Editor's note: Co-authored by Jessica Pollet and Margaux Curie, this article was originally published by Law360.
The COVID-19 pandemic put individuals at heightened risk for incurring medical debt.
Medical debt, which is often unforeseeable, unavoidable and rife with errors due to provider and insurer adjustments, can have an outsized impact on consumers' credit reports and, thus, consumers' ability to access future credit or receive credit on favorable terms.
It is therefore unsurprising that in focusing on post-pandemic relief for consumers, the Consumer Financial Protection Bureau has reprioritized concerns around inclusion of medical debt on credit reports.
Three separate guidance documents published by the bureau since the beginning of the year underscore its belief that there are enhanced consumer risks in collections and reporting of medical debt.
First, on Jan. 13, the bureau published a compliance bulletin reminding debt collectors, who furnish information to consumer reporting agencies, as well as the consumer reporting agencies themselves, of their obligations under the Fair Credit Reporting Act and the Fair Debt Collection Practices Act when dealing with medical debts covered by the newly effective No Surprises Act — which protects individuals from surprise medical bills, including by capping amounts consumers are required to pay for certain types of medical bills.
Namely, the report warns debt collectors that collecting or reporting medical debt charges in excess of those permitted under the No Surprises Act could amount to violations of the FDCPA or the FCRA. In view of this, the bureau asserts that maintaining reasonable written policies and procedures regarding the accuracy of information reported, including medical debt, is of the utmost importance.
Second, in February, the bureau issued a detailed report outlining, among other things, its concern regarding the adverse impact of including medical debt on consumer reports.
The report reflects that while "$88 billion in medical debt [appears] on consumer credit records," accounting for 58% of all uncollected debt tradelines reported to consumer reporting agencies, the bureau found that "many individuals who ha[ve] medical debts in collections showed no other signs of financial distress and  usually paid their obligations in a timely manner."
Given this, as well as its finding that medical debt is susceptible to inaccuracies that are often difficult for consumers — including the most vulnerable consumers — to detect or resolve, the bureau asserts that "inclusion of [medical debt information] in consumers' credit reports threatens the integrity and accuracy of the credit reporting system as a whole, creating inefficiencies for creditors as well as patients."
Lastly, in April, the bureau released a third report, which considers medical billing and collection complaints submitted to the CFPB. From these, the bureau draws the conclusion that, among other things, Americans experience "their credit reports being used as weapons to force payment" even in situations in which they do not recognize or owe the medical bill at issue.
The bureau also found that medical debt has a lower predictive value than other forms of debt and, thus, its inclusion on consumers reports may provide little actual insight to the industry.
The bureau's guidance on medical debt landed hard with consumer reporting agencies. In mid-March, the three leading consumer reporting agencies jointly announced changes to their treatment of medical debt on consumer credit reports:
- Defaulted medical debt placed for collections and which has subsequently been paid will no longer be included on a consumer credit report issued by any of the three consumer reporting agencies, notwithstanding that the FCRA allows reporting for up to seven years, whether paid or not.
- Consumer reporting agencies will extend the period before an unpaid medical debt can be reported from six months to one year to give "consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file."
- In the first half of 2023, the three consumer reporting agencies will also stop including medical debt on consumer credit reports where the amount of the debt furnished is below $500, which the CFPB coincidentally found to represent the majority of medical debts reflected on credit reports.
Although these changes are intended to eliminate nearly 70% of medical collection debt tradelines from consumer credit reports, it remains to be seen whether that will be enough for the CFPB and, also, the White House, which recently published a fact sheet calling on federal agencies to eliminate medical debt as a factor for credit underwriting — and, by extension, in credit reports.
While the CFPB had previously focused on medical debt, the level of scrutiny shown by the bureau in the last several months is unprecedented. In 2014, the CFPB had released a study on medical debt collections, where it noted that "medical debt collections trade lines affect the credit reports of nearly one-fifth of all consumers in the credit reporting system.
"In 2017, the bureau took action against two medical debt collection law firms that furnished consumer information without maintaining written policies and procedures regarding their furnishing practices or protocols to ensure the accuracy and integrity of information reported to the consumer reporting agency, among other things.
The CFPB's renewed attention to the topic, heightened by the impact of the COVID-19 pandemic and resulting medical expenses incurred by consumers, signals that the bureau will double down on medical debt reporting practices and that enforcement may be forthcoming. To that end, debt collectors and others that furnish medical debt information to consumer reporting agencies should consider the following actions.
Review policies and procedures to adjust for changes in medical debt reporting based on the No Surprises Act and guidance by the major consumer reporting agencies.
Furnishers should consider revising their policies and procedures regarding how medical debt information covered by the No Surprises Act is furnished to prevent reporting charges in excess of those permitted under the No Surprises Act.
Furnishers should also consider reviewing their medical debt furnishing practices to be consistent with the consumer reporting agencies' new directives, outlined above. While the consumer reporting agencies have rolled out guidance to help furnishers implement these new directives, furnishers may consider directly engaging with the consumer reporting agencies for proper implementation.
Double down on the accuracy of medical debt data reported to consumer reporting agencies.
The FCRA requires furnishers, of medical debt or otherwise, to maintain written policies and procedures regarding the accuracy of the consumer credit information provided to consumer reporting agencies The latest issue of the CFPB's supervisory highlights once again reminds furnishers of this requirement, which is further exemplified by a long line of consent orders between the bureau and industry participants dealing with accuracy issues.
Importantly, the CFPB is now also putting the onus on consumer reporting agencies to directly police furnishers that fail to provide accurate medical debt information. The CFPB expects consumer reporting agencies to cut off access to the credit reporting system for furnishers that report inaccurate medical debt information, and will hold CRAs that do not accountable.
As such, it is more important than ever for furnishers to establish and maintain reasonable written policies and procedures regarding the accuracy and integrity of medical debt information reported. In doing so, furnishers may consider whether — due to the complexity of medical billing — any type of prefurnishing account analysis is warranted.
Furnishers should maintain records to substantiate the accuracy of medical information furnished should also be kept for a reasonable period of time.
Review consumer complaints and dispute practices to mitigate regulatory scrutiny.
Furnishing inaccurate medical debt data or data inconsistent with the consumer reporting agencies directives also expose furnishers to an increase in consumer disputes.
The FCRA and Regulation V require that furnishers conduct a reasonable investigation of consumer disputes, whether received directly from the consumer or from the consumer reporting agency. This generally includes reviewing all relevant information, reporting the results to the consumer or to the consumer reporting agency, whichever applies, and, if the furnisher finds that the information reported was indeed inaccurate or incomplete, promptly correcting or updating that information.
The CFPB reiterated the importance of maintaining robust consumer dispute policies and procedures in its most recent supervisory highlights and confirms that furnishers should not simply delete a disputed tradeline in lieu of conducting a reasonable investigation.
Similarly, furnishers should ensure that they maintain adequate policies and procedures for the handling of formal and informal consumer complaints, including complaints submitted through the CFPB complaint database. Timely and comprehensive investigation and resolution of consumer complaints prevents recurrence of issues and resubmission of complaints, and, thus, mitigates potential regulatory scrutiny.
Stay current with ongoing developments affecting the medical reporting space.
This is a fast-paced, evolving regulatory environment and furnishers should stay abreast of ongoing developments.
Furnishers should also monitor legislative developments affecting the medical debt reporting space. In addition to the bureau's initiatives, several bills are currently pending in Congress that if enacted would affect the medical debt and credit reporting landscape.
For instance, the Comprehensive Debt Collection Improvement Act, H.R. 2547, sponsored by Rep. Maxine Waters, D-Calif, would amend the FCRA to prohibit the reporting of medical debt arising from any medically necessary procedures and impose additional notice requirements on furnishers with respect to those medical debts.
 15 U.S.C. 1681c.