Last month, the Consumer Financial Protection Bureau (CFPB) kicked off a rulemaking process that, if enacted, would reshape the credit reporting and debt collection landscape and could have a detrimental effect on medical and dental providers’ bottom line.
As we previously noted, the CFPB, under director Rohit Chopra, continues to make medical financing and debt collection a priority of the agency’s agenda. In prepared remarks on a call with Vice President Kamala Harris, Director Chopra noted that 58% of all third-party debt collection tradelines were for medical debt, making medical debt the most common debt collection tradeline on credit records in 2021. The problem, per the CFPB, is that billing and insurance adjustment errors can cause inaccurate reporting, and medical billing data is less predictive of future repayment when compared to traditional credit obligations.
Currently, the Fair Credit Reporting Act limits the inclusion of medical information on credit reports and only permits a creditor to use medical information in a manner and to an extent no less favorable than it would use comparable non-medical information. See 15 U.S.C. § 1681b(g)(1)(C) (noting in relevant part that creditors may supply “information … relating to debts arising from the receipt of medical services… where such information… do not provide information sufficient to infer, the specific provider or the nature of such services”). See also 12 C.F.R. § 1022.30(d)(1)(ii) (“Regulation V”) (providing that creditor may “use the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction”).
The CFPB under Director Chopra looks to go further suggesting that medical debt collectors are “weaponizing the credit reporting system.” In its recent outline, the CFPB is considering proposing to: (1) revise Regulation V, such that creditors are prohibited from obtaining or using medical debt collection information to make determinations about a consumer’s credit eligibility; and (2) prohibit consumer reporting agencies from including medical debt collection tradelines on consumer reports furnished to creditors for purposes of making credit eligibility determinations.
While CFPB’s proposal has been applauded by consumer groups, there could be unintended consequences that could impact smaller medical and dental practices and patient access to healthcare in smaller markets. Medical providers submit information about unpaid medical bills to credit reporting agencies which encourages patients to pay their medical debt, by virtue of the patient’s desire to avoid the negative impact of having unpaid medical and dental bills on their credit reports. If the CFPB’s proposal were to come into fruition, it may result in medical providers having a lower return on their receivables and may increase expenses in having to resort to costlier methods of collection such as employing additional in-house staff and more collection litigation. Further, removal of medical tradelines could result in medical providers not serving areas where they cannot demand payment upfront, possibly leading to higher costs and less access to care for all patients.
As of the current moment, the CFPB acknowledges that “[n]o entity will be required to comply with any of the proposals … before a final rule is issued, and the implementation period between the final rule’s issuance date and its compliance date concludes.” Pursuant to the Small Business Regulatory Enforcement Act of 1996 (SBREFA), the CFPB will consult with small entities that are likely to be subject to the proposed regulation. In that regard the CFPB seeks to know, among other things, what alternative collection methods will medical debt collectors employ and to what extent do creditors use medical debt collection information when making credit eligibility decisions.