When Considering Medical Debt Collection Rules, CFPB Looks at Consumer Impact

The Consumer Financial Protection Bureau (CFPB) has been strongly hinting, if not outright announcing, that the medical/healthcare market is one of its primary concerns when looking at its regulation of the debt collection industry.

Over the past year alone, the CFPB has released a report on medical debt collection, conducted a field hearing on the topic, and made medical debt a focus of a Consumer Advisory Board meeting. The CFPB has also been pushed by consumer groups to place more restrictions on medical debt collection.

While it might seem like the CFPB has been looking at the medical ARM segment broadly, its focus is actually very narrow. And it is all a response to general consumer confusion over medical billing and the very broad impact of medical debt on American credit reports.

At a field hearing in December 2014, CFPB Director Richard Cordray offered up some data that serves as a mission statement of sorts for the Bureau’s work on medical debt:

• One in five consumers with a credit report has a medical collections item;
• Fifteen million consumers have medical debt collections items as the only collections items on their credit reports, and many of them have no other seriously delinquent accounts; and
• The average balance of medical collection accounts is $579 and the median is $207, both very low by ARM industry standards.

The Bureau also noted in February 2015, at its Consumer Advisory Board meeting, that medical debt collection accounts appear on credit reports at a much earlier stage of delinquency than practically any other debt type. The takeaway, CFPB officials noted, is that there is a large amount of confusion among consumers with regard to their obligations to pay certain medical bills, even when covered by insurance.

This is easy to understand. A single medical event, even if it is relatively benign, can trigger billing from numerous healthcare providers all under different levels of coverage. And that’s assuming everything is in-network. This can result in several small to moderate amounts owed by the consumer, who may not think they have to pay anything at all.

These bills, if unpaid for even as little as 30 days, can show up on credit reports. All of this can happen before debt collectors are ever involved.

While the Bureau concedes that the issue is predominantly one of medical billing and healthcare industry practices – a major point of agreement at the CAB meeting – it is very concerned that medical debt collectors are using credit reporting as a collection tactic. A representative from the CFPB’s Research department even noted that it is exploring whether this practice is becoming more prevalent.

If there is a main takeaway for ARM companies that focus on medical accounts, it’s that credit reporting of medical accounts will soon be addressed in new rules. The CFPB in December took action on the broader credit reporting industry, mandating more active policing of furnishers by national credit agencies. And FICO has changed its credit scoring methodology to reflect a treatment differentiating medical from non-medical collection agency accounts.

But the CFPB could also mandate or prohibit specific behavior with regard to medical debt when it issues debt collection rules early this year. Although there is no indication that is coming, it would not be surprising if it does.

Another issue facing medical collection agencies is the prospect of the CFPB recognizing revenue from healthcare debt collection in its calculation of Larger Market Participants. The CFPB currently has supervisory authority over any collection agency with annual revenues above $10 million. But the CFPB rule excludes medical debt from the $10 million threshold.

The National Consumer Law Center, and other consumer groups, is pushing the CFPB to remove that exclusion and bring more medical segment ARM firms under supervision. The Bureau has yet to signal if it is ready to take that step.

Regardless of whether a rule specific to medical debt makes it into the CFPB’s debt collection rules proposals, ARM firms that specialize in the market should be aware of the attention. It might not happen this year, but the CFPB is sure to act on healthcare collections at some point in the future; they’ve put in too much work sit idle on the matter.

This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter focused on the U.S. consumer environment. Make sure you’re registered to receive insideARM’s newsletters on your User Profile page.