consisting of the total number of such disputes and the percentage of collection disputes by portfolio types (e.g. medical, credit card, retail, telecom)
The CFPB is expecting CRAs to do more than just complete and submit the new form. In its press release, the CFPB states that “[i]f a credit reporting company continuously experiences an outsized number of consumer disputes about information from a particular furnisher, the CFPB expects the credit reporting agency to investigate, identify if there is a problem, and take appropriate action.”
The CFPB’s study of collections tradelines focuses on information furnished distinctly to CRAs as collections tradelines, and observes that the vast majority of such tradelines are furnished by third-party debt collectors and debt buyers. While the study’s discussion of medical collections tradelines is the focus of the CFPB’s press release and Director Cordray’s prepared remarks for the field hearing, a substantial portion of the study is devoted to a general discussion of collections tradelines, debt collectors and debt buyers who furnish information about debts in collection, and the varying practices of furnishers.
For the study, the CFPB used data in its Consumer Credit Panel (CCP) from December 2012 and over the period January 2013 through June 2014. The study describes the CCP as a “longitudinal, nationally representative sample of approximately 5 million de-identified credit records” from one of the three nationwide CRAs. The study also draws on consumer complaints to the CFPB and interviews with debt collection agencies, healthcare providers, and “other observers of the healthcare billing and payment processes.”
Key findings include:
- 67.5 percent of all collection tradelines are reported on accounts that originated with a healthcare provider, utility company, or telecommunications company, with medical collection tradelines accounting for 52.1 percent of all collection tradelines
- Collection tradelines appear on the credit reports of 31.6 percent of consumers with 19.5 percent of credit reports containing one or more medical collection tradelines and 24.5 percent containing one or more non-medical collection tradelines
- The average and median amounts of medical collections tradelines ( $579 and $207) are lower than the average and median amounts of non-medical collection tradelines ($1000 and $366)
- The large number of collectors furnishing information on collections tradelines and their indirect and short term ties to the underlying debt creates potential sources of error in collections reporting
- Whether or not a collections tradeline appears on a consumer’s credit report, when it appears or disappears (i.e. “falls-off”), and whether an account is labeled as paid or deleted when it is settled reflects policies and strategies of creditors, debt collectors and debt buyers, with the variety in practices introducing a range of variability that is not present in the reporting of active tradelines for which payment status is the primary indicator of delinquency. Such variability by industry, creditor and furnisher makes a collections tradeline an imprecise indicator of a consumer’s financial condition or willingness to pay
- Medical collection tradelines present special concerns due to the complexity of the medical billing and reimbursement process which frequently makes medical bills a source of confusion for consumers and increases the likelihood that consumers will hesitate or delay paying medical bills due to uncertainty “about what they owe, to whom, when, or for what.”
- Many more consumers with only medical collections tradelines demonstrate a tendency to pay their bills on time regardless of the number of collections tradelines as compared with consumers with only non-medical collections tradelines or those with both medical and non-medical collections tradelines. Because consumers with only medical collections tradelines owe smaller amounts on their debts in collection relative to consumers in such other groups, consumers with only medical collections tradelines “presumably” have a higher capacity to repay such debts and their nonpayment of such debts suggests “there is something different” about their understanding of their debts and reasons for nonpayment. (In his remarks, Director Cordray commented that this analysis “reinforces” the CFPB’s finding in its May 2014 report entitled “Data point: Medical debt and credit scores,” that credit scoring models may be overly penalizing consumers with medical debts that go into collection by producing credit scores that underestimate such consumers’ creditworthiness.)
The CFPB also released a consumer advisory that provides advice to consumers in dealing with medical debts, such as to carefully review medical bills and to act quickly to resolve or dispute medical bills.