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  • Federal government directs agencies to eliminate medical debt as an indicator of creditworthiness

    Federal Issues

    On August 25, the Director of the Office of Management and Budget (OMB) issued a memo directing “agencies with direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor, to whenever possible and consistent with the law take actions to reduce the impact of medical debt in the underwriting of Federal credit programs.” Although OMB recognized that some agencies such as the Department Veterans Affairs and the CFPB have already taken some steps to lessen medical debt burdens, it found that these prior efforts have been insufficient. Instead, the memo stresses that “[t]he collective efforts of the Federal Government, working with the private sector” are necessary to “remedy the impact of the issue of medical debt as an indicator for creditworthiness.” The memo outlines guidance for agencies to develop a plan to eliminate medical debt as a factor for underwriting in credit programs. These steps include (i) “[i]dentifying any statutory, regulatory, or administrative changes that would be required to modify criteria and consideration factors, exclude medical debt, or otherwise lessen the impact of medical debt consideration or underwriting in Federal lending programs”; (ii) conducting an “[i]nitial qualitative assessment and cost-benefit analysis of any statutory or regulatory changes” or any anticipated changes; (iii) conducting an “[a]ssessment of whether model updates are required for FCRA cost estimation, especially if the exclusion of medical debt would explicitly or implicitly affect particular underwriting requirements such as debt-to-income ratios, etc.”; and (iv) incorporating stakeholder input and assessing known risks that may impact an agency’s goal of achieving its plan.

    Federal Issues Medical Debt Consumer Finance OMB Underwriting Department of Veterans Affairs CFPB

  • Colorado reminds collection agencies about medical law

    State Issues

    On August 16, the Colorado attorney general published a memorandum reminding collection agency licensees and interested parties that HB21-1198 becomes effective September 1. HB21-1198, among other things, amends the Colorado Fair Debt Collection Practices Act to add a new unfair practice—attempting to collect a debt that violates certain HB21-1198 requirements. The bill also creates requirements for notice and certain limitations on collections of medical debt. Specifically, the bill enacts healthcare billing requirements for indigent patients who are treated, but not reimbursed, through the state’s indigent care program and sets forth requirements before any collection proceeding may be initiated against an indigent patient. 

    State Issues State Attorney General Colorado Medical Debt Debt Collection Licensing Consumer Finance

  • CFPB finds relationship between medical care assistance and debt collections

    Federal Issues

    On August 24, the CFPB published a blog post exploring the connection between eligibility for financial assistance for medical care and the prevalence of medical collections. According to the Bureau, Americans spent $4.1 trillion on health care in 2020, and continue to incur significant medical expenses, despite private insurance coverage and government programs. The Bureau expects that number to reach $6.2 trillion by 2028. The Bureau found that as household incomes decrease, a higher percentage of consumers have medical collections. For example, the Bureau reported that of those with household earnings between $20,001 and $40,000 in 2018, consumers had at least one medical collection on their credit report. The Bureau also reported that among people in households with children and with incomes under $40,000, “38.1 percent had at least one medical collection on their credit report in December 2018,” which is approximately three times the rate for people without children earning the same amount. The Bureau noted that three nationwide credit reporting companies recently began removing paid medical collections from credit reports and will, starting in 2023, stop reporting medical collections below $500. However, the Bureau explained that many low-income consumers will not benefit from this change as their existing collections exceed $500, and therefore access to financial assistance continues to be important for such consumers. The Bureau concluded that more “research could explore the extent to which differences in legislative and regulatory environments influence the provision of financial assistance and lead to better financial outcomes for consumers.”

    The same day, the Bureau announced that Director Rohit Chopra will host a virtual discussion to explore challenges around nursing home debt collection practices and the impact they can have on financial wellbeing on September 8. According to the Bureau, the discussion “is a chance for the CFPB to listen and learn about consumer advocates’ and individuals’ experiences with nursing home debt and debt collection practices.”

    Federal Issues CFPB Consumer Finance Medical Debt Debt Collection

  • CFPB reports on potential impacts of medical debt

    Federal Issues

    On July 27, the CFPB issued a report analyzing how actions announced by three national consumer reporting companies affect people who have allegedly unpaid medical debt on their credit reports. The report is a part of a CFPB series that examines consumer credit trends using a longitudinal sample of approximately five million de-identified credit records maintained by one of the three nationwide consumer reporting agencies. According to the report, in March, the credit reporting companies announced voluntarily that they would no longer report certain medical collections. Specifically, starting July 1, 2022, the time before unpaid medical collections can appear on a consumer’s report will increase from 180 days to one year and paid medical collections will no longer appear at all.  In addition, sometime in 2023, medical collections with balances below a threshold of “at least” $500 will not appear on a consumer’s report. The Bureau’s report stated that “[t]hese changes have the potential to reduce the amount of medical debt reported on consumer credit reports and to benefit some consumers.” The report describes the characteristics of consumers with reported medical collections currently and provides a state-by-state breakout of how the credit reporting changes will impact consumers’ credit reports. Highlights of the report include: (i) consumers in Northern and Eastern states have higher concentrations of medical debt that are likely to be removed; (ii) consumers with medical debt are significantly more likely to reside in neighborhoods that majority Black or Hispanic and have lower median income, but consumers likely to have all their medical debt removed by the change are slightly more likely to live in neighborhoods that are majority white and higher income; and (iii) eliminating paid collections is less likely to have a substantial effect, as very few medical collection tradelines are ever marked paid.  The CFPB also noted that, due to the nature of the data, the report does not examine the impact of the extension of the time between referral of the medical bill for collections and the reporting of the bill from 180 days to one year.”

    Federal Issues CFPB Medical Debt Consumer Finance Credit Reporting Agency

  • CFPB shares consumer finance data

    Federal Issues

    On June 15, CFPB Deputy Director Zixta Martinez spoke before the Consumer Federation of America’s 2022 Consumer Assembly addressing recent research by the Bureau on payday loans, rent-a-bank schemes, overdraft and other banking fees, medical debt, and credit reporting. In her remarks, Martinez first discussed the Bureau’s report on consumer use of state payday loan extended payment plans, which she noted is “the first significant piece of research into extended payment plans” (covered by InfoBytes here). She assured advocates raising concerns about “rent-a-banks” that the Bureau shares those concerns and is focused on this issue. Turning to overdraft and other banking fees, Martinez described overdraft programs as “more like a maze than a service,” which often result in complicated charges being imposed on families who can least afford them, driving them into deeper debt. She pointed to the Bureau’s desire “to move toward a market that works for families and honest financial institutions alike,” recognizing positive shifts made by big banks towards reducing or eliminating such fees as well as the Bureau’s commitment to “returning vigorous competition to this market." Finally, Martinez addressed medical debt, noting that many of the “approximately 43 million Americans with $88 billion in allegedly unpaid medical bills on their credit reports” are trapped in a “bureaucratic doom-loop comprised of the healthcare, insurance, debt collection, and credit reporting industries.” To address this issue, Martinez explained that the Bureau is working broadly across the government and with the non-profit sector to ensure that medical debt does not impact job security, housing, or qualification for affordable credit, and is considering whether it is appropriate for such debt to be included on credit reports at all.

    Federal Issues CFPB Consumer Finance Medical Debt Overdraft

  • Colorado enacts medical debt collection bill

    State Issues

    On June 9, the Colorado governor signed HB 1285, which prohibits hospitals from taking certain debt collection actions against a patient if the hospital is not in compliance with hospital price transparency laws. Specifically, the bill prohibits hospitals that are not in compliance with a price transparency rule that went into effect in January 2021 from placing debts with third-party collection agencies, filing lawsuits to collect on unpaid debts, and reporting debts to credit reporting agencies. The bill also establishes that a patient may file suit if they believe that a hospital was not in material compliance with price transparency laws.

    State Issues State Legislation Colorado Medical Debt Debt Collection Consumer Finance

  • CFPB releases medical debt report

    Federal Issues

    On April 20, the CFPB released a report analyzing complaints submitted to the Bureau in 2021 regarding medical billing, collection, and consumer reporting practices. The report describes the difficulties that consumers face in identifying, verifying, or eliminating the debt. The report also noted that most of the complaints could be sorted into two main themes: (1) the debt was already paid, does not belong to the consumer in question, or is otherwise incorrect, and (2) that information included in collection notices raised concerns. According to the Bureau, key findings of the report include, among other things: (i) from 2018 to 2021, complaints regarding collection attempts on medical bills that were not owed increased by 31 percent; (ii) approximately 15 percent of debt collection complaints in 2021 were about attempts to collect a medical bill; and (iii) “consumers often expressed surprise and frustration about finding out about old or small medical debts when checking their credit report.” The report is the most recent among statements and reports from the CFPB regarding medical debts and credit reporting. As previously covered by InfoBytes, in March the CFPB released a report, Medical Debt Burden in the United States, that cited research finding that $88 billion in medical debt on consumer credit reports, accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies.

    Federal Issues CFPB Consumer Finance Medical Debt Debt Collection Consumer Complaints

  • Biden orders agency action on medical debt

    Federal Issues

    On April 11, the Biden administration released a Fact Sheet regarding an initiative to decrease “malicious” and “predatory” billing and collection practices related to medical debts, including holding medical providers and debt collectors “accountable for harmful practices.” According to the Fact Sheet, the administration has ordered several agencies to take actions intended to “lessen the burden of medical debt and increase consumer protection.” The Fact Sheet provides “guidance to all agencies to eliminate medical debt as a factor for underwriting in credit programs,” and states, among other things, that the: (i) FHFA is reviewing the credit models that Fannie Mae and Freddie Mac use; (ii) USDA is discontinuing “the inclusion of any recurring medical debts into borrower repayment calculations”; and (iii) VA is reviewing its underwriting guidelines to ensure it minimizes or eliminates medical debt reporting as a proxy for creditworthiness. Additionally, the Fact Sheet noted that the Department of Health and Human Services is requesting data from over 2,000 providers on medical bill collection practices, lawsuits against patients, financial assistance, financial product offerings, and third party contracting or debt buying practices. The Fact Sheet also noted that the CFPB “will investigate credit reporting companies and debt collectors” in regard to “patients’ and families’ rights,” which includes targeting “coercive credit reporting” and determining whether medical debts should be included in consumer credit reports.

    Federal Issues Biden Consumer Finance Medical Debt FHFA Freddie Mac Fannie Mae USDA Department of Veterans Affairs Department of Health and Human Services

  • Chopra says credit reporting on medical debt needs review

    Federal Issues

    On April 6, CFPB Director Rohit Chopra expressed cautious optimism about medical debt credit reporting changes during remarks to the CFPB’s Consumer Advisory Board. The Bureau has studied the burden of medical debt on consumers since the agency’s inception and has issued reports examining the impact of including data related to unpaid medical bills on credit reports. Chopra noted that a report released by the Bureau last month (covered by InfoBytes here) found that $88 billion of outstanding medical bills in collections affect one in every five consumers, with medical debt accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). Shortly after the Bureau released the report, the three major CRAs announced they planned to eliminate nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, beginning July 1, paid medical collection debt will no longer be included on consumer credit reports issued by those three companies, and unpaid medical bills will only be reported if they remain unpaid for at least 12 months. Additionally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by these CRAs.

    In response to the announcement from the CRAs, Chopra cautioned that “[i]mportant decisions about credit reporting should not be left up to three firms that arbitrarily decide how reporting will impact consumers’ access to credit.” While he acknowledged the importance of providing more time for providers and insurance companies to process claims before debts are reported, he stated that the announcement failed to “fundamentally address the concern that the credit reporting system can be used as a tool to coerce patients into paying bills they may not even owe.” Chopra presented three questions to the Consumer Advisory Board for consideration: (i) should unpaid medical bills be treated as a typical “debt”? (ii) if medical bills are not a good factor in predicting repayment on future loan obligations, should they be included in credit reports? and (iii) how should the inclusion of allegedly unpaid medical bills in credit reports be reviewed as part of the broader question of how data is used in consumer finance markets?

    Federal Issues CFPB Medical Debt Consumer Finance Credit Report Credit Repair Organizations Act

  • Senate Banking Committee members ask CFPB to address medical debt

    Federal Issues

    On March 29, several Democratic U.S. senators sent a letter to CFPB Director Rohit Chopra asking the Bureau to use its authority to take measures to address the growing medical debt burden facing consumers. The letter, led by Senator Sherrod Brown (D-OH), follows a report issued by the Bureau earlier in the month that outlined the negative consequences of medical debt and announced the agency’s intention to review whether data on unpaid medical bills should be included in consumer credit reports (covered by InfoBytes here). The Bureau also stated it would hold consumer reporting agencies accountable for inaccurate reports. Shortly after the Bureau released the report, the three major credit bureaus announced they were eliminating nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, Brown issued a statement supporting the credit bureaus’ announcement, but also stressed his intention to collaborate with the Bureau on “address[ing] the growing burden of medical debt, protect[ing] working families, and hold[ing] bad actors accountable.”

    In their letter, the senators highlighted the disproportionate impact of medical debt on low-income individuals, minorities, veterans, younger and older Americans, and other vulnerable populations. The senators also expressed concerns regarding the recent trend of private equity firms investing in the healthcare market, especially as private equity-owned health providers are reportedly charging higher rates but delivering lower quality care. According to the senators, these concerns heighten the need for the Bureau to take further action. The senators asked the Bureau to create an ombudsman position to handle medical debt issues (similar to the ombudsman position that oversees student loan servicers’ compliance with federal and state law), and pressed the need for additional research focusing on, among other things, medical debt collection practices and the debt selling market for medical bills.

    Federal Issues CFPB Senate Banking Committee Consumer Finance Medical Debt

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