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Medical Debt Credit Reporting: Two Experts Share 8 Ways To Adapt

march 21, 2022 | by Emily Faracca

On March 17, the “Big 3” credit reporting agencies – Equifax, Experian and TransUnion – announced they will collectively remove nearly 70% of medical collection debt tradelines from credit reports.

It appeared to be a proactive move, as the CFPB announced over $88 billion in medical bills on credit reports earlier in March.

Alongside the report, CFPB Director made this statement: “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”

The CFPB also said that it planned to hold credit reporting firms accountable for not taking enough action against companies that mis-report medical debts.

Clearly, this change will have a ripple effect in the debt collection industry, and that’s exactly what we talked about with Leslie Bender and Joann Needleman of Clark Hill Law.

At the time of recording, the announcement about how medical debt will be reported was not released, but Leslie and Joann provided a complete context to the scope of credit reporting. We covered:

  • What compliant credit reporting and handling disputes looks like right now
  • Implications and predictions for credit reporting in general, once changes to medical debt credit reporting are enforced
  • What agencies should do today to prepare for the changing landscape of credit reporting

Buckle in, because this discussion is long, but rich with information that you can use to contextualize how changes to credit reporting will impact the industry – and your agency – long term.

Play Video

What Is The Current State of Compliant Data Furnishing? (2:05)

All of the major state attorney generals, alongside of the major credit reporting agencies, agreed to to a certain method of credit reporting that they believed would reduce errors and consumer frustration.

This can be summarized as the following:

Any collection agency that chooses to credit report (referred to as data furnishing) has a never-ending duty to make sure that everything they report is accurate and has integrity. 

At a more logistical level, this means double-checking the accuracy of accounts that fall into collections – first when they get the account, and then again, if they get a dispute or complaint from the consumer.

This is referred to as a “reasonable investigation,” and can be broken down into two parts:

  1. Reviewing placements when they come in, looking for errors, patterns and trends
  2. Reviewing accounts a second time if a dispute or complaint comes in on that account

Why Is Credit Reporting In Flux? (4:10)

The CFPB reported that the number one complaint in 2021 is related to credit reporting, and more specifically, disputes.

Joann explains that the current dispute process is automated, and as a result, doesn’t leave a lot of room for explanation.

Consumers can select a category to dispute their debt – such as, “The debt is not mine,” but as Joann explains, this can mean a lot of different things.

So, when the dispute finally arrives to your agency, you don’t necessarily have all the information you need to properly investigate the dispute.

Meanwhile, under Reg V, the process of filing a direct dispute with an agency (or data furnisher) is also complicated. There is no formalized process of how to do it, or what to say.

All of this has led to a lot of miscommunication between data furnishers and consumers about what is wrong with their credit report.

Add to this the wave of stimulus checks that were sent out over the course of the pandemic. Many consumers used these payments towards their credit balances, which saw many consumer’s credit scores go up over the last two years.

While this is positive for consumers overall, according to experts, these payments diluted the significance of the credit score. 

All of this has led to data furnishing processes being put under the microscope by the CFPB, and ultimately, the decision by the three major CRAs to make changes to medical debt credit reporting.

How Does Medical Debt Play Into This Landscape? (11:25)

The decision to change the way medical debt is reported will have an economic impact on major CRAs, simply because fewer agencies will subscribe to their services.

But Leslie explains that there is no evidence that including (or not including) medical debt on credit reports has any bearing on how they are calculated.

This begs another question, says Leslie – what are credit files used for in 2022? Is it preventing people from getting apartments, jobs, transportation and other critical needs met?

Addressing Credit Reporting Issues From The Bottom Up, Not The Top Down (15:10)

Joann zooms out from this short term perspective, and explains how credit-worthiness impacts consumers in a more long-term sense.

While our credit reporting system is not perfect, and medical debt can definitely be classified differentlyJoann explains that removing items from credit reports is a slippery slope.

There are two main factors that can trip us up long term:

  1. Credit Invisibles – consumers who do not have credit, or have fewer accounts. Removing medical debt might erase all of their credit, making it difficult for them to make long-term financial decisions
  2. Relative Assumptions – the arguments that we make about medical debt might also be applied to accounts like student loans, or even credit cards. This can lead us down a dangerous path long term.

Joann explains that the ethos of the governing bodies surrounding credit reporting is to lend.

But so few consumers are taught to be financially well, or understand what that even means.

The ability for consumers to make long-term investments, at the right rate and for the right time period, is crucial to their ability to build wealth. If there is no mechanism to measure these factors, it could lead to even more confusion and a lack of financial wellness.

What Should You Do To Adapt To These Changes?

Talk to your clients and creditors to understand why you are credit reporting.

Whether your clients are medical or not, start asking:

  • Why are we credit reporting?
  • What do you hope to gain out of it?
  • What evidence should we show you that we’re meeting those expectations?

Even if they are duplicate, or you feel like the disputes are frivolous, address every single one.

Leslie recommends you take this matter into your own hands and create a consumer friendly way to do this. This can look like creating a conspicuous form on your website that allows consumers to submit their dispute, and that you can easily track.

Joann explains how maintaining a compliance management system has gotten lost in the shuffle over the years, but it is critical to maintain, no matter what size agency you are.

This element may be difficult for smaller agencies, but it is also critical.

Agencies should have some sort of governing body – even if it’s one or two people – that you can go to who make decisions and speak on behalf of the business.

You will need rock solid policies and procedures that don’t just sit on a shelf, but are used on an ongoing basis.

We talk a lot about the importance of ongoing training, and there is no exception here.

Don’t let your policies and procedures collect dust on a shelf – train and monitor your agents to make sure they are following them.

For agencies who choose to credit report, not only should you triple-check the accuracy of your reporting, but make sure that you audit your past disputes.

Look back and see what kind of disputes you have gotten, how they were handled, etc. and keep a diligent list.

Regulators will expect you to have this type of data.

Leslie put it well – “Credit reporting is not for sissies.”

After you have completed or examined all of the recommendations above, and anything feels unclear – reconsider whether you need to furnish data.

And if you do, make sure that your Reg V policies are crystal clear.

Living Through The Disruption Of An Ecosystem

Leslie and Joann both reiterate that we shouldn’t expect this to be the last we hear about changes to credit reporting.

While the ecosystem may have needed improvements, it has been completely disrupted, and it’s important to keep your eyes and ears open to how this ecosystem falls back together.

There is a clear and well-organized focus on credit reporting. Take these things seriously, says Leslie. Regulators are very intentional with what they choose to focus on. 

If they are choosing to pick apart credit reporting, it means something.

This information does not, and is not intended to, constitute legal advice; and may not be used as legal advice. Instead, all information is for general informational purposes only.

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