CFPB Spurs New Credit Reporting Rules for Medical Debt Collectors

Medical Debt Collection Rules

In less than a month, collectors must meet new rules for reporting medical debt to the big three consumer reporting agencies. The changes, the latest in a flurry of major regulations and requirements, could lead to compliance problems and impact the ability to collect payments.

Here’s what’s behind the changes and what’s expected of collectors.

The catalyst

The Consumer Financial Protection Bureau (CFPB) examined medical debt included in personal credit reports and found many medical bills were incorrect, disputed, or not owed. It also noted that these collection notices contain large amounts of sensitive medical information. Going forward, the CFPB said consumer reporting companies would be “scrutinized” and held accountable for the accurate reporting of medical debt, now roughly $88 billion and much of it under $500.

Industry response

Beginning in July, Equifax, Experian and TransUnion are changing how medical debt appears on credit reports. It’s the responsibility of collectors to manage how debt is reported and when to furnish (or not furnish) data as follows:

  • Starting July 1, medical debt placed in collections and subsequently paid will no longer be included in a consumer’s credit report. Collectors are directed to continue to furnish data on such debt, noting it as paid.
  • Also beginning July 1, unpaid medical debt will not be added to an individual’s credit report for one year, rather than six months, after becoming delinquent and placed for collections. Collectors are directed to not provide data until 365 days past the date of first delinquency with the original creditor.
  • As of March 30, 2023, medical debt with an outstanding balance below $500 will no longer be reported. Collectors are directed not to furnish data on such debt.

Collector impact

Collectors must overhaul their processes and policies to work with the credit reporting agencies and conform to these new requirements. Noncompliance risks consumer claims against collectors, consequences from reporting agencies and enforcement actions from the CFPB.

These changes may also impair collection rates. If it’s widely known that medical debt won’t appear on credit reports and thus won’t affect credit scores, some consumers may be less willing to pay it off. Such actions would devalue healthcare services and raise the cost of healthcare for everyone.

One thing that doesn’t change: The new credit reporting standards do not affect communications with consumers regarding outstanding balances.

Top reasons consumers say their medical bills went to collections

48% – Unable to pay the requested amount

32% – Believe they were billed incorrectly

28% – Found the bill too confusing or couldn’t decipher the cost

24% – Said provider had poor/outdated billing processes (e.g., paper-based communication)

                             2021 Healthcare Consumer Experience Study, conducted by The Economist Group

Updating the collector playbook

With medical debt impacting fewer individuals’ credit reports and ratings, collectors will need to focus on other ways to engage consumers in repayment. Developing and delivering the right debt communications is more critical than ever. Here are three actions to take now:

  1. Prioritize clear patient communications. Medical bills are unnecessarily complex, with complicated language and unclear pricing. Strive for patient billing statements that are clear and concise, and explain what portion of the bill is the patient’s responsibility. For accounts that are not paid timely, use collection letters that comply with Reg F and provide sufficient information to identify and verify the debt and spell out the patient’s financial responsibility. Add earlier notification where possible and incorporate omnichannel debt collection methods, including text and email.
  2. Fortify medical debt processing. Ensure communications with consumers regarding their debt is not only FDCPA compliant, but also HIPAA-compliant and secures protected health information (PHI). In addition to internal controls to protect consumer data, understand the safeguards put in place by business associates and vendors.
  3. Ramp up payment flexibility options. Add self-service portals and digital billing, including online authentication, and offer payment plans to help consumers resolve their accounts. Most consumers (62%) say they would take advantage of financing options or creative payment plans for large bill amounts—led by 71% of millennials. Millennials are more likely than older generations to have had a medical bill go into collections because they could not pay.

Nearly 43 million people currently have medical bills on their credit reports. Contact us to help accelerate debt collections and improve the customer experience.