CFPB moves to soften medical debt's impact


OKLAHOMA CITY -- For the second time this year, the federal government's consumer watchdog is trying to lighten the burden of overdue medical bills, which affect nearly one of every five consumers with a credit report.

New requirements released Thursday dictate major credit bureaus must start tracking credit information "furnishers" – including hospitals and doctors  -- that generate the most billing disputes, and find out why.

CFPB medical debt and credit reports

"It's hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side,'' Richard Cordray, director of the U.S. Consumer Financial Protection Bureau, said in a statement.

Under the requirements, credit bureaus will be required to file regular accuracy reports with the agency. The reports must list the industries from which they receive the most information, and the total disputes generated by those industries. The reports will also list the furnishers with the largest number of consumer disputes. If some furnishers continually have high rates of disputed information, credit bureaus should investigate to identify the causes and take corrective action.

In an emailed statement, the Consumer Data Industry Association, the trade group for credit bureaus, said the new reporting requirement is not out of the ordinary run of data requests received from the CFPB. The effort to track dispute rates should work in hand with the bureaus' efforts to ensure the accuracy of credit reports, the group said.

The move is part of a broader effort to treat medical debt differently than other, more-voluntary forms of debt:

  • In May, the CFPB called on creditors to blunt the impact of overdue medical debt, which is more error-prone than other debts. 
  • Under a pending IRS rule, nonprofit hospitals would have to wait 120 days before taking bill collection actions against consumers. Cordray urged for-profit hospitals and medical providers to adopt the standard as well to protect consumers. 
  • In August, FICO, creator of the leading credit score, released its revised "FICO 9" formula that lightens the impact of medical bills. However, creditors must adopt the formula for the change to improve people's credit scores.

James Wehmann, executive vice president for scores at FICO, said two of the three big credit bureaus have made FICO 9 available to lenders, who are testing the formula. He said he expects lenders to begin using the formula in lending decisions before long. While there is a great deal of interest from lenders, "it takes a considerable time" to complete testing of a new scoring fomula, he added.

Study critical of medical collection
The consumer bureau also released a study critical of medical collection practices, such as "parking" unpaid doctor bills on your credit report without warning. The financial protection bureau lacks jurisdiction over hospitals and doctors, but it can influence their billing practices via rules on credit bureaus and debt collectors.

The announcement came on the day that the bureau held a field hearing in Oklahoma City about medical debt with consumer advocates, debt collectors and health care industry experts.

A panelist at the hearing, Mark Rukavina, principal of Community Health Advisors LLC, noted one way health care costs are unique: "Sometimes people are actually unconscious when they incur these bills."

  • 43 million: Americans with unpaid medical debt weighing on their credit reports.
  • $207: Median unpaid medical bill.
  • 15 million: Consumers whose only unpaid bill is a medical bill.
  • 52 percent: The slice of all overdue bills that are related to health care.
Source: Consumer Financial Protection Bureau study, "Consumer Credit Reports: A Study of Medical and Non-Medical Collections," released Dec. 11, 2014.

Scope of medical debt
Medical debt is a huge problem for U.S. consumers, according to the CFPB study released Thursday titled "Consumer credit reports: A study of medical and nonmedical collections." More than half of all unpaid bills in the hands of collectors are medical debts, affecting about 43 million Americans. Unlike phone or utility bills, medical bills are unpredictable and often difficult to understand, as a visit to the hospital can generate bills from multiple physicians. Confusion over insurance coverage adds to the murk.

"Unlike credit cards, installment loans, utilities or wireless or cable service ... most often consumers are not told the costs of medical services in advance," the study said. Even for nonemergency care, the cost of treatments, tests, drugs and other services are usually a mystery until the bills arrive.

"What is really needed is to eliminate the element of surprise for consumers, when they get these bills out of nowhere," Rukavina said.

Collection practices add to consumers' problems, the study said. Collectors may report overdue bills to the credit bureau instead of calling the consumer, knowing that the consumer will call them when the damage to their credit report is discovered. Unlike with loans, standards don't exist for how soon an unpaid medical bill can be reported as an overdue debt in collection.

As a result, medical bills are more likely to hit people's credit unfairly, the study indicates. Twenty-two percent of consumers dinged by a medical bill on their report have no other debts in collection and pay their bills on time. "A large portion of consumers with medical debts in collections show no other evidence of financial distress," the study says.

While people think of medical procedures as big-ticket items, most medical bills in collection are actually smaller than other overdue bills. The typical unpaid medical bill is $207, compared to $366 for nonmedical bills. By contrast, unpaid student loans and credit cards often run into thousands of dollars, the study said.

Sometimes people are actually unconscious when they incur these bills.

-- Mark Rukavina
Community Health Advisors LLC

The announcement Thursday stopped short of requirements on debt collectors that consumer advocates have called for. In a September report, the National Consumer Law Center said the CFPB should require collectors to notify consumers of medical debts and provide a chance to dispute the debts before putting them on their credit reports.

However, the CFPB is working on a rule overhauling debt collection practices that is expected in early 2015. That rule is expected to update consumer protections while also addressing how collectors can use email and cellphones to contact debtors.

Consumer tips
The CFPB Thursday also released advice for consumers to keep medical debts from hurting their credit profile. Among the tips:

  • Don't use a credit card for a doctor bill you can't pay right away. Talk to the provider about a low-interest repayment plan instead.
  • Negotiate the cost of care that isn't covered by insurance. Ask the hospital to give you the rate that insurers pay.
  • Act quickly to determine which bills will be covered or partly covered by insurance. Delays can cause the unpaid bill to land on your credit report and hurt your credit score.
See related: Affordable Care Act rules IRS to hospitals give break on medical debt collection

Updated: December 11, 2014

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