How the CFPB Can Help Consumers Hurt By Medical Debt

The Consumer Financial Protection Bureau issued a new report today that sheds some light on the tricky world of medical debt collections.

This new report found that 43 million consumers have medical collections on their credit reports, and more than half of the collection accounts on credit reports are medical in nature. It notes that the systems for incurring, collecting and reporting medical debt can be challenging for consumers.

In a press release, CFPB Director Richard Cordray stated: “It’s hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side. The CFPB is taking action to improve credit report accuracy. Getting medical care should not make your credit report sick.”

The CFPB also found that 15 million consumers have only medical collections on their reports. Half of these consumers with only medical collections otherwise have clean credit, meaning they have no serious delinquencies and show no other signs of financial distress.

I’ll be serving on a panel at today’s hearing along with representatives from the Healthcare Financial Management Association, FICO Score, Consumers Union, the Center for Responsible lending and the collection industry to discuss problems in the current system and what we can do moving forward. Here’s my take on what we can do next to help alleviate some of the problems the CFPB’s report highlights.

Medical Billing Confusion

The latest CFPB report follows a data point report on medical debt the agency issued earlier this year, which found that the credit scoring system overly penalized consumers with medical collections on their credit reports

Healthcare billing is complex. The lack of pricing transparency in healthcare continues to baffle consumers, and millions furthermore get mired in an opaque bill adjudication process and fragmented reporting and collection systems. And with no clear standards for when a medical bill should be declared delinquent, there are concerns regarding the integrity of medical collection data. The earlier report notes that medical bills can be sent to collection prior to the completion of the claim adjudication process, or before a consumer is fully informed of what they owe — both issues raise concerns about the appropriateness of such accounts being included on a consumer’s credit report.

The CFPB’s latest report includes analysis of consumer complaints received by the bureau during May and June of this year. They identified a portion of complaints that related to medical collections and compared them to non-medical collection complaints. Consumers with medical collection issues were more than two times as likely to claim that the debt was paid than consumers with non-medical collection issues (20% for medical compared to 8.5% for non-medical). The consumers with medical collections were also more likely to complain that the collector was attempting to collect the wrong amount than those with non-medical collections (7.6% medical vs. 4.7% non-medical).

It is interesting to note that consumers with medical collection issues were less likely to complain about threatening language or hostile communication than those registering complaints regarding non-medical collections.

Moving Forward

This new report reveals multiple ways in which medical collections on credit reports can harm consumers. The CFPB says it’s taking steps to hold consumer credit reporting agencies accountable in making sure that information on consumer credit reports is accurate. To that end, the bureau says it will begin requiring the national credit reporting agencies to provide regular reports on disputes filed with them.

Specifically, credit reporting agencies will be required to investigate data furnishers that generate a disproportionate number of disputes and take action, if appropriate. They are also being asked to break out the volume of information and disputes generated from the top industries and identify the data furnishers generating the largest number of disputes by industry.

These steps will go a long way in helping American consumers who’ve been harmed by errors and inappropriate information on their credit reports.

[Editor’s note: Consumers should check their credit reports regularly for errors or other issues that need to be addressed. A big, unexpected change in credit score is also a sign to check reports for problems like a medical collections account. Consumers can get their reports for free from each of the three major credit reporting agencies every year. They can also use free resources to check their credit scores, including Credit.com.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.