CFPB Publishes Report Analyzing Impact of Medical Debt Credit Reporting Changes

Changes that have been announced and started to be put into place regarding how information about medical debts are furnished to the credit reporting agencies will remove those debts from the credit reports of about half of all consumers, according to an analysis of the data published yesterday by the Consumer Financial Protection Bureau.

The report looked at a cross-section of consumers’ credit reports to identify how credit scores and other credit information are changing in the wake of the announcement made in March by the three major credit reporting agencies. The agencies announced that as of July 1, paid medical accounts would no longer appear on consumers’ credit reports, and that unpaid medical debts would not be able to be reported until 12 months have passed. As well, starting next year, the credit reporting agencies would no longer report medical debts where the balance due was less than $500.

In conducting its analysis, the CFPB uncovered that most medical debts currently being reported are under $500 and that debts under that threshold tend to remain on consumers’ credit reports longer than debts with higher balances. Also, there is little benefit to removing paid tradelines from a consumer’s credit report because “very few medical collection tradelines are ever marked paid,” according to the CFPB.

When a medical debt appears on a consumer’s credit report, the individual’s credit score declines, on average, between 12 and 17 points, according to the report.

About 53% of individuals who have a medical debt on their credit report also had a non-medical debt on it, compared with just 35% of those who have paid their medical debts.

Medical debts also tend to be disputed at a significantly higher rate than other types of debt, according to the report. About 6% of medical debts are disputed, which is three times the rate of credit card disputes and seven times the rate of student loan disputes. Medical debts where the initial balance is under $500 have a slightly lower dispute rate.

“This report shows that a substantial share of medical collections currently reported on consumer credit reports likely qualify to be removed under a change recently announced by the national credit reporting companies,” the report concludes. “The Medical Collections Reporting Change seems likely to both reduce the current stock of medical collections being reported, and implicitly reduce the amount of time that medical collections are reported, since low balance medical collection tradelines historically have been more persistent on consumers’ credit reports than higher balance medical collections.”

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