Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)

Federal RegisterJun 18, 2024

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1022

[Docket No. CFPB-2024-0023]

RIN 3170-AA54

Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)

AGENCY:

Consumer Financial Protection Bureau.

ACTION:

Proposed rule; request for public comment.

SUMMARY:

The Consumer Financial Protection Bureau (CFPB) is seeking public comment on a proposed rule amending Regulation V, which implements the Fair Credit Reporting Act (FCRA), concerning medical information. The CFPB is proposing to remove a regulatory exception in Regulation V from the limitation in the FCRA on creditors obtaining or using information on medical debts for credit eligibility determinations. The proposed rule would also provide that a consumer reporting agency generally may not furnish to a creditor a consumer report containing information on medical debt that the creditor is prohibited from using.

DATES:

Comments must be received on or before August 12, 2024.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2024-0023 or RIN 3170-AA54, by any of the following methods:

•

Federal eRulemaking Portal: https://www.regulations.gov.

Follow the instructions for submitting comments. A brief summary of this document will be available at

https://www.regulations.gov/docket/CFPB-2024-0023.

•

Email: 2024-NPRM-MEDICAL-DEBT@cfpb.gov.

Include Docket No. CFPB-2024-2023 or RIN 3170-AA54 in the subject line of the message.

•

Mail/Hand Delivery/Courier:

Comment Intake—2024 NPRM FCRA Medical Debt Information, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.

Instructions:

The CFPB encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to

https://www.regulations.gov.

All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202-435-7700 or

https://reginquiries.consumerfinance.gov/.

If you require this document in an alternative electronic format, please contact

CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Background

A. Rulemaking Goals

Information about a person's medical history and health is sacrosanct and among the most intimate and sensitive categories of data. Recognizing the uniquely sensitive nature of such information, Congress acted to limit the use and sharing of medical information in the financial system.

Congress did so in order to “establish strong privacy protections for consumers' sensitive medical information,” in line with the overarching privacy protection purpose of the Fair Credit Reporting Act (FCRA).

As part of these protections, Congress restricted a creditor's ability to obtain or use a consumer's medical information in connection with any determination of the consumer's eligibility, or continued eligibility, for credit.

A number of concerns have been raised about whether a regulatory exception that permits creditors to consider sensitive medical information about a consumer's debts and certain other types of medical information is consistent with the congressional intent to restrict the use of medical information for inappropriate purposes.

Fair and Accurate Credit Transactions Act of 2003 (FACT Act), Public Law 108-159, 117 Stat. 1952, 1999 (2003).

15 U.S.C. 1681

et seq.,

1681(a)(4); 149 Cong. Rec. H8122-02, H8122 (daily ed. Sept. 10, 2003) (statement of Rep. Kanjorsky).

15 U.S.C. 1681b(g)(2).

For tens of millions of consumers, medical debt is an unexpected and unwanted expense that can lead to financial hardships. The CFPB is proposing this rule to address concerns that information about medical debt is not necessary and appropriate for credit underwriting and, as a result, does not warrant an exception to the medical information privacy protections established by Congress.

Due to the complexity of medical billing, information about medical debt is often plagued with inaccuracies and errors. Third-party reimbursement processes, and debt collectors' practices for providing (or furnishing) information on consumers' debts to consumer reporting agencies, can contribute to the prevalence of errors and consumer confusion about their medical bills.

This can uniquely affect not just the accuracy of the information a creditor may consider about a medical debt, but also a consumer's understanding of whether, when, or in what amount, a medical bill must be paid. Many consumers do not find out about an erroneous medical bill in collections until applying for a mortgage or car loan and being denied for the loan based on their consumer report.

See

Consumer Fin. Prot. Bureau,

Consumer credit reports: A study of medical and non-medical collections,

at 15-16, 38-49 (Dec. 2014),

https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf

(discussing billing and collection practices for medical debt generally, in discussion of medical collections tradelines on consumer reports).

This document uses the term “consumer report” which has the meaning provided in section 603(d) of the FCRA, 15 U.S.C. 1681a(d). “Consumer report” is also commonly referred to as “credit report.”

Research has shown that medical debt has limited predictive value for credit underwriting purposes. Questions about the reliability of information about medical debt, as compared to information about other types of consumer debt, have been raised based on research performed by the CFPB and others.

Medical debt may be less predictive of whether a consumer will pay a future loan, because medical debts can occur and are collected through unique circumstances and practices. For example, consumers often have limited ability to control the timing and types of medical services that are required.

See, e.g.,

Kenneth P. Brevoort & Michelle Kambara, Consumer Fin. Prot. Bureau,

Data point: Medical debt and credit scores

(May 2014),

https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf. See also

Mark Rukavina,

Medical Debt and Its Relevance When Assessing Creditworthiness,

46 Suffolk U. L. Rev. 967 (2013),

https://bpb-us-e1.wpmucdn.com/sites.suffolk.edu/dist/3/1172/files/2014/01/Rukavina_Lead.pdf.

Because consumer reports can operate as a gatekeeper to significant life and economic decisions, medical debt can be used as leverage by debt collectors to coerce consumers to pay medical bills they may not owe.

In such

circumstances, consumers are forced to choose between challenging inaccurate medical bills, often while recovering from a serious illness, or paying the inaccurate bill due to a frequently short review period.

See, e.g.,

Consumer Fin. Prot. Bureau,

Fair Debt Collection Practices Act: CFPB Annual Report 2023,

at 2-5 (Nov. 2023),

https://files.consumerfinance.gov/f/documents/cfpb_fdcpa-annual-report_2023-11.pdf

(describing consumer medical collection complaints received by the CFPB).

Market participants, including in the consumer reporting industry and those most financially incentivized to assess the predictive value of medical debt, have reduced their reliance on medical debt in recognition of its limited utility. Consumer reporting agencies have removed certain medical debts from consumer reports.

Major credit scoring companies have accorded less weight to, or excluded entirely, medical debt information in their newer models.

Similarly, some creditors have adjusted how their underwriting standards treat medical debt information.

See, e.g.,

Business Wire,

Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting

(Mar. 18, 2022),

https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting.

See

AnnaMaria Andriotis,

Major Credit-Score Provider to Exclude Medical Debts,

Wall St. J. (Aug. 10, 2022),

https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729

(VantageScore CEO quoted as saying that having medical debt is not necessarily reflective of a consumer's ability to pay back a loan); Ethan Dornhelm,

The Impact of Medical Debt on FICO Scores,

FICO Blog (July 13, 2015),

https://www.fico.com/blogs/impact-medical-debt-ficor-scores.

See, e.g.,

Fed. Nat'l Mortg. Ass'n,

Single Family Selling Guide,

B3-2-03 (2021),

https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts

(noting that “[c]ollection accounts reported as medical collections are not used in the DU [Desk Underwriter] risk assessment”); Fed. Home Loan Mortg. Corp.,

The Single-Family Seller/Servicer Guide,

5201.1 (2022),

https://guide.freddiemac.com/app/guide/section/5201.1;

U.S. Dep't of Hous. & Urban Dev.,

Single Family Housing Policy Handbook,

4000.1 (2021),

https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-112021.pdf. See also

The White House,

Fact Sheet: The Biden Administration Announces New Actions to Lessen the Burden of Medical Debt and Increase Consumer Protection

(Apr. 11, 2022),

https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/

(announcing changes to certain Federal government underwriting standards to remove medical debt from evaluations of whether a consumer will repay a loan, including those for the U.S. Department of Agriculture's rural housing service loans and the Small Business Administration's loan programs and the Federal Housing Finance Authority's review of credit models).

Based on the totality of this information, the CFPB is proposing changes to how creditors and consumer reporting agencies treat medical information concerning a consumer's medical debt to ensure the use of such information is consistent with the congressional intent to safeguard consumers' privacy and restrict the use of medical information for inappropriate purposes.

B. Summary of the Proposed Rule

Congress, through the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), amended the FCRA to restrict creditors' ability to obtain or use medical information in connection with credit eligibility determinations (creditor prohibition).

In doing so, Congress recognized that a consumer's medical information is particularly sensitive, warranting heightened privacy protections. However, in 2005, the Federal financial agencies and the National Credit Union Administration (Agencies) issued a regulatory exception (financial information exception) to this statutory prohibition, permitting consumers' medical financial information to be obtained and used by creditors in connection with credit eligibility determinations if certain conditions were met.

And while Congress did permit the Agencies to create exceptions, Congress mandated that the Agencies determine that any exception be necessary and appropriate, and consistent with the congressional intent to restrict the use of medical information for inappropriate purposes.

Public Law 108-159, 117 Stat. 1952 (2003).

70 FR 70664 (Nov. 22, 2005).

15 U.S.C. 1681b(g)(5).

When the Agencies issued the financial information exception to the statutory prohibition, they did so without providing evidence or reasoning to support their main conclusion that an exception from a congressionally created legal requirement was warranted.

Given the developments over the past decade in its understanding of how consumer medical debt differs from other types of consumer debt and its uses in credit underwriting, the CFPB, now with primary regulatory authority over the FCRA, has preliminarily determined that the financial information exception to the creditor prohibition is neither warranted nor consistent with the FACT Act's purpose of protecting the privacy of consumers' medical information. The CFPB is proposing targeted amendments to Regulation V as follows:

• Remove the financial information exception which broadly permits creditors to obtain and use medical financial information (including information about medical debt) in connection with credit eligibility determinations, while retaining select elements of the exception related to income, benefits, and loan purpose; and

• Limit the circumstances under which consumer reporting agencies are permitted to furnish medical debt information to creditors in connection with credit eligibility determinations.

These amendments would apply to any person that participates as a creditor in a transaction, except for a person excluded from coverage by section 1029 of the Consumer Financial Protection Act of 2010 (CFPA)

(

i.e.,

certain auto dealers). The term creditor has the same meaning as in section 702 of the Equal Credit Opportunity Act (ECOA).

The amendments would also apply to a consumer reporting agency as defined in section 603(f) of the FCRA.

Public Law 111-203, 124 Stat. 1955, 2004 (2010).

ECOA is codified at 15 U.S.C. 1691

et seq.;

ECOA section 702 is codified at 15 U.S.C. 1691a(e). The term creditor means any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.

15 U.S.C. 1681a(f). The term consumer reporting agency means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

Under the proposed rule, a creditor would no longer be able to obtain or use medical information related to debts, expenses, assets, or collateral, in connection with a credit eligibility determination, unless a specific exception otherwise applies to the creditor's consideration of the medical information. And a consumer reporting agency generally would be prohibited from furnishing to a creditor a consumer report containing medical debt information in connection with a credit eligibility determination.

As a result of these changes, consumers' sensitive medical information would be protected, and consumers would no longer be unfairly penalized in the credit market for having medical debt. Consumers with and without medical debt would have equal access to credit at comparable terms and debt collectors would have less leverage over consumers to pressure consumers into paying medical debts that they may not owe.

C. Unique Characteristics of Medical Debt in the United States

A significant number of Americans have medical debt.

According to one nationally representative survey, in 2022 around 41 percent of adults stated that they had some kind of medical debt, including debt that they were unable to pay, that was on credit cards, that was being paid over time, directly to a provider, or that they owed to family members, or to a bank, collection agency, or other lender.

For more information about medical debt in the United States, including population disparities, impacts on consumers, and COVID-19 impacts,

see

Consumer Fin. Prot. Bureau,

Medical Debt Burden in the United States

(Feb. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf.

Lunna Lopes et al., Kaiser Fam. Found.,

Health Care Debt In The U.S.: The Broad Consequences Of Medical And Dental Bills

(June 16, 2022),

https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/

(reporting results of 2022 Kaiser Family Foundation Health Care Debt Survey, which polled 2,375 adults).

Several characteristics of medical debt pose special risks to consumers and distinguish it from other types of debt.

The need for medical care can be unexpected,

and medical debt often results from bills for a one-time or short-term medical expense due to an unforeseen event such as an accident or sudden illness.

Consumers are rarely informed of the costs of medical treatment in advance, and because of price opacity and an often immediate need for medical care, consumers have little or no ability to “shop around.”

Americans that live in rural communities may also experience limited choices when trying to access health care,

which may impact the amount of their medical debt in ways that are not reflective of their other debts.

See generally

Consumer Fin. Prot. Bureau,

Bulletin 2022-01: Medical Debt Collection and Consumer Reporting Requirements in Connection with the No Surprises Act,

87 FR 3025 (Jan. 20, 2022),

https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf;

Consumer Fin. Prot. Bureau,

Consumer credit reports: A study of medical and non-medical collections,

at 15-16, 38-42 (Dec. 2014),

https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf.

See

Consumer Fin. Prot. Bureau,

Complaint Bulletin: Medical billing and collection issues described in consumer complaints,

at 7 (Apr. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf

(describing consumer complaints received by the CFPB about unexpected medical care).

See

Lunna Lopes et al., Kaiser Fam. Found.,

Health Care Debt in the U.S.: The Broad Consequences of Medical and Dental Bills

(June 16, 2022),

https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/

(reporting survey results that 7 in 10 adults with health care debt say the debt arose from bills for a one-time or short-term medical expense).

But see

Sara R. Collins et al., Commonwealth Fund,

Paying for It: How Health Care Costs and Medical Debt Are Making Americans Sicker and Poorer—Findings from the Commonwealth Fund 2023 Health Care Affordability Survey

(Oct. 2023),

https://www.commonwealthfund.org/publications/surveys/2023/oct/paying-for-it-costs-debt-americans-sicker-poorer-2023-affordability-survey

(about half of adults with medical debt say it is from treatment received for an ongoing condition).

Consumer Fin. Prot. Bureau,

Bulletin 2022-01: Medical Debt Collection and Consumer Reporting Requirements in Connection with the No Surprises Act,

87 FR 3025 (Jan. 20, 2022),

https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf. See also

Consumer Fin. Prot. Bureau,

Complaint Bulletin: Medical billing and collection issues described in consumer complaints,

at 7-8 (Apr. 20, 2022),

https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/

(detailing consumer complaints received by the CFPB).

See, e.g.,

U.S. Gov't Acct. Off.,

Health Care Capsule: Accessing Health Care in Rural America

(May 2023),

https://www.gao.gov/assets/gao-23-106651.pdf

(generally describing health care access challenges for rural populations).

There are significant concerns with the accuracy of medical bills. For example, 43 percent of all adults and 53 percent of adults with medical debt in a nationally representative survey believed they had received a medical or dental bill that included an error.

While the survey found that most of these adults had taken some action to dispute the mistake, 51 percent reported that they either did not dispute the bill or were unable to successfully resolve their dispute. This may be because medical billing and collections can be complicated and confusing since a consumer may have difficulty determining whether the amount is covered by insurance or a hospital's financial assistance program (if applicable) and, if so, whether and to what extent the amount was already paid or reduced.

Also some health care providers and debt collectors exploit these complications and charge inflated or unearned bills.

See, e.g.,

Karen Pollitz & Kaye Pestaina, Kaiser Fam. Found.,

Could Consumer Assistance Be Helpful to People Facing Medical Debt?

(July 14, 2022),

https://www.kff.org/policy-watch/could-consumer-assistance-be-helpful-to-people-facing-medical-debt/

(analyzing results of 2022 Kaiser Family Foundation Health Care Debt Survey).

See, e.g.,

Consumer Fin. Prot. Bureau,

Medical Debt Burden in the United States,

at 9-14 (Feb. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf

(describing issues with medical billing and collections practices); Consumer Fin. Prot. Bureau,

Complaint Bulletin: Medical billing and collection issues described in consumer complaints

(Apr. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf.

Press Release, U.S. Dep't of Just.,

Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Plead Guilty

(Sept. 25, 2018),

https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one;

Press Release, U.S. Atty's Off. for C.D. Cal.,

Prime Healthcare Services and its CEO Agree to Pay $65 Million to Settle Medicare Overbilling Allegations at 14 California Hospitals

(Aug. 3, 2018),

https://www.justice.gov/usao-cdca/pr/prime-healthcare-services-and-its-ceo-agree-pay-65-million-settle-medicare-overbilling;

Press Release, Off. of Pub. Affairs, U.S. Dep't of Just.,

Clinical Laboratory and Its Owner Agree to Pay an Additional $5.7 Million to Resolve Outstanding Judgement for Billing Medicare for Inflated Mileage-Based Lab Technician Travel Allowance Fees

(Aug. 1, 2023),

https://www.justice.gov/opa/pr/clinical-laboratory-and-its-owner-agree-pay-additional-57-million-resolve-outstanding;

Press Release, Off. of Pub. Affairs, U.S. Dep't of Just.,

Physician Partners of America to Pay $24.5 Million to Settle Allegations of Unnecessary Testing, Improper Remuneration to Physicians and a False Statement in Connection with COVID-19 Relief Funds

(Apr. 12, 2022),

https://www.justice.gov/opa/pr/physician-partners-america-pay-245-million-settle-allegations-unnecessary-testing-improper;

Erica Zucco,

Providence will refund medical bills for thousands of patients after agreement with attorney general,

King 5 News (Feb. 1, 2024),

https://www.king5.com/article/news/health/providence-forgive-137-million-medical-payments-refund-20m-patients-after-agreement/281-3063dd66-ab54-413a-893a-73463f213a5b;

Off. of the Att'y Gen. of Va.,

Common Health Care Fraud Schemes, https://www.oag.state.va.us/contact-us/frequently-asked-questions?id=511

(last visited May 21, 2024).

D. Medical Debt and Consumer Reporting

Information about medical debt is used in different ways in the financial system. Consumer reporting agencies play a key role in assembling and evaluating consumer credit and other information on consumers

—including information about a consumer's medical debt—and in providing consumer reports to other companies for employment, housing, insurance, and other decisions.

Medical debt information on a consumer report can increase the cost and reduce the availability of credit, and can even reduce access to employment and housing.

See

15 U.S.C. 1681(a)(3).

See

Consumer Fin. Prot. Bureau,

Medical Debt Burden in the United States,

at 26 n.117 (Feb. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf.

See

Consumer Fin. Prot. Bureau,

Data Point: Consumer Credit and the Removal of Medical Collections from Credit Reports,

at 2 (Apr. 2023),

https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-removal-medical-collections-from-credit-reports_2023-04.pdf.

Generally, information about a medical debt on a consumer report appears as a collection tradeline. After a medical debt has been placed by the creditor in collections status because the debt has been unpaid for a period of time, the medical debt may be furnished as a collections tradeline to consumer reporting agencies by a debt collector, including a debt collector who collects

on behalf of the original creditor for a fee, as well as a debt collector who purchases overdue accounts outright from the original creditor (also known as a debt buyer).

Such tradelines are referred to as medical collections or medical collections tradelines. Research by the CFPB has found that nearly all medical collections furnishing is performed by debt collectors, rather than by health care providers (as original creditors) themselves.

However, a debt collector may have limited access to an original creditor's system of records, which may contribute to higher dispute rates for collections tradelines compared to other components of consumer reports.

When debt collectors furnish to consumer reporting agencies, they generally report to one or more of the three largest nationwide consumer reporting agencies (NCRAs). Debt collections tradelines may persist on consumer reports for up to seven years;

however, many collections tradelines are removed well in advance of seven years.

Payments made to medical balances not yet sent to collections generally are not furnished to consumer reporting agencies.

Consumer Fin. Prot. Bureau,

Market Snapshot: An Update on Third Party Debt Collections Tradelines Reporting,

at 5 (Feb. 2023),

https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf.

Id.

15 U.S.C. 1681c(a)(4).

Consumer Fin. Prot. Bureau,

Consumer credit reports: A study of medical and non-medical collections,

at 27 (Dec. 2014),

https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf.

Historically, medical debts have been the most common type of debt on consumer reports at both the consumer-report and individual collections tradeline level. The CFPB estimated that medical collections accounted for 57 percent of all collections tradelines in Q1 2022 and 58 percent in Q2 2018.

When debt collectors acting as agents or assignees of health care providers furnish information about medical collections, they must notify the consumer reporting agency that they are furnishing medical information.

The FCRA generally prohibits consumer reporting agencies from reporting to third parties the name, address, and telephone number of the health care provider for any account identified as from a medical information furnisher that has notified the consumer reporting agency of its status, unless that information is restricted or coded such that persons other than the consumer cannot identify or infer the specific provider or the nature of the medical services provided.

Nevertheless, despite the coding of information on the consumer reports, a consumer report user could infer from the coding that certain debts relate to the provision of health care. Like with medical bills, consumers often find errors with medical collections tradeline information on their consumer reports. A CFPB analysis found that almost 6 percent of medical collections in its data were flagged as having been disputed at some point, almost three times higher than the rate of dispute flags on credit cards and seven times the rate of dispute flags on student loans.

Consumer Fin. Prot. Bureau,

Market Snapshot: An Update on Third Party Debt Collections Tradelines Reporting,

at 16-17 (Feb. 2023),

https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf.

See

15 U.S.C. 1681s-2(a)(9).

15 U.S.C. 1681c(a)(6);

see

15 U.S.C. 1681s-2(a)(9) (requiring medical information furnishers to notify consumer reporting agencies of such status).

Consumer Fin. Prot. Bureau,

Paid and Low-Balance Medical Collections on Consumer Credit Reports

(July 27, 2022),

https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/.

A 2022 review of consumer complaints submitted to the CFPB found that many consumers complaining of disputed debt collection attempts reported first learning of the debt from viewing their consumer report. Consumers expressed concern with inaccurate information leading to a decrease in their credit score. Some consumers reported paying debt they did not believe they owed in order to have the tradeline removed from their consumer report.

Consumer Fin. Prot. Bureau,

Complaint Bulletin: Medical billing and collection issues described in consumer complaints

(Apr. 2022),

https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf.

Some of the errors in medical collections tradelines could be due to debt collection furnishing practices. Some medical debt collectors previously used debt collection furnishing to engage in a practice known as “debt parking,” or “passive collection.” Debt collectors would report a debt to a consumer reporting agency, then wait for the consumer to notice the tradeline when, for example, applying for credit. The consumer may then pay the debt, possibly without raising any dispute as to any errors in order to access needed credit. The CFPB issued final rules on debt collection, which took effect November 30, 2021, that addressed this practice by requiring a debt collector to take certain actions intended to convey information about the debt to the consumer before furnishing information on that debt to a consumer reporting agency.

Despite the protections offered by these rules, CFPB investigations indicate that some medical debt collectors may still be attempting to collect on medical debts that were not substantiated after consumers disputed the validity of the debts.

See

12 CFR 1006.30(a).

See

Consumer Fin. Prot. Bureau,

CFPB Takes Action Against Phoenix Financial Services for Illegal Medical Debt Collection and Credit Reporting Practices

(June 8, 2023),

https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-phoenix-financial-services-for-illegal-medical-debt-collection-and-credit-reporting-practices/;

Consumer Fin. Prot. Bureau,

CFPB Shuts Down Commonwealth Financial Systems for Illegal Debt Collection Practices

(Dec. 15, 2023),

https://www.consumerfinance.gov/about-us/newsroom/cfpb-shuts-down-commonwealth-financial-systems-for-illegal-debt-collection-practices/.

Recent reporting changes announced by the NCRAs in 2022 and 2023 have begun to reduce the amount of medical debt reported on consumer reports and benefit some consumers. Specifically, the NCRAs announced that, starting on July 1, 2022, unpaid medical collections will not appear on a consumer's report for up to one year (an increase from 180 days), and paid medical collections will no longer be on consumer reports.

In April 2023, the NCRAs also announced that medical collections with initial balances below $500 had been removed from consumer reports.

Equifax,

First Changes to Reporting of Medical Collection Debt Roll Out July 1, 2022

(July 1, 2022),

https://www.equifax.com/newsroom/all-news/-/story/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022;

Experian,

First Changes to Reporting of Medical Collection Debt Roll Out July 1, 2022

(July 1, 2022),

https://www.experianplc.com/newsroom/press-releases/2022/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022;

TransUnion,

First Changes to Reporting of Medical Collection Debt Roll Out July 1, 2022

(July 1, 2022),

https://newsroom.transunion.com/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022/.

PR Newswire,

Equifax, Experian and TransUnion Remove Medical Collections Debt Under $500 From U.S. Credit Reports

(Apr. 11, 2023),

https://www.prnewswire.com/news-releases/equifax-experian-and-transunion-remove-medical-collections-debt-under-500-from-us-credit-reports-301793769.html.

The CFPB conducted an analysis of the impacts of the NCRAs' medical debt reporting changes through June 2023.

The CFPB found that after these changes, 15 million Americans still have $49 billion in medical bills on their consumer reports. Because the

medical collections tradelines removed by the NCRAs were those with low balances, the total dollar balances of medical collections on consumer reports fell by only 38 percent nationwide.

Ryan Sandler & Zachary Blizard, Consumer Fin. Prot. Bureau,

Recent Changes in Medical Collections on Consumer Credit Records Data Point,

at 3-4, 17 (Mar. 2024),

https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf.

Several States and at least one Federal agency have also enacted policies that limit the inclusion of medical debt on consumer reports.

For example, Colorado

and New York

each passed laws in 2023 prohibiting medical debts from appearing on consumer reports. Connecticut and Virginia followed suit earlier this year.

Illinois and Minnesota state legislatures have also passed similar legislation pending signature from their States' governors.

Maine, in 2019, passed a law requiring consumer reporting agencies to remove medical debt upon receiving reasonable evidence that the debt has been settled or paid.

In 2022, the U.S. Department of Veterans Affairs (VA) finalized a rule providing that the VA will report medical debt to consumer reporting agencies only if all other debt collection efforts have been exhausted, the individual is not catastrophically disabled or entitled to free medical care from the VA, and the outstanding debt is over $25.

In 2022, the CFPB issued an interpretive rule clarifying that because FCRA's express preemption provisions have a narrow and targeted scope, States retain substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens, including problems related to medical debt. Consumer Fin. Prot. Bureau,

The Fair Credit Reporting Act's Limited Preemption of State Laws,

87 FR 41042 (July 11, 2022).

Colo. Rev. Stat. section 5-18-109.

N.Y. Pub. Health Law art. 49-A.

2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.

See

Forest Nelson,

Medical debt may no longer negatively impact your credit in Illinois,

WIFR (May 16, 2024),

https://www.wifr.com/2024/05/16/medical-debt-may-no-longer-negatively-impact-your-credit-illinois/;

Off. of Minn. Att'y Gen. Keith Ellison,

Attorney General Ellison commends Senate for final passage of the Debt Fairness Act

(May 16, 2024),

https://www.ag.state.mn.us/Office/Communications/2024/05/16_DebtFairnessAct.asp.

Consumer Data Indus. Ass'n

Frey,

26 F.4th 1 (1st Cir. 2022), cert. denied, 143 S. Ct. 777 (2023).

U.S. Dep't of Veterans Affairs,

Threshold for Reporting VA Debts to Consumer Reporting Agencies,

87 FR 5693 (Feb. 2, 2022).

E. Current Use of Medical Debt in Credit Scoring and Underwriting

Collections tradelines are considered negative information and can lower consumers' credit scores. A 2014 CFPB analysis found that the presence of medical collections tradelines on consumer reports are less predictive of future defaults or serious delinquencies than the presence of nonmedical collections tradelines, and that consumers with paid medical debts have delinquency rates well below those of consumers with the same credit scores whose medical debts were mostly unpaid.

Following the CFPB's publication of its research and in recognition of the limited predictive value of medical bills, major credit score providers FICO and VantageScore made changes so that newer versions of their credit scoring models differentiate between medical and nonmedical collections tradelines, give less weight to unpaid medical collections tradelines than to other collections tradelines, and ignore paid medical collections of any kind.

In January 2023, VantageScore implemented changes to VantageScore models 3.0 and 4.0 to ignore all medical collections tradelines.

Kenneth P. Brevoort & Michelle Kambara, Consumer Fin. Prot. Bureau,

Data point: Medical debt and credit scores

(May 2014),

https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf.

See

Ethan Dornhelm,

The Impact of Medical Debt on FICO Scores,

FICO Blog (July 13, 2015),

https://www.fico.com/blogs/impact-medical-debt-ficor-scores;

VantageScore,

How will changes in how medical collection accounts get reported impact credit scores?

(July 5, 2022),

https://www.vantagescore.com/how-will-changes-in-how-medical-collection-accounts-get-reported-impact-credit-scores/

See

AnnaMaria Andriotis,

Major Credit-Score Provider to Exclude Medical Debts,

Wall St. J. (Aug. 10, 2022),

https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729

(VantageScore CEO quoted as saying that having medical debt is not necessarily reflective of a consumer's ability to pay back a loan).

Older FICO scoring models that do not differentiate between medical and nonmedical collections tradelines, however, remain common in the market. For example, while the Government-Sponsored Enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing Administration generally do not consider medical debt in their credit risk assessments within their respective automated underwriting systems,

the GSEs require creditors to provide credit scores derived from the older Classic FICO

for each borrower on a loan that the GSEs purchase to assess eligibility for certain loan products and make certain pricing decisions.

The GSEs and the Federal Housing Finance Agency (FHFA) announced in 2022 that they had validated and approved two of the new credit score models that lessen the weight or do not consider medical collections, but that transition is not expected to occur until the fourth quarter of 2025.

See

Fed. Nat'l Mortg. Ass'n,

Single Family Selling Guide,

B3-2-03 (2021),

https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts

(noting that “[c]ollection accounts reported as medical collections are not used in the DU risk assessment”); Fed. Home Loan Mortg. Corp.,

The Single-Family Seller/Servicer Guide,

5201.1 (2022),

https://guide.freddiemac.com/app/guide/section/5201.1;

U.S. Dep't of Hous. & Urban Dev.,

Single Family Housing Policy Handbook,

4000.1 (2021),

https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-102021.pdf.

The Classic FICO score is comprised of the following models: Equifax Beacon® 5.0, Experian/Fair Isaac Risk Model V2SM, and TransUnion FICO® Risk Score, Classic 04.

See, e.g.,

Fed. Nat'l Mortg. Ass'n,

Single Family Selling Guide

(Oct. 5, 2022),

https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-requirements-credit-scores.

Fed. Hous. Fin. Agency,

FHFA Announces Key Updates for Implementation of Enterprise Credit Score Requirements

(Feb. 29, 2024),

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Key-Updates-for-Implementation-of-Enterprise-Credit-Score-Requirements.aspx.

II. Statutory and Regulatory History

A. Fair Credit Reporting Act

The FCRA was enacted in 1970 and was one of the world's first data privacy laws. The law was enacted after growing public concern about the lack of regulation concerning the widespread dissemination of sensitive information about Americans. One of Congress' main purposes in passing the FCRA was a respect for the consumer's right to privacy.

The law has been amended several times in the ensuing years, including by the FACT Act.

The FCRA governs the collection, assembly, and use of consumer report information and provides the framework for the consumer reporting system in the United States. The FCRA regulates the practices of consumer reporting agencies that collect and compile consumer information into consumer reports for use by creditors, insurance companies, employers, landlords, and other entities in making eligibility decisions affecting consumers. The FCRA also limits the circumstances under which persons, such as creditors, may obtain and use consumer report information from consumer reporting agencies.

FCRA section 602(a)(4) (15 U.S.C. 1681(a)(4)).

Public Law 108-159 (Dec. 4, 2003). Congress also enacted specific protections for servicemembers and veterans, including with respect to medical debt and credit monitoring. Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-174, section 302, 132 Stat. 1296, 1333 (2018).

The FCRA was enacted to (1) prevent the misuse of sensitive consumer information by limiting recipients to those who have a legitimate need for it; (2) improve the accuracy and integrity of consumer reports; and (3) promote the efficiency of the nation's banking and consumer credit systems.

important purpose of the FCRA is to enable creditors to make appropriate credit decisions based on accurate consumer reporting information that truly reflects whether a consumer will repay a loan, while simultaneously protecting the privacy of consumer data.

Safeco Ins. Co. of Am.

Burr,

551 U.S. 47, 52 (2007);

see also

§ 1026.43(c)(3)(iii) (“[I]f a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation.”)

The CFPB requests feedback on this aspect of the proposed rule and whether the proposal under consideration would assist a creditor or card issuer in making its repayment ability determination under TILA/Regulation Z. The CFPB also seeks comment on whether amendments should be made to § 1022.30(e)(1)(ii) to reflect the language in proposed § 1022.30(e)(6)—providing that a creditor or card issuer may not obtain or use medical information from a consumer reporting agency to comply with the ability-to-repay rule under 12 CFR 1026.43(c) for closed-end mortgages, the repayment ability rule under 12 CFR 1026.34(a)(4) for open-end, high-cost mortgages, or the ability-to-pay rule under 12 CFR 1026.51(a) for open-end (not home-secured) credit card accounts—or if the language in proposed § 1022.30(e)(6) is sufficient to explain how creditors can comply with the repayment ability determination requirements under TILA/Regulation Z.

VI. Proposed Effective Date

The Administrative Procedure Act generally requires that rules be published not less than 30 days before their effective dates.

148

The CFPB proposes that, once issued, the final rule for this proposed rule would be effective 60 days after it is published in the

Federal Register

. The CFPB preliminarily concludes that 60 days should be enough time for implementation. Creditors will likely need to do very little to comply with the rule to the extent that creditors currently only utilize medical debt information provided through consumer reports, which the CFPB understands is creditors' main source of medical debt information. In such cases, so long as the consumer reporting agency providing the consumer report has complied with the rule, no medical debt information would be conveyed to the creditor, unless the consumer reporting agency has reason to believe the creditor intends to use the medical debt information in a manner not prohibited by the creditor prohibition. Creditors who currently obtain and use medical debt information (and other prohibited medical information) from other sources will need to establish controls to ensure that they do not obtain or use the medical debt information in a manner prohibited by the rule. Consumer reporting agencies will need to make coding changes to exclude data identified as medical information from consumer reports sent to creditors. However, the CFPB expects this to be a relatively simple coding change, particularly for the NCRAs and the consumer reporting agencies that obtain consumer reports from NCRAs for resale because the NCRAs already limit their reporting of medical collections. In addition, consumer reporting agencies may have already scoped out this kind of coding change to comply with reforms in several States. The CFPB requests comment on this proposed effective date.

148

5 U.S.C. 553(d).

VII. CFPA Section 1022(b) Analysis

The CFPB is considering the potential benefits, costs, and impacts of the proposed rule. The CFPB requests comment on the analysis presented below, as well as submissions of additional data that could inform its consideration of the impacts of the proposed rule. This section contains an analysis of the benefits and costs of the proposed rule for consumers, consumer reporting agencies, creditors, and other entities, such as health care providers and debt collectors.

A. Statement of Need

The FCRA supports the fairness, accuracy, and privacy of personal information in consumer reporting. Among the protections in the FCRA for consumers' medical information, FCRA section 604(g)(2) generally restricts creditors from obtaining or using medical information in connection with credit eligibility determinations, absent a regulatory exception. FCRA section 604(g)(5) requires that the CFPB determine that any such exception be necessary and appropriate and consistent with the intent of FCRA section 604(g)(2) to restrict the use of medical information for inappropriate purposes. The CFPB is also authorized under section 621(e) of the FCRA to issue regulations as may be necessary or appropriate to administer and carry out the purposes and objectives of the FCRA, and to prevent evasions thereof or to facilitate compliance therewith. The CFPB anticipates that the proposed rule would enhance consumer privacy by removing the financial information exception at § 1022.30(d) that currently permits creditors to consider medical debt information and medical information about expenses, assets, and collateral, among other types of medical information, in underwriting decisions under certain circumstances.

Medical debt is prevalent in the United States, with 20 percent of households reporting that they had medical debt in 2022.

149

Reflecting this prevalence, medical collections have recently comprised the majority of credit collection tradelines found on consumer reports.

150

Like other information on consumer reports, medical collections information may be used by creditors to assess a consumer's ability to handle credit obligations.

149

Consumer Fin. Prot. Bureau,

CFPB Estimates $88 Billion in Medical Bills on Credit Reports

(Mar. 1, 2022),

https://www.consumerfinance.gov/about-us/newsroom/cfpb-estimates-88-billion-in-medical-bills-on-credit-reports/.

150

Consumer Fin. Prot. Bureau,

Medical debt burden in the United States,

at 5 (Mar. 1, 2022),

https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/.

Medical collections may result from unplanned expenditures, making medical collections information on consumer reports a potentially noisy or inaccurate signal of a consumer's ability to meet credit obligations. In the United States, high health care prices, uneven insurance coverage, complex health insurance networks, and cost-sharing features of health insurance may cause unexpected or chronic illnesses to result in large medical bills for individual consumers. Due to opaque medical pricing and billing practices, consumers often do not know the cost of medical services at the time those services are incurred, and may receive medical bills that they are uncertain they actually owe.

151

Some consumers are unable to pay these bills on time, and some of these past-due medical bills eventually become medical collections.

151

See

Consumer Fin. Prot. Bureau,

Complaint Bulletin: Medical billing and collection issues described in consumer complaints,

at 7-8 (Apr. 20, 2022),

https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/.

Another factor that potentially makes medical collections an imprecise signal is that they are unevenly reported. Some health care providers allow debt collectors to furnish to consumer reporting agencies, while others do not.

Because of this, it is possible for consumers' medical debt in collections to be included unevenly on consumer reports, potentially leading to different financial outcomes. While a consumer could theoretically be able to factor this into their decision when selecting a health care provider, it is more likely that a consumer is not aware of which health care providers furnish and usually does not choose a health care provider based solely on a health care provider's collection policies, if they consider them at all.

152

Noam M. Levey,

Hundreds of Hospitals Sue Patients or Threaten Their Credit, a KHN Investigation Finds. Does Yours?,

KFF Health News (Dec. 21, 2022),

https://kffhealthnews.org/news/article/medical-debt-hospitals-sue-patients-threaten-credit-khn-investigation/.

When creditors base underwriting decisions on information that is unevenly reported and potentially erroneous, an economic tradeoff arises. Creditors balance the probabilities of making two types of error when deciding whether to lend to consumers. The first type of error occurs when creditors lend to consumers who are unable to repay the loan. The second type of error occurs when creditors choose not to lend to consumers who are able and willing to repay. Creditors lose potential revenues when they decline credit for consumers with reported medical collections. Similarly, consumers, who would have benefitted from access to credit, also lose from being denied credit because of reported medical collections.

The likelihood of making each of these types of error is affected by the informativeness of the signal medical collections provide to creditors. When medical collections are reported for debts that do not exist (for instance, because medical bills have been paid by insurance) and are prevalent, using this information will tend to increase the likelihood of the second type of error, without reducing the likelihood of the first type of error. In that situation, creditors who use medical collection information would benefit from not considering this information in their credit decisions. When medical collections are reported on the basis of debts that may in fact impair consumers' future repayment and are prevalent, creditors would experience a reduction in revenue if they do not consider medical collections in their credit decisions, due to an increase in likelihood of the first type of error. As a result, whether creditors would benefit from not being able to consider medical collections in their credit decisions is an empirical question. As discussed in part XI,

Technical Appendix,

empirical analysis suggests that on balance, preventing creditors from using medical collection information in credit decisions would result in creditors extending credit to more consumers without diminishing the average performance of newly opened credit accounts.

If creditors could in fact benefit from disregarding medical debt information when making credit decisions, one would expect that creditors would have abandoned the practice out of their own profit motive. While, as discussed above, the industry has trended in this direction in recent years, the transition has not occurred fully, or quickly. The CFPB hypothesizes that the nexus of current contracts, expectations, and institutional structures that govern creditors' behavior prevents markets from moving to a potentially better equilibrium outcome. For instance, the market for mortgages is heavily driven by the secondary market for those loans. Similar factors likely drive creditor behavior in other consumer loan markets. Mortgage originators must follow underwriting practices that are expected by buyers in the secondary market, or they will not be able to securitize their loans. Since consideration of medical debt information has been expected by the market (if only implicitly through the use of commercially available credit scores), it is difficult for any one firm to move away from using that information, even if doing so would not increase risks for investors.

153

Loretta J. Mester,

Fed. Rsrv. Bank of Phila., What's the Point of Credit Scoring?

, Bus. Rev., at 6 (Sept./Oct. 1997), https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/1997/september-october/brso97lm.pdf.

The proposed rule would generally prohibit creditors from considering medical debt information from consumer reports (among other sources) in underwriting decisions. Consequently, the incentive for medical debt holders and collectors to furnish to consumer reporting agencies would decrease. As a result, the proposed rule would enhance consumers' privacy with respect to their medical information, while also reducing the likelihood that the uneven reporting of medical collections would affect credit outcomes. While the proposed rule would reduce the amount, though not necessarily the quality, of information on which creditors can base underwriting decisions, the CFPB expects that, over time, those credit scoring models that currently use medical collections would be adjusted to reweight the remaining information on consumer reports. In the long run, the expected adjustments to credit scoring models may help markets move toward a more efficient allocation of credit.

Adjustments to credit scoring models may result in credit being extended to more consumers who are able and willing to repay their credit obligations. This may allow consumers to benefit from increased access to credit and creditors to increase overall revenues. Moreover, since medical collections tradelines on consumer reports are prone to error, removing medical debt from consumer reports would reduce the need for dispute resolution, potentially saving both consumers and consumer reporting agencies time and resources.

B. Data and Evidence

The CFPB's analysis of costs, benefits, and impact is informed by data from a range of sources. As discussed in part III.A, when the interventions discussed in this proposed rule were part of the broader Consumer Reporting Rulemaking, the CFPB convened a Small Business Review Advisory Panel in October 2023 to gather input from small businesses. The discussions at the panel meetings and the comment letters submitted by small entity representatives during this process were presented in a Panel Report completed in December 2023. The CFPB also invited and received feedback on the proposals under consideration from other stakeholders, including stakeholders who were not small entity representatives. The impact analysis is further informed by academic research, reports on research by industry and trade groups, practitioner studies, and comment letters received by the CFPB. Where used, these specific sources are cited in this analysis.

The CFPB also used its own Consumer Credit Information Panel (CCIP) to estimate the potential impacts of the proposed rule on consumers and creditors. The CCIP is a 1-in-50, nationally representative sample of deidentified consumer reports from one of the three nationwide consumer reporting agencies (NCRAs). The data allowed the CFPB to conduct analyses of the predictive value of medical collections information in the context of whether a consumer's application for credit was successful (determined by whether a creditor's inquiry following such an application led to the origination of a credit account or, in other words, inquiry success) and future credit account delinquencies. Such analyses are useful for quantifying the proposed rule's potential impacts to consumers and creditors. While the

CCIP is nationally representative, it only contains information for consumers who have consumer reports. In addition, because the CCIP data are drawn from consumer reports from a single NCRA and because medical collections are unevenly reported, the data might not contain all medical collections that exist in the United States. The CFPB requests additional data that can be used to expand the impact analysis.

To quantify health care providers' exposure to unpaid medical bills, the CFPB used data from the Hospital Cost Reporting Information System (HCRIS), which is administered by the Centers for Medicare and Medicaid Services. The HCRIS data contain annual cost reports filed by Medicare-certified hospitals in the United States. The data comprise information on hospitals, their revenues, operating costs, and bad debt expenses not reimbursable by Medicare. While almost all hospitals file these cost reports, the data do not include unpaid medical debts owed to health care providers that are not hospitals.

154

The CFPB requests additional data from health care providers and debt collectors that can be used to quantify potential impacts on entities other than hospitals.

154

Nat'l Pub. Radio,

Nursing homes are suing friends and family to collect on patients' bills

(July 28, 2022),

https://www.npr.org/sections/health-shots/2022/07/28/1113134049/nursing-homes-are-suing-friends-and-family-to-collect-on-patients-bills.

Due to these data limitations, the analysis presented in this part generally provides a qualitative discussion of the proposed rule's costs and benefits and includes quantitative estimates whenever possible. The CFPB requests data that can be used to quantify the analysis of impacts, or submission of studies that contain relevant estimates that can be used in the analysis of impacts.

C. Coverage of the Proposed Rule

Part VIII.B.3 provides a discussion of the estimated number and types of entities potentially affected by the proposed rule.

D. Baseline for Consideration of Costs and Benefits

The impact analysis compares the proposed rule's potential benefits and costs against a baseline in which the CFPB takes no regulatory action. This baseline includes existing Federal and State law and current furnishing practices. Under the baseline, creditors are generally allowed to consider medical collections information on consumer reports in underwriting decisions due to the financial information exception at § 1022.30(d).

Over the last few years, the three NCRAs implemented several voluntary changes in the consumer reporting of medical debt. In September 2017, the NCRAs implemented a 180-day waiting period before including furnished medical collections on consumer reports.

155

In July 2022, the NCRAs extended the waiting period from 180 days to one year and removed all paid medical collections from consumer reports. Finally, in April 2023, the NCRAs removed both paid and unpaid medical collections under $500 from consumer reports.

156

155

Nat'l Pub. Radio,

Credit Agencies To Ease Up On Medical Debt Reporting

(July 11, 2017),

https://www.npr.org/sections/health-shots/2017/07/11/536501809/credit-agencies-to-ease-up-on-medical-debt-reporting.

156

Fredric Blavin et al., Urban Wire, Urban Inst.,

Medical Debt Was Erased from Credit Records for Most Consumers, Potentially Improving Many Americans' Lives

(Nov. 2, 2023),

https://www.urban.org/urban-wire/medical-debt-was-erased-credit-records-most-consumers-potentially-improving-many.

It is the CFPB's understanding that health care providers and debt collectors they contract with currently use three types of collection practices to collect medical debt: contacting consumers by mail, phone, or other means; debt collection litigation; and furnishing medical collections information to consumer reporting agencies. The impact analysis considers how health care providers and debt collectors may respond to the proposed rule by switching to the first two collection practices if furnishing becomes a less effective means of inducing payment.

The evolving landscape of State laws and consumer reporting practices may change medical collections reporting in the absence of the proposed rule, affecting the baseline. The voluntary changes recently implemented by the NCRAs could be reversed at any time, and such reversals would tend to amplify the impacts of the proposed rule.

In the current state of the world, creditors are generally allowed to consider medical debt information in underwriting decisions, including medical collections information found on consumer reports. Some recently passed State laws establish when medical collections information originating from these States can be furnished to consumer reporting agencies or included on consumer reports.

157

The only medical collections that the NCRAs include in their consumer reports are those that: (1) are more than one year past due, (2) are for collection amounts greater than $500, (3) are unpaid, and (4) would not violate State laws that restrict or prohibit consumer reporting of medical collections. By August 2023, after the voluntary NCRA changes were fully implemented but before most of the State-level changes took effect, an estimated 5 percent of consumers had medical collections on their consumer reports.

158

The proposed rule would remove these remaining medical collections from, and generally prohibit future medical collections from being included in, consumer reports provided to creditors.

157

See, e.g.,

Colo. Rev. Stat. section 5-18-109; N.Y. Pub. Health Law art. 49-A; 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.

158

Ryan Sandler & Zachary Blizard, Consumer Fin. Prot. Bureau,

Recent Changes in Medical Collections on Consumer Credit Records Data Point,

at 3-4 (Mar. 2024),

https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf.

E. Potential Benefits and Costs to Consumers and Covered Persons

1. Costs to Consumer Reporting Agencies

The proposed rule would generally prohibit consumer reporting agencies from including medical collections information on consumer reports provided to creditors. Consumer reporting agencies may lose revenue if, due to the proposed rule, debt collectors perceive consumer reports as less informative for guiding collection activities. This prohibition may also decrease the incentive for health care providers and debt collectors to furnish medical collections to consumer reporting agencies, although consumer reporting agencies would still be able to include medical collections information on the reports that they provide for non-credit eligibility determination purposes such as with regard to employment or insurance, or to consumers seeking a copy of their own consumer reports. This means that health care providers and debt collectors may still see some value in reporting medical collections to consumer reporting agencies, including to the three NCRAs. However, it is possible that in response to the proposed rule, consumer reporting agencies would remove medical collections from consumer reports under all circumstances. Consumer reporting agencies may also incur fixed operational and compliance costs to conform to the proposed rule.

Creditors May Be Less Willing To Pay for Consumer Reports

Creditors use information from consumer reports, usually obtained from the NCRAs, to reduce the risk of lending to consumers who may be unable to repay. Removing medical collections information from consumer reports provided to creditors for credit decisions would reduce the information they contain relative to the case today or, in other words, the baseline. In theory, if creditors expect medical collections information to be on consumer reports, or if they view medical collections information as critical to their assessment of the riskiness of lending to consumers, their willingness to pay consumer reporting agencies for consumer reports that do not contain medical collections information may decrease. While this is not a view shared by the CFPB, one NCRA commenter who submitted views to the CFPB during the SBREFA process stated that it considers medical collections as predictive of a consumer's willingness and repayment ability and believes that the complete removal of medical collections from consumer reporting would “degrade the accuracy of consumer reporting.” However, creditors would likely find the remaining information on consumer reports to still be valuable, mitigating the reduction in demand for consumer reports that may result from the proposed rule. The CFPB requests comment on this issue, as well as data that can be used to quantify creditors' demand for consumer reports.

CFPB research finds that the use of medical collections information from consumer reports provided by the NCRAs to creditors seems to vary by creditor type. Medical collections information appears to be most used by credit card providers, with a credit card inquiry being less successful when it is made after (rather than before) a medical collection appears on a consumer report of a consumer that previously had no nonmedical collections tradelines. To a lesser extent, mortgage providers also appear to use medical collections information.

159

However, the CFPB has no information on the extent to which consumer reporting agencies' revenues from consumer reports generally are driven by sales to these creditor types. The CFPB requests further information to quantify its analysis of the potential revenue losses due to different creditors' decreased demand for consumer reports.

159

See

part XI,

Technical Appendix,

to this proposed rule.

Debt Collectors May Be Less Willing To Pay for Consumer Reports

At baseline, debt collectors may use information from consumer reports to determine a consumer's ability to pay the collection amount and to guide what collection practices will be most cost-effective. Debt collector small entity representatives, in their submitted comments, stated that they found medical debt information on consumer reports to be relevant to estimating whether a consumer will repay a debt that is in collections.

160

Should medical debt holders and their assignees (

e.g.,

debt collectors or debt buyers) cease furnishing medical collections information to consumer reporting agencies as a result of this proposed rule, debt collectors would no longer have access to medical collections information previously included in consumer reports to assess whether a consumer will repay a specific medical debt in collections. While the remaining information on consumer reports may still be useful to guide their decisions, the loss of medical collections information may reduce debt collectors' willingness to pay for consumer reports from consumer reporting agencies. The CFPB requests data from debt collectors to assess the usefulness of medical collections information for debt collectors' collection practices, as well as data from the NCRAs and other consumer reporting agencies, to quantify the potential revenue losses from reduced sales of consumer reports to debt collectors.

160

SBREFA Report at 36.

One-Time Operational and Compliance Costs

Consumer reporting agencies may incur one-time costs to comply with the proposed rule. Consumer reporting agencies may need to modify their reporting systems and databases and revise the guidance documents they provide to furnishers. Consumer reporting agencies may also need to reorganize their computer systems and databases such that no medical debt information is contained in consumer reports provided to creditors for credit eligibility determinations. However, some operational and compliance costs that may have otherwise been caused by the proposed rule may have already been incurred to some degree to comply with certain States' laws. The CFPB does not have information on the reporting systems and databases used by most consumer reporting agencies at baseline and requests data that can be used to quantify costs that may be incurred or have already been incurred by consumer reporting agencies.

Compliance costs may be different for the three NCRAs (Equifax, Experian, and TransUnion) and Innovis compared to other consumer reporting agencies. The NCRAs and Innovis are known to provide a standardized data format to furnishers, called Metro 2, and have organized their databases to process and screen data furnished in this format.

161

At baseline, the three NCRAs do not include medical collections under $500, medical collections that are less than one year past due, or paid medical collections on any consumer report provided to third parties. The use of the Metro 2 format constitutes an ongoing compliance cost for the NCRAs. It is likely that they already have systems in place to screen out any furnished medical collections that may violate these conditions. It is possible that the NCRAs' and Innovis's screening process may have to be expanded such that they do not accidentally include medical collections submitted by furnishers on consumer reports provided to creditors. However, the Metro 2 format that the NCRAs and Innovis currently provide to furnishers may help facilitate compliance, because tradeline information submitted by furnishers is already required to include codes that specify when a debt is a medical debt.

162

In addition, complying with the proposed rule may only require an extension of the changes the NCRAs and Innovis have made or plan to make to account for laws passed in several states, including New York, Colorado, Connecticut, and Virginia.

163

A SBREFA commenter, not representing the NCRAs, posited that making the necessary changes would be a significant undertaking in terms of time and cost and that the NCRAs would have to reconfigure, test, and validate their current compliance programs. Consumer reporting agencies that have different screening processes and databases that do not rely on the Metro 2 format may incur different compliance costs associated with their own systems, though, as noted above, some

compliance costs may already have been incurred to comply with State laws. The compliance costs for consumer reporting agencies could be greater if medical information furnishers do not comply with their FCRA section 623(a)(9) obligation to notify consumer reporting agencies of their status,

164

though the CFPB does not have any indication that medical information furnishers are not complying with that notification requirement. Consumer reporting agencies may incur costs to screen medical information provided by such furnishers, or for which there is no medical information furnisher within the meaning of FCRA section 623(a)(9), from consumer reports provided to creditors for credit eligibility determinations. The CFPB requests comment and information on this potential compliance cost. The CFPB also requests data to quantify general operational and compliance costs that may be incurred by consumer reporting agencies, as well as information on other possible one-time costs.

161

The CFPB does not have information on whether other consumer reporting agencies also rely on the Metro 2 format. For an overview of how NCRAs and Innovis, another CRA, receive and screen furnished data, see Consumer Fin. Prot. Bureau,

Key Dimensions and Processes in the U.S. Credit Reporting System: A review of how the nation's largest credit bureaus manage consumer data,

at 19 (Dec. 2012),

https://files.consumerfinance.gov/f/201212_cfpb_credit-reporting-white-paper.pdf.

162

Id.

at 16-19.

163

See, e.g.,

Colo. Rev. Stat. section 5-18-109; N.Y. Pub. Health Law art. 49-A; 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.

164

15 U.S.C. 1681s-2(a)(9).

2. Benefits to Consumer Reporting Agencies

The removal of medical collections information from consumer reports provided to creditors may also reduce consumer reporting agencies' costs by potentially reducing the number of accounts that consumer reporting agencies must screen or conduct accuracy checks for, and the number of consumer disputes that they may need to resolve. Consumer reporting agencies regularly process significant amounts of data. For example, the NCRAs receive information on over 1 billion tradelines each month and must accurately compile this information for each consumer.

165

Under the FCRA, consumers have the right to dispute inaccuracies on their consumer report, and consumer reporting agencies are obligated to investigate and resolve them if necessary.

166

This dispute resolution process imposes costs on consumer reporting agencies. A CFPB analysis shows that 5.7 percent of medical collections tradelines had a dispute flag at one point, much higher than the rate of dispute flags for credit cards and student loans.

167

One NCRA commenter reported that their data shows that while consumers dispute medical collections tradelines more often than other tradelines, they do so at a similar rate to consumers disputing delinquent tradelines. To the extent that medical collections tradelines contribute to the number of disputes that consumer reporting agencies resolve, removing medical collections information from consumer reports may reduce consumer reporting agencies' costs associated with dispute resolution. However, the CFPB does not have data to estimate the cost reduction in dispute management that consumer reporting agencies may experience if medical debt information is prohibited from appearing on most consumer reports provided to creditors. The CFPB requests data to quantify these potential cost-reducing benefits.

165

Id.

at 23.

166

15 U.S.C. 1681i(a)(1)(A).

167

Consumer Fin. Prot. Bureau,

Paid and Low-Balance Medical Collections on Consumer Credit Reports

(July 27, 2022),

https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/.

3. Costs to Health Care Providers

As discussed above, the CFPB understands that some health care providers and their debt collectors currently use furnishing of medical debt information as a means of inducing payment on post-service billed amounts owed by the patient, although this is not one of the purposes of credit reporting as stated in the FCRA.

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Because medical debt information generally would no longer be included on consumer reports provided for credit eligibility determinations, the proposed rule may reduce the effectiveness of this means of inducing payment on post-service billed amounts owed by the patient. However, post-service billed amounts paid out of pocket by patients is a small fraction of overall health care revenue and thus the overall impact on revenue is likely to be limited. In addition, the effect on health care providers that incur additional costs from pursuing debt collection lawsuits to mitigate non-payment would be marginal given that, at baseline, recovery rates associated with furnished medical collections are already low and health care providers already use litigation to pursue some debts.

169

As discussed in

Costs to Medical Debt Collectors,

debt buyers that also engage in debt collection may be less willing to pay for medical debt if furnishing becomes a less effective way of inducing payment from consumers. This may further reduce the revenues of health care providers that sell medical debt to debt buyers. The CFPB requests comment on these issues, as well as data that can be used to quantify potential impacts to health care revenues and costs from potential non-payment of post-service bills, increases in debt collection litigation, and reduction in sales of medical debt to debt buyers who also engage in debt collection. These impacts are discussed in detail below.

168

See

15 U.S.C. 1681(a).

169

It is possible for

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