Credit Reporting of Medical Debt: An Update

In March 2022, the Consumer Financial Protection Bureau (“CFPB”) issued a 54 page report regarding the impacts of medical debt on consumers. The CFPB research showed that $88 billion in medical debt was on consumer credit records as of June 2021 and most medical debt collection tradelines[1] are under $500.

In response, Equifax, Experian, and TransUnion (the “NCRCs”) announced they would change how medical debt will be reported on credit reports. Three changes were announced:

  • As of July 1, 2022, any paid medical collection debt will no longer appear on a consumer’s credit report;
  • As of July 1, 2022, the NCRCs extended the period before an unpaid medical debt can be reported from six months to one year; and
  • In the first half of 2023, the NCRCs will no longer include medical collection debt under $500 on credit reports.

Currently, the NCRCs are still including medical collection debt under $500 on credit reports. This should change within the next three months.

On February 14, 2023, the CFPB published a new report — Market Snapshot: An Update on Third-Party Debt Collections Reporting — with some interesting findings related to medical debt tradelines. Those findings include:

  • Contingency-fee-based debt collectors (as opposed to debt buyers) primarily furnish medical collections tradelines.
  • “Medical bills account for 68.9 percent of furnished collections by contingency-fee-based debt collectors.”
  • Contingency-fee-based debt collectors (which includes most medical debt collectors) reported 38% fewer tradelines in the first quarter of 2022 compared to the first quarter of 2018.
  • Medical debt tradelines decreased from approximately 160 million in 2018 to approximately 100 million in 2022.
  • “Most collections tradelines are for low-balance, non-financial accounts. The median collections balance is $382, and almost three-quarters of all collections are non-financial, including medical, utility, telecommunications, and rental/leasing collections.”
  • Medical collections tradelines constitute 57% of all collections on consumer credit reports.
  • Medical collections had 544 furnishers of debt collection tradelines (the highest number of furnishers when compared to the other asset types, such as banking & financial, retail, telecom, etc.)

The report estimates that even once the NCRCs exclude medical collection debt under $500 on credit reports, many consumers will still have medical debt on their credit reports:

Upcoming changes to medical collections reporting, as announced by Equifax, Experian, and TransUnion, will remove low-balance (less than $500) and paid medical collection tradelines from consumer credit reports. While this will reduce the total number of medical collections tradelines, an estimated half of all consumers with medical collections tradelines will still have them on their credit reports, with the larger collection amounts representing a majority of the outstanding dollar amount of medical collections remaining on credit reports.

The report concludes:

Despite being less predictive of future loan repayment than other types of financial tradelines, medical collections continue to be the most common collection tradeline on consumer credit reports.

The number of collection tradelines on consumer reports should decrease further due to planned changes to medical collection reporting by the three NCRCs. The CFPB estiamtes that two-thirds of medical collections tradelines will be removed as a result of these changes, which may lead to increased credit scores for millions of consumers, many of whom will no longer have any collections on their credit reports. However, in dollar terms, the removed collections represent a minority of all medical collection balances. The CFPB estimates that about half of all consumers who currently have medical collections tradelines on their credit reports will likely still have medical collections reported once the changes go into effect.

With these medical debt reporting statistics, will the CFPB do more to protect consumers from the reporting of medical debt? Knowing it isn’t predictive of future loan repayment, it should. However, for now, we will wait and see the effect of the NCRCs promised debt reporting change, which should happen any day. (Valium)

[1] A tradeline is an item on a consumer’s credit report and includes information about an allegedly unpaid debt.