11/21/2022
CONSUMER CREDIT TRENDS
Paid and Low-Balance Medical Collections on Consumer Credit Reports
This is part of a series of reports of consumer credit trends produced by the Consumer Financial Protection Bureau using a longitudinal sample of approximately five million de-identified credit records from one of the three nationwide consumer reporting agencies.
This report was prepared by Lucas Nathe and Ryan Sandler.
JUL 27, 2022
Introduction
In 2015, the national credit reporting companies announced the National Consumer Assistance Plan (NCAP) as part of a settlement with numerous State Attorneys General, which included provisions for the reporting of medical debt.1 As part of the NCAP, the companies committed to no longer reporting medical collections that were less than 180 days past due and removing medical collections that have been paid by insurance. Both of these provisions were intended to prevent consumers’ credit from being penalized for debts that were not the consumers’ responsibility to pay.
On March 18, 2022, the national credit reporting companies voluntarily announced that they would no longer report certain additional medical collections (Medical Collections Reporting Change). Specifically, the companies announced that starting on July 1, 2022, the time before unpaid medical collections can appear on a consumer’s report will be increased from 180 days to one year, and paid medical collections will no longer appear on consumer reports at all. They also announced that beginning some time in 2023, medical collections with balances below a threshold of “at least” $500 will no longer appear on consumer credit reports.2 These changes have the potential to reduce the amount of medical debt reported on consumer credit reports and to benefit some consumers.
This report explores the characteristics of consumers with reported medical collections and focuses on the current state of medical collections that appear on consumer credit reports and medical collections that are likely to be removed from consumer credit reports in the next year. We use the Consumer Financial Protection Bureau’s (CFPB’s) Consumer Credit Panel (CCP) to analyze collections tradelines first reported to a national credit reporting company after January 2017 with “medical” listed as the original creditor type.3 We observe consumers’ credit scores, census tracts of residence, and other credit information in the quarter prior to the first reporting of the medical collection.
One limitation of our analysis is that medical collection tradelines are not always reported to all three national credit reporting companies. Thus, the CCP does not have complete coverage of all medical collections because the CCP is derived from the credit records of a single company.
The key findings of this report are:
The removal of collections under $500 as a result of the Medical Collections Reporting Change may have a large effect on the number of medical collections reported, as the majority of medical collections are under that threshold. Moreover, currently on average these collections remain on consumers’ credit reports longer than higher balance collections. However, these collections represent a minority of medical collections balances in dollar terms.
Removing paid collections is less likely to have a substantial effect, as very few medical collection tradelines are ever marked paid.
In total we find that about half of all consumers who currently have medical collection tradelines on their credit reports will likely still have medical collections reported once the Medical Collections Reporting Change goes into effect.
We find that the removal of medical collections will likely be geographically concentrated. Consumers who have medical collections that are likely to be removed are disproportionately more likely to live in states in the north and east of the country. Consumers residing in West Virginia, in particular, stand to have a much greater share of medical collections removed compared to residents of any other state.
Although consumers with medical collections are significantly more likely to reside in neighborhoods that are majority Black or Hispanic and have lower median income, consumers likely to have all their medical collections removed by the Medical Collections Reporting Change are slightly more likely to live in neighborhoods that are majority white and higher income, compared to all consumers who have medical collections currently.
