CFPB Publishes Data Point on Positive Impacts of Removing Medical Debt Tradelines

On April 11, 2023, Equifax, Experian, and TransUnion announced that they removed unpaid medical collections under $500 from consumer credit reports. The three companies, in July 2022, previously removed paid medical collections from credit reports, and extended the delay in medical collection reporting from sixth months after the first delinquency to one year after the first delinquency. In its Data Point released on April 26, 2023, the CFPB reviewed the impact of the removal of medical collection tradelines based on a sampling of credit reports from 2012-2020 and found that removing medical collection tradelines can significantly improve credit scores and credit availability.

In its report, the CFPB focuses on the consumer impact of medical collections because unlike other forms of credit, medical debt is often not incurred voluntarily or with a full understanding of repayment terms. Key findings from the Data Point include:

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1. Consumers appeared to review reports and seek removal of medical collection tradelines to obtain mortgages, based on data showing increases in first-lien mortgage inquiries in the last quarter in which a medical collection tradeline is reported and increases in the first quarter after a medical collection tradeline is removed.
   
   
2. An estimated 22.8 million consumer will have at least one medical collection tradeline removed from their credit reports (73% of the population who had medical collections on their credit report in December 2022).
   
   
3. Consumers could experience a 21 to 32 point increase in their credit scores in the first quarter after their last medical collection tradeline is removed from their credit report, enabling access to credit at lower interest rates and a benefit in any rental screenings and employment background checks.
   
   
4. Data showed that consumers’ total amount of available revolving credit increased on average by $1,028 and their total amount of available installment credit increased on average by $4,123 six quarters after the last medical collection tradeline was removed from their credit report.

The CFPB has been focused on medical debt reporting under Director Rohit Chopra. In 2022, the CFPB issued three reports on medical debt along with CFPB comments strongly suggesting that the agency was headed in the direction of taking steps to block or limit the reporting of medical debt. In February 2023, the CFPB published its report titled “Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting,” analyzing trends in credit reporting of debt in collections and its blog post named “Debt collectors re-evaluate medical debt furnishing in light of data integrity issues,” highlighting factors that create challenges for medical collections reporting. The February report foreshadowed the change to remove small dollar and paid medical collection tradelines.

We will monitor for further developments to see whether the removal of paid medical collections and unpaid medical collections under $500 from consumer credit reports satisfies the CFPB’s desire to mitigate consumer harm from medical debt information or whether it will impose additional requirements on furnishers and consumer reporting agencies.