Proposed Rule2024-13208
Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V)
Primary source
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Published
June 18, 2024
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) is seeking public comment on a proposed rule amending Regulation V, which implements the Fair Credit Reporting Act (FCRA), concerning medical information. The CFPB is proposing to remove a regulatory exception in Regulation V from the limitation in the FCRA on creditors obtaining or using information on medical debts for credit eligibility determinations. The proposed rule would also provide that a consumer reporting agency generally may not furnish to a creditor a consumer report containing information on medical debt that the creditor is prohibited from using.
Full Text
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<title>Federal Register, Volume 89 Issue 118 (Tuesday, June 18, 2024)</title>
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[Federal Register Volume 89, Number 118 (Tuesday, June 18, 2024)]
[Proposed Rules]
[Pages 51682-51736]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13208]
[[Page 51681]]
Vol. 89
Tuesday,
No. 118
June 18, 2024
Part IV
Consumer Financial Protection Bureau
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12 CFR Part 1022
Prohibition on Creditors and Consumer Reporting Agencies Concerning
Medical Information (Regulation V); Proposed Rule
Federal Register / Vol. 89, No. 118 / Tuesday, June 18, 2024 /
Proposed Rules
[[Page 51682]]
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1022
[Docket No. CFPB-2024-0023]
RIN 3170-AA54
Prohibition on Creditors and Consumer Reporting Agencies
Concerning Medical Information (Regulation V)
AGENCY: Consumer Financial Protection Bureau.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is seeking
public comment on a proposed rule amending Regulation V, which
implements the Fair Credit Reporting Act (FCRA), concerning medical
information. The CFPB is proposing to remove a regulatory exception in
Regulation V from the limitation in the FCRA on creditors obtaining or
using information on medical debts for credit eligibility
determinations. The proposed rule would also provide that a consumer
reporting agency generally may not furnish to a creditor a consumer
report containing information on medical debt that the creditor is
prohibited from using.
DATES: Comments must be received on or before August 12, 2024.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2024-
0023 or RIN 3170-AA54, by any of the following methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments. A brief summary of
this document will be available at <a href="https://www.regulations.gov/docket/CFPB-2024-0023">https://www.regulations.gov/docket/CFPB-2024-0023</a>.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#e5d7d5d7d1c8abb5b7a8c8a8a0a1aca6a4a9c8a1a0a7b1a586839587cb828a93"><span class="__cf_email__" data-cfemail="e9dbd9dbddc4a7b9bba4c4a4acada0aaa8a5c4adacabbda98a8f998bc78e869f">[email protected]</span></a>. Include Docket No.
CFPB-2024-2023 or RIN 3170-AA54 in the subject line of the message.
<bullet> Mail/Hand Delivery/Courier: Comment Intake--2024 NPRM FCRA
Medical Debt Information, c/o Legal Division Docket Manager, Consumer
Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. Because paper
mail is subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Proprietary information or sensitive personal information,
such as account numbers or Social Security numbers, or names of other
individuals, should not be included. Submissions will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you
require this document in an alternative electronic format, please
contact <a href="/cdn-cgi/l/email-protection#8ccfcadcced3cdefefe9ffffe5eee5e0e5f8f5ccefeafceea2ebe3fa"><span class="__cf_email__" data-cfemail="0744415745584664646274746e656e6b6e737e476461776529606871">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
A. Rulemaking Goals
Information about a person's medical history and health is
sacrosanct and among the most intimate and sensitive categories of
data. Recognizing the uniquely sensitive nature of such information,
Congress acted to limit the use and sharing of medical information in
the financial system.\1\ Congress did so in order to ``establish strong
privacy protections for consumers' sensitive medical information,'' in
line with the overarching privacy protection purpose of the Fair Credit
Reporting Act (FCRA).\2\ As part of these protections, Congress
restricted a creditor's ability to obtain or use a consumer's medical
information in connection with any determination of the consumer's
eligibility, or continued eligibility, for credit.\3\ A number of
concerns have been raised about whether a regulatory exception that
permits creditors to consider sensitive medical information about a
consumer's debts and certain other types of medical information is
consistent with the congressional intent to restrict the use of medical
information for inappropriate purposes.
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\1\ Fair and Accurate Credit Transactions Act of 2003 (FACT
Act), Public Law 108-159, 117 Stat. 1952, 1999 (2003).
\2\ 15 U.S.C. 1681 et seq., 1681(a)(4); 149 Cong. Rec. H8122-02,
H8122 (daily ed. Sept. 10, 2003) (statement of Rep. Kanjorsky).
\3\ 15 U.S.C. 1681b(g)(2).
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For tens of millions of consumers, medical debt is an unexpected
and unwanted expense that can lead to financial hardships. The CFPB is
proposing this rule to address concerns that information about medical
debt is not necessary and appropriate for credit underwriting and, as a
result, does not warrant an exception to the medical information
privacy protections established by Congress.
Due to the complexity of medical billing, information about medical
debt is often plagued with inaccuracies and errors. Third-party
reimbursement processes, and debt collectors' practices for providing
(or furnishing) information on consumers' debts to consumer reporting
agencies, can contribute to the prevalence of errors and consumer
confusion about their medical bills.\4\ This can uniquely affect not
just the accuracy of the information a creditor may consider about a
medical debt, but also a consumer's understanding of whether, when, or
in what amount, a medical bill must be paid. Many consumers do not find
out about an erroneous medical bill in collections until applying for a
mortgage or car loan and being denied for the loan based on their
consumer report.\5\
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\4\ See Consumer Fin. Prot. Bureau, Consumer credit reports: A
study of medical and non-medical collections, at 15-16, 38-49 (Dec.
2014), <a href="https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf">https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf</a> (discussing billing and collection practices for
medical debt generally, in discussion of medical collections
tradelines on consumer reports).
\5\ This document uses the term ``consumer report'' which has
the meaning provided in section 603(d) of the FCRA, 15 U.S.C.
1681a(d). ``Consumer report'' is also commonly referred to as
``credit report.''
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Research has shown that medical debt has limited predictive value
for credit underwriting purposes. Questions about the reliability of
information about medical debt, as compared to information about other
types of consumer debt, have been raised based on research performed by
the CFPB and others.\6\ Medical debt may be less predictive of whether
a consumer will pay a future loan, because medical debts can occur and
are collected through unique circumstances and practices. For example,
consumers often have limited ability to control the timing and types of
medical services that are required.
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\6\ See, e.g., Kenneth P. Brevoort & Michelle Kambara, Consumer
Fin. Prot. Bureau, Data point: Medical debt and credit scores (May
2014), <a href="https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf">https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf</a>. See also Mark Rukavina,
Medical Debt and Its Relevance When Assessing Creditworthiness, 46
Suffolk U. L. Rev. 967 (2013), <a href="https://bpb-us-e1.wpmucdn.com/sites.suffolk.edu/dist/3/1172/files/2014/01/Rukavina_Lead.pdf">https://bpb-us-e1.wpmucdn.com/sites.suffolk.edu/dist/3/1172/files/2014/01/Rukavina_Lead.pdf</a>.
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Because consumer reports can operate as a gatekeeper to significant
life and economic decisions, medical debt can be used as leverage by
debt collectors to coerce consumers to pay medical bills they may not
owe.\7\ In such
[[Page 51683]]
circumstances, consumers are forced to choose between challenging
inaccurate medical bills, often while recovering from a serious
illness, or paying the inaccurate bill due to a frequently short review
period.
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\7\ See, e.g., Consumer Fin. Prot. Bureau, Fair Debt Collection
Practices Act: CFPB Annual Report 2023, at 2-5 (Nov. 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_fdcpa-annual-report_2023-11.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fdcpa-annual-report_2023-11.pdf</a> (describing consumer medical collection complaints received
by the CFPB).
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Market participants, including in the consumer reporting industry
and those most financially incentivized to assess the predictive value
of medical debt, have reduced their reliance on medical debt in
recognition of its limited utility. Consumer reporting agencies have
removed certain medical debts from consumer reports.\8\ Major credit
scoring companies have accorded less weight to, or excluded entirely,
medical debt information in their newer models.\9\ Similarly, some
creditors have adjusted how their underwriting standards treat medical
debt information.\10\
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\8\ See, e.g., Business Wire, Equifax, Experian, and TransUnion
Support U.S. Consumers With Changes to Medical Collection Debt
Reporting (Mar. 18, 2022), <a href="https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting">https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting</a>.
\9\ See AnnaMaria Andriotis, Major Credit-Score Provider to
Exclude Medical Debts, Wall St. J. (Aug. 10, 2022), <a href="https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729">https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729</a> (VantageScore CEO quoted as saying that having
medical debt is not necessarily reflective of a consumer's ability
to pay back a loan); Ethan Dornhelm, The Impact of Medical Debt on
FICO Scores, FICO Blog (July 13, 2015), <a href="https://www.fico.com/blogs/impact-medical-debt-ficor-scores">https://www.fico.com/blogs/impact-medical-debt-ficor-scores</a>.
\10\ See, e.g., Fed. Nat'l Mortg. Ass'n, Single Family Selling
Guide, B3-2-03 (2021), <a href="https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts">https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts</a>
(noting that ``[c]ollection accounts reported as medical collections
are not used in the DU [Desk Underwriter] risk assessment''); Fed.
Home Loan Mortg. Corp., The Single-Family Seller/Servicer Guide,
5201.1 (2022), <a href="https://guide.freddiemac.com/app/guide/section/5201.1">https://guide.freddiemac.com/app/guide/section/5201.1</a>; U.S. Dep't of Hous. & Urban Dev., Single Family Housing
Policy Handbook, 4000.1 (2021), <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-112021.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-112021.pdf</a>. See also The White House,
Fact Sheet: The Biden Administration Announces New Actions to Lessen
the Burden of Medical Debt and Increase Consumer Protection (Apr.
11, 2022), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/">https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/</a> (announcing changes to certain Federal
government underwriting standards to remove medical debt from
evaluations of whether a consumer will repay a loan, including those
for the U.S. Department of Agriculture's rural housing service loans
and the Small Business Administration's loan programs and the
Federal Housing Finance Authority's review of credit models).
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Based on the totality of this information, the CFPB is proposing
changes to how creditors and consumer reporting agencies treat medical
information concerning a consumer's medical debt to ensure the use of
such information is consistent with the congressional intent to
safeguard consumers' privacy and restrict the use of medical
information for inappropriate purposes.
B. Summary of the Proposed Rule
Congress, through the Fair and Accurate Credit Transactions Act of
2003 (FACT Act), amended the FCRA to restrict creditors' ability to
obtain or use medical information in connection with credit eligibility
determinations (creditor prohibition).\11\ In doing so, Congress
recognized that a consumer's medical information is particularly
sensitive, warranting heightened privacy protections. However, in 2005,
the Federal financial agencies and the National Credit Union
Administration (Agencies) issued a regulatory exception (financial
information exception) to this statutory prohibition, permitting
consumers' medical financial information to be obtained and used by
creditors in connection with credit eligibility determinations if
certain conditions were met.\12\ And while Congress did permit the
Agencies to create exceptions, Congress mandated that the Agencies
determine that any exception be necessary and appropriate, and
consistent with the congressional intent to restrict the use of medical
information for inappropriate purposes.\13\
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\11\ Public Law 108-159, 117 Stat. 1952 (2003).
\12\ 70 FR 70664 (Nov. 22, 2005).
\13\ 15 U.S.C. 1681b(g)(5).
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When the Agencies issued the financial information exception to the
statutory prohibition, they did so without providing evidence or
reasoning to support their main conclusion that an exception from a
congressionally created legal requirement was warranted.
Given the developments over the past decade in its understanding of
how consumer medical debt differs from other types of consumer debt and
its uses in credit underwriting, the CFPB, now with primary regulatory
authority over the FCRA, has preliminarily determined that the
financial information exception to the creditor prohibition is neither
warranted nor consistent with the FACT Act's purpose of protecting the
privacy of consumers' medical information. The CFPB is proposing
targeted amendments to Regulation V as follows:
<bullet> Remove the financial information exception which broadly
permits creditors to obtain and use medical financial information
(including information about medical debt) in connection with credit
eligibility determinations, while retaining select elements of the
exception related to income, benefits, and loan purpose; and
<bullet> Limit the circumstances under which consumer reporting
agencies are permitted to furnish medical debt information to creditors
in connection with credit eligibility determinations.
These amendments would apply to any person that participates as a
creditor in a transaction, except for a person excluded from coverage
by section 1029 of the Consumer Financial Protection Act of 2010 (CFPA)
\14\ (i.e., certain auto dealers). The term creditor has the same
meaning as in section 702 of the Equal Credit Opportunity Act
(ECOA).\15\ The amendments would also apply to a consumer reporting
agency as defined in section 603(f) of the FCRA.\16\
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\14\ Public Law 111-203, 124 Stat. 1955, 2004 (2010).
\15\ ECOA is codified at 15 U.S.C. 1691 et seq.; ECOA section
702 is codified at 15 U.S.C. 1691a(e). The term creditor means any
person who regularly extends, renews, or continues credit; any
person who regularly arranges for the extension, renewal, or
continuation of credit; or any assignee of an original creditor who
participates in the decision to extend, renew, or continue credit.
\16\ 15 U.S.C. 1681a(f). The term consumer reporting agency
means any person which, for monetary fees, dues, or on a cooperative
nonprofit basis, regularly engages in whole or in part in the
practice of assembling or evaluating consumer credit information or
other information on consumers for the purpose of furnishing
consumer reports to third parties, and which uses any means or
facility of interstate commerce for the purpose of preparing or
furnishing consumer reports.
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Under the proposed rule, a creditor would no longer be able to
obtain or use medical information related to debts, expenses, assets,
or collateral, in connection with a credit eligibility determination,
unless a specific exception otherwise applies to the creditor's
consideration of the medical information. And a consumer reporting
agency generally would be prohibited from furnishing to a creditor a
consumer report containing medical debt information in connection with
a credit eligibility determination.
As a result of these changes, consumers' sensitive medical
information would be protected, and consumers would no longer be
unfairly penalized in the credit market for having medical debt.
Consumers with and without medical debt would have equal access to
credit at comparable terms and debt collectors would have less leverage
over consumers to pressure consumers into paying medical debts that
they may not owe.
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C. Unique Characteristics of Medical Debt in the United States
A significant number of Americans have medical debt.\17\ According
to one nationally representative survey, in 2022 around 41 percent of
adults stated that they had some kind of medical debt, including debt
that they were unable to pay, that was on credit cards, that was being
paid over time, directly to a provider, or that they owed to family
members, or to a bank, collection agency, or other lender.\18\
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\17\ For more information about medical debt in the United
States, including population disparities, impacts on consumers, and
COVID-19 impacts, see Consumer Fin. Prot. Bureau, Medical Debt
Burden in the United States (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a>.
\18\ Lunna Lopes et al., Kaiser Fam. Found., Health Care Debt In
The U.S.: The Broad Consequences Of Medical And Dental Bills (June
16, 2022), <a href="https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/">https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/</a> (reporting results of 2022 Kaiser Family
Foundation Health Care Debt Survey, which polled 2,375 adults).
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Several characteristics of medical debt pose special risks to
consumers and distinguish it from other types of debt.\19\ The need for
medical care can be unexpected,\20\ and medical debt often results from
bills for a one-time or short-term medical expense due to an unforeseen
event such as an accident or sudden illness.\21\ Consumers are rarely
informed of the costs of medical treatment in advance, and because of
price opacity and an often immediate need for medical care, consumers
have little or no ability to ``shop around.'' \22\ Americans that live
in rural communities may also experience limited choices when trying to
access health care,\23\ which may impact the amount of their medical
debt in ways that are not reflective of their other debts.
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\19\ See generally Consumer Fin. Prot. Bureau, Bulletin 2022-01:
Medical Debt Collection and Consumer Reporting Requirements in
Connection with the No Surprises Act, 87 FR 3025 (Jan. 20, 2022),
<a href="https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf">https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf</a>; Consumer Fin. Prot. Bureau, Consumer credit reports: A
study of medical and non-medical collections, at 15-16, 38-42 (Dec.
2014), <a href="https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf">https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf</a>.
\20\ See Consumer Fin. Prot. Bureau, Complaint Bulletin: Medical
billing and collection issues described in consumer complaints, at 7
(Apr. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf</a>
(describing consumer complaints received by the CFPB about
unexpected medical care).
\21\ See Lunna Lopes et al., Kaiser Fam. Found., Health Care
Debt in the U.S.: The Broad Consequences of Medical and Dental Bills
(June 16, 2022), <a href="https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/">https://www.kff.org/report-section/kff-health-care-debt-survey-main-findings/</a> (reporting survey results that 7 in 10
adults with health care debt say the debt arose from bills for a
one-time or short-term medical expense). But see Sara R. Collins et
al., Commonwealth Fund, Paying for It: How Health Care Costs and
Medical Debt Are Making Americans Sicker and Poorer--Findings from
the Commonwealth Fund 2023 Health Care Affordability Survey (Oct.
2023), <a href="https://www.commonwealthfund.org/publications/surveys/2023/oct/paying-for-it-costs-debt-americans-sicker-poorer-2023-affordability-survey">https://www.commonwealthfund.org/publications/surveys/2023/oct/paying-for-it-costs-debt-americans-sicker-poorer-2023-affordability-survey</a> (about half of adults with medical debt say it
is from treatment received for an ongoing condition).
\22\ Consumer Fin. Prot. Bureau, Bulletin 2022-01: Medical Debt
Collection and Consumer Reporting Requirements in Connection with
the No Surprises Act, 87 FR 3025 (Jan. 20, 2022), <a href="https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf">https://www.govinfo.gov/content/pkg/FR-2022-01-20/pdf/2022-01012.pdf</a>. See
also Consumer Fin. Prot. Bureau, Complaint Bulletin: Medical billing
and collection issues described in consumer complaints, at 7-8 (Apr.
20, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/">https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/</a> (detailing consumer complaints
received by the CFPB).
\23\ See, e.g., U.S. Gov't Acct. Off., Health Care Capsule:
Accessing Health Care in Rural America (May 2023), <a href="https://www.gao.gov/assets/gao-23-106651.pdf">https://www.gao.gov/assets/gao-23-106651.pdf</a> (generally describing health
care access challenges for rural populations).
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There are significant concerns with the accuracy of medical bills.
For example, 43 percent of all adults and 53 percent of adults with
medical debt in a nationally representative survey believed they had
received a medical or dental bill that included an error.\24\ While the
survey found that most of these adults had taken some action to dispute
the mistake, 51 percent reported that they either did not dispute the
bill or were unable to successfully resolve their dispute. This may be
because medical billing and collections can be complicated and
confusing since a consumer may have difficulty determining whether the
amount is covered by insurance or a hospital's financial assistance
program (if applicable) and, if so, whether and to what extent the
amount was already paid or reduced.\25\ Also some health care providers
and debt collectors exploit these complications and charge inflated or
unearned bills.\26\
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\24\ See, e.g., Karen Pollitz & Kaye Pestaina, Kaiser Fam.
Found., Could Consumer Assistance Be Helpful to People Facing
Medical Debt? (July 14, 2022), <a href="https://www.kff.org/policy-watch/could-consumer-assistance-be-helpful-to-people-facing-medical-debt/">https://www.kff.org/policy-watch/could-consumer-assistance-be-helpful-to-people-facing-medical-debt/</a>
(analyzing results of 2022 Kaiser Family Foundation Health Care Debt
Survey).
\25\ See, e.g., Consumer Fin. Prot. Bureau, Medical Debt Burden
in the United States, at 9-14 (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a> (describing issues with medical
billing and collections practices); Consumer Fin. Prot. Bureau,
Complaint Bulletin: Medical billing and collection issues described
in consumer complaints (Apr. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf</a>.
\26\ Press Release, U.S. Dep't of Just., Hospital Chain Will Pay
Over $260 Million to Resolve False Billing and Kickback Allegations;
One Subsidiary Agrees to Plead Guilty (Sept. 25, 2018), <a href="https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one">https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one</a>; Press Release,
U.S. Atty's Off. for C.D. Cal., Prime Healthcare Services and its
CEO Agree to Pay $65 Million to Settle Medicare Overbilling
Allegations at 14 California Hospitals (Aug. 3, 2018), <a href="https://www.justice.gov/usao-cdca/pr/prime-healthcare-services-and-its-ceo-agree-pay-65-million-settle-medicare-overbilling">https://www.justice.gov/usao-cdca/pr/prime-healthcare-services-and-its-ceo-agree-pay-65-million-settle-medicare-overbilling</a>; Press Release,
Off. of Pub. Affairs, U.S. Dep't of Just., Clinical Laboratory and
Its Owner Agree to Pay an Additional $5.7 Million to Resolve
Outstanding Judgement for Billing Medicare for Inflated Mileage-
Based Lab Technician Travel Allowance Fees (Aug. 1, 2023), <a href="https://www.justice.gov/opa/pr/clinical-laboratory-and-its-owner-agree-pay-additional-57-million-resolve-outstanding">https://www.justice.gov/opa/pr/clinical-laboratory-and-its-owner-agree-pay-additional-57-million-resolve-outstanding</a>; Press Release, Off. of
Pub. Affairs, U.S. Dep't of Just., Physician Partners of America to
Pay $24.5 Million to Settle Allegations of Unnecessary Testing,
Improper Remuneration to Physicians and a False Statement in
Connection with COVID-19 Relief Funds (Apr. 12, 2022), <a href="https://www.justice.gov/opa/pr/physician-partners-america-pay-245-million-settle-allegations-unnecessary-testing-improper">https://www.justice.gov/opa/pr/physician-partners-america-pay-245-million-settle-allegations-unnecessary-testing-improper</a>; Erica Zucco,
Providence will refund medical bills for thousands of patients after
agreement with attorney general, King 5 News (Feb. 1, 2024), <a href="https://www.king5.com/article/news/health/providence-forgive-137-million-medical-payments-refund-20m-patients-after-agreement/281-3063dd66-ab54-413a-893a-73463f213a5b">https://www.king5.com/article/news/health/providence-forgive-137-million-medical-payments-refund-20m-patients-after-agreement/281-3063dd66-ab54-413a-893a-73463f213a5b</a>; Off. of the Att'y Gen. of Va., Common
Health Care Fraud Schemes, <a href="https://www.oag.state.va.us/contact-us/frequently-asked-questions?id=511">https://www.oag.state.va.us/contact-us/frequently-asked-questions?id=511</a> (last visited May 21, 2024).
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D. Medical Debt and Consumer Reporting
Information about medical debt is used in different ways in the
financial system. Consumer reporting agencies play a key role in
assembling and evaluating consumer credit and other information on
consumers \27\--including information about a consumer's medical debt--
and in providing consumer reports to other companies for employment,
housing, insurance, and other decisions.\28\ Medical debt information
on a consumer report can increase the cost and reduce the availability
of credit, and can even reduce access to employment and housing.\29\
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\27\ See 15 U.S.C. 1681(a)(3).
\28\ See Consumer Fin. Prot. Bureau, Medical Debt Burden in the
United States, at 26 n.117 (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a>.
\29\ See Consumer Fin. Prot. Bureau, Data Point: Consumer Credit
and the Removal of Medical Collections from Credit Reports, at 2
(Apr. 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-removal-medical-collections-from-credit-reports_2023-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-removal-medical-collections-from-credit-reports_2023-04.pdf</a>.
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Generally, information about a medical debt on a consumer report
appears as a collection tradeline. After a medical debt has been placed
by the creditor in collections status because the debt has been unpaid
for a period of time, the medical debt may be furnished as a
collections tradeline to consumer reporting agencies by a debt
collector, including a debt collector who collects
[[Page 51685]]
on behalf of the original creditor for a fee, as well as a debt
collector who purchases overdue accounts outright from the original
creditor (also known as a debt buyer).\30\ Such tradelines are referred
to as medical collections or medical collections tradelines. Research
by the CFPB has found that nearly all medical collections furnishing is
performed by debt collectors, rather than by health care providers (as
original creditors) themselves.\31\ However, a debt collector may have
limited access to an original creditor's system of records, which may
contribute to higher dispute rates for collections tradelines compared
to other components of consumer reports.\32\ When debt collectors
furnish to consumer reporting agencies, they generally report to one or
more of the three largest nationwide consumer reporting agencies
(NCRAs). Debt collections tradelines may persist on consumer reports
for up to seven years; \33\ however, many collections tradelines are
removed well in advance of seven years.\34\
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\30\ Payments made to medical balances not yet sent to
collections generally are not furnished to consumer reporting
agencies.
\31\ Consumer Fin. Prot. Bureau, Market Snapshot: An Update on
Third Party Debt Collections Tradelines Reporting, at 5 (Feb. 2023),
<a href="https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf</a>.
\32\ Id.
\33\ 15 U.S.C. 1681c(a)(4).
\34\ Consumer Fin. Prot. Bureau, Consumer credit reports: A
study of medical and non-medical collections, at 27 (Dec. 2014),
<a href="https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf">https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf</a>.
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Historically, medical debts have been the most common type of debt
on consumer reports at both the consumer-report and individual
collections tradeline level. The CFPB estimated that medical
collections accounted for 57 percent of all collections tradelines in
Q1 2022 and 58 percent in Q2 2018.\35\ When debt collectors acting as
agents or assignees of health care providers furnish information about
medical collections, they must notify the consumer reporting agency
that they are furnishing medical information.\36\ The FCRA generally
prohibits consumer reporting agencies from reporting to third parties
the name, address, and telephone number of the health care provider for
any account identified as from a medical information furnisher that has
notified the consumer reporting agency of its status, unless that
information is restricted or coded such that persons other than the
consumer cannot identify or infer the specific provider or the nature
of the medical services provided.\37\ Nevertheless, despite the coding
of information on the consumer reports, a consumer report user could
infer from the coding that certain debts relate to the provision of
health care. Like with medical bills, consumers often find errors with
medical collections tradeline information on their consumer reports. A
CFPB analysis found that almost 6 percent of medical collections in its
data were flagged as having been disputed at some point, almost three
times higher than the rate of dispute flags on credit cards and seven
times the rate of dispute flags on student loans.\38\
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\35\ Consumer Fin. Prot. Bureau, Market Snapshot: An Update on
Third Party Debt Collections Tradelines Reporting, at 16-17 (Feb.
2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf</a>.
\36\ See 15 U.S.C. 1681s-2(a)(9).
\37\ 15 U.S.C. 1681c(a)(6); see 15 U.S.C. 1681s-2(a)(9)
(requiring medical information furnishers to notify consumer
reporting agencies of such status).
\38\ Consumer Fin. Prot. Bureau, Paid and Low-Balance Medical
Collections on Consumer Credit Reports (July 27, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/">https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/</a>.
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A 2022 review of consumer complaints submitted to the CFPB found
that many consumers complaining of disputed debt collection attempts
reported first learning of the debt from viewing their consumer report.
Consumers expressed concern with inaccurate information leading to a
decrease in their credit score. Some consumers reported paying debt
they did not believe they owed in order to have the tradeline removed
from their consumer report.\39\
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\39\ Consumer Fin. Prot. Bureau, Complaint Bulletin: Medical
billing and collection issues described in consumer complaints (Apr.
2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin-medical-billing_report_2022-04.pdf</a>.
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Some of the errors in medical collections tradelines could be due
to debt collection furnishing practices. Some medical debt collectors
previously used debt collection furnishing to engage in a practice
known as ``debt parking,'' or ``passive collection.'' Debt collectors
would report a debt to a consumer reporting agency, then wait for the
consumer to notice the tradeline when, for example, applying for
credit. The consumer may then pay the debt, possibly without raising
any dispute as to any errors in order to access needed credit. The CFPB
issued final rules on debt collection, which took effect November 30,
2021, that addressed this practice by requiring a debt collector to
take certain actions intended to convey information about the debt to
the consumer before furnishing information on that debt to a consumer
reporting agency.\40\ Despite the protections offered by these rules,
CFPB investigations indicate that some medical debt collectors may
still be attempting to collect on medical debts that were not
substantiated after consumers disputed the validity of the debts.\41\
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\40\ See 12 CFR 1006.30(a).
\41\ See Consumer Fin. Prot. Bureau, CFPB Takes Action Against
Phoenix Financial Services for Illegal Medical Debt Collection and
Credit Reporting Practices (June 8, 2023), <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-phoenix-financial-services-for-illegal-medical-debt-collection-and-credit-reporting-practices/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-phoenix-financial-services-for-illegal-medical-debt-collection-and-credit-reporting-practices/</a>; Consumer Fin. Prot. Bureau, CFPB Shuts
Down Commonwealth Financial Systems for Illegal Debt Collection
Practices (Dec. 15, 2023), <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-shuts-down-commonwealth-financial-systems-for-illegal-debt-collection-practices/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-shuts-down-commonwealth-financial-systems-for-illegal-debt-collection-practices/</a>.
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Recent reporting changes announced by the NCRAs in 2022 and 2023
have begun to reduce the amount of medical debt reported on consumer
reports and benefit some consumers. Specifically, the NCRAs announced
that, starting on July 1, 2022, unpaid medical collections will not
appear on a consumer's report for up to one year (an increase from 180
days), and paid medical collections will no longer be on consumer
reports.\42\ In April 2023, the NCRAs also announced that medical
collections with initial balances below $500 had been removed from
consumer reports.\43\
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\42\ Equifax, First Changes to Reporting of Medical Collection
Debt Roll Out July 1, 2022 (July 1, 2022), <a href="https://www.equifax.com/newsroom/all-news/-/story/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022">https://www.equifax.com/newsroom/all-news/-/story/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022</a>; Experian, First Changes to
Reporting of Medical Collection Debt Roll Out July 1, 2022 (July 1,
2022), <a href="https://www.experianplc.com/newsroom/press-releases/2022/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022">https://www.experianplc.com/newsroom/press-releases/2022/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022</a>; TransUnion, First Changes to Reporting of Medical Collection
Debt Roll Out July 1, 2022 (July 1, 2022), <a href="https://newsroom.transunion.com/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022/">https://newsroom.transunion.com/first-changes-to-reporting-of-medical-collection-debt-roll-out-july-1-2022/</a>.
\43\ PR Newswire, Equifax, Experian and TransUnion Remove
Medical Collections Debt Under $500 From U.S. Credit Reports (Apr.
11, 2023), <a href="https://www.prnewswire.com/news-releases/equifax-experian-and-transunion-remove-medical-collections-debt-under-500-from-us-credit-reports-301793769.html">https://www.prnewswire.com/news-releases/equifax-experian-and-transunion-remove-medical-collections-debt-under-500-from-us-credit-reports-301793769.html</a>.
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The CFPB conducted an analysis of the impacts of the NCRAs' medical
debt reporting changes through June 2023.\44\ The CFPB found that after
these changes, 15 million Americans still have $49 billion in medical
bills on their consumer reports. Because the
[[Page 51686]]
medical collections tradelines removed by the NCRAs were those with low
balances, the total dollar balances of medical collections on consumer
reports fell by only 38 percent nationwide.
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\44\ Ryan Sandler & Zachary Blizard, Consumer Fin. Prot. Bureau,
Recent Changes in Medical Collections on Consumer Credit Records
Data Point, at 3-4, 17 (Mar. 2024), <a href="https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf</a>.
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Several States and at least one Federal agency have also enacted
policies that limit the inclusion of medical debt on consumer
reports.\45\ For example, Colorado \46\ and New York \47\ each passed
laws in 2023 prohibiting medical debts from appearing on consumer
reports. Connecticut and Virginia followed suit earlier this year.\48\
Illinois and Minnesota state legislatures have also passed similar
legislation pending signature from their States' governors.\49\ Maine,
in 2019, passed a law requiring consumer reporting agencies to remove
medical debt upon receiving reasonable evidence that the debt has been
settled or paid.\50\ In 2022, the U.S. Department of Veterans Affairs
(VA) finalized a rule providing that the VA will report medical debt to
consumer reporting agencies only if all other debt collection efforts
have been exhausted, the individual is not catastrophically disabled or
entitled to free medical care from the VA, and the outstanding debt is
over $25.\51\
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\45\ In 2022, the CFPB issued an interpretive rule clarifying
that because FCRA's express preemption provisions have a narrow and
targeted scope, States retain substantial flexibility to pass laws
involving consumer reporting to reflect emerging problems affecting
their local economies and citizens, including problems related to
medical debt. Consumer Fin. Prot. Bureau, The Fair Credit Reporting
Act's Limited Preemption of State Laws, 87 FR 41042 (July 11, 2022).
\46\ Colo. Rev. Stat. section 5-18-109.
\47\ N.Y. Pub. Health Law art. 49-A.
\48\ 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.
\49\ See Forest Nelson, Medical debt may no longer negatively
impact your credit in Illinois, WIFR (May 16, 2024), <a href="https://www.wifr.com/2024/05/16/medical-debt-may-no-longer-negatively-impact-your-credit-illinois/">https://www.wifr.com/2024/05/16/medical-debt-may-no-longer-negatively-impact-your-credit-illinois/</a>; Off. of Minn. Att'y Gen. Keith
Ellison, Attorney General Ellison commends Senate for final passage
of the Debt Fairness Act (May 16, 2024), <a href="https://www.ag.state.mn.us/Office/Communications/2024/05/16_DebtFairnessAct.asp">https://www.ag.state.mn.us/Office/Communications/2024/05/16_DebtFairnessAct.asp</a>.
\50\ Consumer Data Indus. Ass'n v. Frey, 26 F.4th 1 (1st Cir.
2022), cert. denied, 143 S. Ct. 777 (2023).
\51\ U.S. Dep't of Veterans Affairs, Threshold for Reporting VA
Debts to Consumer Reporting Agencies, 87 FR 5693 (Feb. 2, 2022).
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E. Current Use of Medical Debt in Credit Scoring and Underwriting
Collections tradelines are considered negative information and can
lower consumers' credit scores. A 2014 CFPB analysis found that the
presence of medical collections tradelines on consumer reports are less
predictive of future defaults or serious delinquencies than the
presence of nonmedical collections tradelines, and that consumers with
paid medical debts have delinquency rates well below those of consumers
with the same credit scores whose medical debts were mostly unpaid.\52\
Following the CFPB's publication of its research and in recognition of
the limited predictive value of medical bills, major credit score
providers FICO and VantageScore made changes so that newer versions of
their credit scoring models differentiate between medical and
nonmedical collections tradelines, give less weight to unpaid medical
collections tradelines than to other collections tradelines, and ignore
paid medical collections of any kind.\53\ In January 2023, VantageScore
implemented changes to VantageScore models 3.0 and 4.0 to ignore all
medical collections tradelines.\54\
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\52\ Kenneth P. Brevoort & Michelle Kambara, Consumer Fin. Prot.
Bureau, Data point: Medical debt and credit scores (May 2014),
<a href="https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf">https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf</a>.
\53\ See Ethan Dornhelm, The Impact of Medical Debt on FICO
Scores, FICO Blog (July 13, 2015), <a href="https://www.fico.com/blogs/impact-medical-debt-ficor-scores">https://www.fico.com/blogs/impact-medical-debt-ficor-scores</a>; VantageScore, How will changes in
how medical collection accounts get reported impact credit scores?
(July 5, 2022), <a href="https://www.vantagescore.com/how-will-changes-in-how-medical-collection-accounts-get-reported-impact-credit-scores/">https://www.vantagescore.com/how-will-changes-in-how-medical-collection-accounts-get-reported-impact-credit-scores/</a>.
\54\ See AnnaMaria Andriotis, Major Credit-Score Provider to
Exclude Medical Debts, Wall St. J. (Aug. 10, 2022), <a href="https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729">https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729</a> (VantageScore CEO quoted as saying that having
medical debt is not necessarily reflective of a consumer's ability
to pay back a loan).
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Older FICO scoring models that do not differentiate between medical
and nonmedical collections tradelines, however, remain common in the
market. For example, while the Government-Sponsored Enterprises (GSEs),
the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac), and the Federal Housing
Administration generally do not consider medical debt in their credit
risk assessments within their respective automated underwriting
systems,\55\ the GSEs require creditors to provide credit scores
derived from the older Classic FICO \56\ for each borrower on a loan
that the GSEs purchase to assess eligibility for certain loan products
and make certain pricing decisions.\57\ The GSEs and the Federal
Housing Finance Agency (FHFA) announced in 2022 that they had validated
and approved two of the new credit score models that lessen the weight
or do not consider medical collections, but that transition is not
expected to occur until the fourth quarter of 2025.\58\
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\55\ See Fed. Nat'l Mortg. Ass'n, Single Family Selling Guide,
B3-2-03 (2021), <a href="https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts">https://selling-guide.fanniemae.com/#Public.20Records.2C.20Foreclosures.2C.20and.20Collection.20Accounts</a>
(noting that ``[c]ollection accounts reported as medical collections
are not used in the DU risk assessment''); Fed. Home Loan Mortg.
Corp., The Single-Family Seller/Servicer Guide, 5201.1 (2022),
<a href="https://guide.freddiemac.com/app/guide/section/5201.1">https://guide.freddiemac.com/app/guide/section/5201.1</a>; U.S. Dep't of
Hous. & Urban Dev., Single Family Housing Policy Handbook, 4000.1
(2021), <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-102021.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh-102021.pdf</a>.
\56\ The Classic FICO score is comprised of the following
models: Equifax Beacon[supreg] 5.0, Experian/Fair Isaac Risk Model
V2SM, and TransUnion FICO[supreg] Risk Score, Classic 04.
\57\ See, e.g., Fed. Nat'l Mortg. Ass'n, Single Family Selling
Guide (Oct. 5, 2022), <a href="https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-requirements-credit-scores">https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-requirements-credit-scores</a>.
\58\ Fed. Hous. Fin. Agency, FHFA Announces Key Updates for
Implementation of Enterprise Credit Score Requirements (Feb. 29,
2024), <a href="https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Key-Updates-for-Implementation-of-Enterprise-Credit-Score-Requirements.aspx">https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Key-Updates-for-Implementation-of-Enterprise-Credit-Score-Requirements.aspx</a>.
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II. Statutory and Regulatory History
A. Fair Credit Reporting Act
The FCRA was enacted in 1970 and was one of the world's first data
privacy laws. The law was enacted after growing public concern about
the lack of regulation concerning the widespread dissemination of
sensitive information about Americans. One of Congress' main purposes
in passing the FCRA was a respect for the consumer's right to
privacy.\59\ The law has been amended several times in the ensuing
years, including by the FACT Act.\60\ The FCRA governs the collection,
assembly, and use of consumer report information and provides the
framework for the consumer reporting system in the United States. The
FCRA regulates the practices of consumer reporting agencies that
collect and compile consumer information into consumer reports for use
by creditors, insurance companies, employers, landlords, and other
entities in making eligibility decisions affecting consumers. The FCRA
also limits the circumstances under which persons, such as creditors,
may obtain and use consumer report information from consumer reporting
agencies.
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\59\ FCRA section 602(a)(4) (15 U.S.C. 1681(a)(4)).
\60\ Public Law 108-159 (Dec. 4, 2003). Congress also enacted
specific protections for servicemembers and veterans, including with
respect to medical debt and credit monitoring. Economic Growth,
Regulatory Relief, and Consumer Protection Act, Public Law 115-174,
section 302, 132 Stat. 1296, 1333 (2018).
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The FCRA was enacted to (1) prevent the misuse of sensitive
consumer information by limiting recipients to those who have a
legitimate need for it; (2) improve the accuracy and integrity of
consumer reports; and (3) promote the efficiency of the nation's
banking and consumer credit systems.\61\ An
[[Page 51687]]
important purpose of the FCRA is to enable creditors to make
appropriate credit decisions based on accurate consumer reporting
information that truly reflects whether a consumer will repay a loan,
while simultaneously protecting the privacy of consumer data.\62\
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\61\ Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 52 (2007); see
also 15 U.S.C. 1681(a)(4) (recognizing ``a need to insure that
consumer reporting agencies exercise their grave responsibilities
with fairness, impartiality, and a respect for the consumer's right
to privacy'').
\62\ S. Rep. No. 91-517, at 1 (1969); see also Trans Union Corp.
v. FTC, 81 F.3d 228, 234 (D.C. Cir. 1996).
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The FCRA protects consumer privacy in multiple ways, including by
clearly prohibiting certain uses of data. The law limits the
circumstances under which consumer reporting agencies may disclose
consumer information. For example, FCRA section 604, entitled
Permissible purposes of consumer reports, identifies an exclusive list
of permissible purposes for which consumer reporting agencies may
provide consumer reports.\63\ The statute states that a consumer
reporting agency may provide consumer reports under these circumstances
``and no other.'' In addition, FCRA section 607(a) requires that
``[e]very consumer reporting agency shall maintain reasonable
procedures designed to . . . limit the furnishing of consumer reports
to the purposes listed under section 604.'' \64\
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\63\ 15 U.S.C. 1681b(a). Other sections of the FCRA identify
additional limited circumstances under which consumer reporting
agencies are permitted or required to disclose certain information
to government agencies. See 15 U.S.C. 1681f, 1681u, 1681v. Further,
the Debt Collection Improvement Act of 1996, Public Law 104-134, 110
Stat. 1321, section 31001(m)(1), allows the head of an executive,
judicial, or legislative agency to obtain a consumer report under
certain circumstances relating to debt collection. See 31 U.S.C.
3711(h).
\64\ 15 U.S.C. 1681e(a).
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In addition to imposing permissible purpose limitations on consumer
reporting agencies, the FCRA limits the circumstances under which third
parties may obtain and use consumer report information from consumer
reporting agencies. FCRA section 604(f) provides that a person shall
not use or obtain a consumer report unless the consumer report is
obtained for a purpose for which the consumer report is authorized to
be furnished under FCRA section 604 and the purpose is certified in
accordance with FCRA section 607 by a prospective user of the
report.\65\
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\65\ 15 U.S.C. 1681b(f).
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The FCRA's permissible purpose provisions are thus a key component
to the statute's protection of consumer privacy. Consumers suffer harm
when consumer reporting agencies provide consumer reports to persons
who are not authorized to receive the information or when recipients of
consumer reports obtain or use such reports for purposes other than
permissible purposes. These harms include the invasion of consumers'
privacy, as well as reputational, emotional, physical, and economic
harms.
B. Fair and Accurate Credit Transactions Act of 2003 and Implementing
Regulations
Congress passed the FACT Act and it became law on December 4,
2003.\66\ Congress, through the FACT Act, amended the FCRA to include
additional protections for consumer privacy, such as restricting the
use and transfer of sensitive medical information, enhancing the
ability of consumers to combat identity theft, increasing the accuracy
of consumer reports, and allowing consumers to exercise greater control
regarding the type and amount of marketing solicitations they
receive.\67\
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\66\ Public Law 108-159, 117 Stat. 1952 (2003).
\67\ H. Rep. No. 108-396, at 1 (2003) (Conf. Rep.); S. Rep. No.
108-166, at 3 (2003) (Conf. Rep.).
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Congress added, in FCRA section 604(g)(2), a broad new limitation
on the ability of creditors to obtain or use medical information
pertaining to a consumer in connection with any determination of the
consumer's eligibility, or continued eligibility, for credit.\68\
Congress also limited the circumstances under which consumer reporting
agencies could furnish consumer reports containing medical information
for credit, employment, or insurance purposes,\69\ and generally
required consumer reporting agencies providing consumer reports not to
furnish contact information for medical information furnishers--who
were also required to identify themselves to consumer reporting
agencies \70\--without restrictions or coding ``that do not identify,
or provide information sufficient to infer, the specific provider or
the nature of such services, products, or devices to a person other
than the consumer.'' \71\ Congress also broadly defined medical
information in FCRA section 603(i) to include ``information or data . .
. created or derived from a health care provider or the consumer, that
relates to . . . the payment for the provision of health care to an
individual.'' \72\
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\68\ FACT Act sections 411(a), 412(f)(2), 117 Stat. 1999-2000,
2003 (15 U.S.C. 1681b(g)(2)). FCRA section 604(g)(2) provides:
``Except as permitted pursuant to paragraph (3)(C) or regulations
prescribed under paragraph (5)(A), a creditor shall not obtain or
use medical information (other than medical information treated in
the manner required under section 1681c(a)(6) of this title)
pertaining to a consumer in connection with any determination of the
consumer's eligibility, or continued eligibility, for credit.'' 15
U.S.C. 1681b(g)(2).
\69\ FACT Act section 411(a), 117 Stat. 2000 (15 U.S.C.
1681b(g)(1)).
\70\ FACT Act section 412(a), 117 Stat. 2002 (15 U.S.C. 1681s-
2(a)(9)).
\71\ FACT Act section 412(b), 117 Stat. 2002 (15 U.S.C.
1681c(a)(6)).
\72\ FACT Act section 411(c), 117 Stat. 2001 (15 U.S.C.
1681a(i)).
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Congress initially granted rulemaking authority to the Agencies to
make exceptions to the limitation on creditors obtaining and using
medical information that are necessary and appropriate to protect
legitimate operational, transactional, risk, consumer, and other needs
(including administrative verification purposes), consistent with
congressional intent to restrict the use of medical information for
inappropriate purposes.\73\ Pursuant to this authority, the Agencies
promulgated final rules that, among other things, implemented the
statute's general prohibition on creditors obtaining or using medical
information pertaining to a consumer in connection with any
determination of the consumer's eligibility, or continued eligibility,
for credit and created exceptions to the prohibition.\74\
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\73\ FACT Act section 411(a), 117 Stat. 2001 (15 U.S.C.
1681b(g)(5)(A)).
\74\ 70 FR 70664 (Nov. 22, 2005). See also interim final rules
published at 70 FR 33958 (June 10, 2005).
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The Agencies' final rules contain the financial information
exception for creditors obtaining and using medical information in
credit eligibility determinations.\75\ The financial information
exception consists of a three-part test which allows creditors to use
medical information in connection with credit eligibility
determinations so long as (1) the information is the type of
information routinely used in making credit eligibility determinations;
(2) the creditor uses the information in a manner and to an extent no
less favorably than comparable nonmedical information; and (3) the
creditor does not take the consumer's physical, mental, or behavioral
health, condition or history, type of treatment, or prognosis into
account when making the determination. The Agencies stated that the
``three-part test strikes a balance between permitting creditors to
obtain and use certain medical information about consumers when
necessary and appropriate to satisfy prudent underwriting criteria and
to ensure that credit is extended in a safe and sound manner, while
restricting the use of medical information for inappropriate
purposes.'' \76\ Although the Agencies
[[Page 51688]]
explained the boundaries of their three-part test, and gave responses
to commenters on various examples, they did not provide evidence or
reasoning to support the main conclusion that an exception from a
congressionally created legal requirement was warranted, other than a
single conclusory sentence in the proposed rule stating that ``[a]
creditor should not be prohibited from obtaining or using information
about a debt, for example, in connection with making a credit decision,
just because that debt happens to be for medical products or
services.'' \77\
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\75\ 70 FR 70664, 70667 (Nov. 22, 2005).
\76\ 69 FR 23380, 23384 (Apr. 28, 2004).
\77\ Id.
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The Agencies' final rules also identified a limited number of other
particular purposes for which a creditor may use medical information in
connection with any determination of the consumer's eligibility, or
continued eligibility, for credit.\78\ For example, a creditor may use
medical information in credit eligibility determinations to comply with
applicable requirements of local, State, or Federal laws.\79\ The
Agencies found that this exception, and the other enumerated specific
exceptions, are necessary and appropriate to protect legitimate
operational, transactional, risk, consumer, and other needs (including
administrative verification purposes), and are consistent with the
congressional intent to restrict the use of medical information for
inappropriate purposes.\80\
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\78\ 70 FR 70664, 70668 (Nov. 22, 2005).
\79\ This exception is restated at Sec. 1022.30(e)(1)(ii).
\80\ 69 FR 23380, 23382 (Apr. 28, 2004).
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Congress (through the CFPA) transferred to the CFPB primary
regulatory authority for the FCRA.\81\ The CFPB restated the Agencies'
regulations as an interim final rule, with request for comment, on
December 21, 2011.\82\ On April 28, 2016, the CFPB finalized the
interim final rule without assessing or otherwise reconsidering the
policy decisions and justifications that served as the basis for the
regulations.\83\
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\81\ Title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. 111-203, 124 Stat. 1376, 1955 (2010).
\82\ 76 FR 79308 (Dec. 21, 2011).
\83\ 81 FR 25323 (Apr. 28, 2016).
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III. Prior Proceedings, Stakeholder Outreach, and Consultation
A. Small Business Advisory Review Panel
Pursuant to the Small Business Regulatory Enforcement Fairness Act
of 1996 (SBREFA),\84\ the CFPB issued its Outline of Proposals and
Alternatives under Consideration (Outline or SBREFA Outline).\85\ The
SBREFA Outline addressed a number of consumer reporting topics under
the FCRA, including medical debt collections information proposals
under consideration. The CFPB convened a SBREFA Panel on October 16,
2023, and held Panel meetings on October 18 and 19, 2023.\86\
Representatives from 16 small businesses were selected as small entity
representatives for this SBREFA process. These entities represented
small businesses that the CFPB determined would likely be directly
affected by one or more of the proposals under consideration. On
December 15, 2023, the Panel completed the Final Report of the Small
Business Review Panel on the CFPB's Proposals and Alternatives Under
Consideration for the Consumer Reporting Rulemaking (Panel Report or
SBREFA Report).\87\ In addition to the SBREFA Panel and Panel Report,
the CFPB also invited feedback on the proposals under consideration
from other stakeholders, including small stakeholders who were not
small entity representatives.\88\ The CFPB has considered the feedback
related to the medical debt collection information proposals from small
entity representatives and other stakeholders, as well as the findings
and recommendations of the Panel in preparing this proposed rule.
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\84\ Public Law 104-121, 110 Stat. 857 (1996).
\85\ Consumer Fin. Prot. Bureau, Small Business Advisory Review
Panel for Consumer Reporting Rulemaking Outline of Proposals and
Alternatives Under Consideration (Sept. 15, 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_consumer-reporting-rule-sbrefa_outline-of-proposals.pdf">https://files.consumerfinance.gov/f/documents/cfpb_consumer-reporting-rule-sbrefa_outline-of-proposals.pdf</a>.
\86\ The Panel was comprised of a representative from the CFPB,
the Chief Counsel for Advocacy of the Small Business Administration
(Office of Advocacy), and a representative from the Office of
Information and Regulatory Affairs (OIRA) in the Office of
Management and Budget.
\87\ Consumer Fin. Prot. Bureau, Final Report of the Small
Business Review Panel on the CFPB's Proposals and Alternatives Under
Consideration for the Consumer Reporting Rulemaking (Dec. 15, 2023),
<a href="https://files.consumerfinance.gov/f/documents/cfpb_sbrefa-final-report_consumer-reporting-rulemaking_2024-01.pdf">https://files.consumerfinance.gov/f/documents/cfpb_sbrefa-final-report_consumer-reporting-rulemaking_2024-01.pdf</a>. As required under
SBREFA, the CFPB considers the Panel's findings in its IRFA, as set
out in part VIII.B below.
\88\ See SBREFA Outline at 5.
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B. Other Stakeholder Outreach
The CFPB has long been engaged in outreach and research related to
medical debt information in the consumer reporting ecosystem. In 2013,
the CFPB and FTC jointly hosted a public roundtable for industry and
other stakeholders on the integrity of record keeping by debt
collectors, debt buyers, and original creditors. Participants
acknowledged that record keeping practices may introduce variability or
inaccuracy to the consumer reporting systems.\89\ In December 2014,
following the CFPB's publication of its research report, Data Point:
Medical Debt and Credit Scores,\90\ the CFPB issued a study of medical
and nonmedical collections tradelines on consumer reports that assessed
the furnishing practices of debt collectors and debt buyers, the
incidence and type of collections tradelines on consumer reports, and
differences between medical and nonmedical debt reporting.\91\ The CFPB
has continued to monitor the incidence of medical debt on consumer
reports and released several other market analyses and research reports
on medical debt collection and consumer reporting between 2019 and
2024.\92\
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\89\ Fed. Trade Comm'n & Consumer Fin. Prot. Bureau, Roundtable
on Data Integrity in Debt Collection: Life of a Debt (2013), <a href="https://www.ftc.gov/news-events/events/2013/06/life-debt-data-integrity-debt-collection">https://www.ftc.gov/news-events/events/2013/06/life-debt-data-integrity-debt-collection</a>.
\90\ See Kenneth P. Brevoort & Michelle Kambara, Consumer Fin.
Prot. Bureau, Data point: Medical debt and credit scores (May 2014),
<a href="https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf">https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf</a>.
\91\ Consumer Fin. Prot. Bureau, Consumer credit reports: A
study of medical and non-medical collections (Dec. 2014), <a href="https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf">https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf</a>.
\92\ Consumer Fin. Prot. Bureau, Market Snapshot: Third-Party
Debt Collections Tradeline Reporting (July 2019), <a href="https://files.consumerfinance.gov/f/documents/201907_cfpb_third-party-debt-collections_report.pdf">https://files.consumerfinance.gov/f/documents/201907_cfpb_third-party-debt-collections_report.pdf</a>; Consumer Fin. Prot. Bureau, Market Snapshot:
An Update on Third-Party Debt Collections Tradeline Reporting (Feb.
2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf</a>; Ryan Sandler & Zachary Blizard, Consumer Fin. Prot. Bureau,
Recent Changes in Medical Collections on Consumer Credit Records
Data Point, at 3-4, 17 (Mar. 2024), <a href="https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf</a>.
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Prior to issuing this proposed rule and in accordance with CFPA
section 1022(b)(2)(B), the CFPB consulted with staff from various
Federal agencies to discuss aspects of its proposal. Specifically, the
CFPB met with staff from the Board of Governors of the Federal Reserve
System, the Office of Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the National Credit Union Administration (NCUA),
the Federal Trade Commission, the Department of Health and Human
Services, Department of Housing and Urban Development, the FHFA, the
Small Business Administration, the VA, and the Department of
Agriculture.
IV. Legal Authority
A. CFPA Section 1022(b)
Section 1022(b)(1) of the CFPA authorizes the CFPB to prescribe
rules
[[Page 51689]]
``as may be necessary or appropriate to enable the [CFPB] to administer
and carry out the purposes and objectives of the Federal consumer
financial laws, and to prevent evasions thereof.'' \93\ The term
``Federal consumer financial laws'' includes the ``enumerated consumer
laws,'' which include the FCRA.\94\
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\93\ 12 U.S.C. 5512(b)(1).
\94\ See 12 U.S.C. 5481(12), (14).
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Section 1022(b)(2) of the CFPA prescribes certain standards for
rulemaking that the CFPB must follow in exercising its authority under
section 1022(b)(1).\95\ For a discussion of the CFPB's standards for
rulemaking under CFPA section 1022(b)(2), see part VII below.
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\95\ See 12 U.S.C. 5512(b)(2).
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B. FCRA Sections 621(e) and 604(g)(5)
Effective July 21, 2011, section 1088 of the CFPA made conforming
amendments to the FCRA transferring rulemaking authority under much of
the FCRA, except those regulations applicable to certain motor vehicle
dealers, to the CFPB. Section 621(e) of the FCRA authorizes the CFPB to
issue regulations as ``necessary or appropriate to administer and carry
out the purposes and objectives of [the FCRA], and to prevent evasions
thereof or to facilitate compliance therewith.'' \96\
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\96\ See CFPA section 1088(a)(10)(E) (15 U.S.C. 1681s(e)).
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FCRA section 604(g)(5) specifically authorizes the CFPB to
prescribe regulations to create exceptions from the statutory
prohibition on obtaining or using medical information in connection
with determinations of credit eligibility, but only if the CFPB
determines such exceptions to the general prohibition in FCRA section
604(g)(2) are necessary and appropriate to protect legitimate
operational, transactional, risk, consumer, and other needs (including
administrative verification purposes), consistent with the
congressional intent to restrict the use of medical information for
inappropriate purposes.\97\ Because the CFPB has preliminarily
determined that a regulatory exception for certain financial
information is not necessary and appropriate to protect legitimate
operational, transactional, risk, consumer, and other needs (including
administrative verification purposes), the CFPB is proposing to remove
the exception. This would ensure that only exceptions that are
necessary and appropriate, consistent with the CFPB's rulemaking
authority under FCRA section 604(g)(5), remain in Sec. 1022.30.
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\97\ 15 U.S.C. 1681b(g)(5).
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V. Discussion of the Proposed Rule
A. Removal of the Financial Information Exception to the Creditor
Prohibition On Obtaining or Using Medical Information
Current Sec. 1022.30(b) incorporates the creditor prohibition in
section 604(g)(2) of the FCRA.\98\ The creditor prohibition restricts
creditors from obtaining or using (i.e., considering) medical
information pertaining to a consumer in connection with any
determination of the consumer's eligibility, or continued eligibility,
for credit. There are exceptions to this prohibition in current Sec.
1022.30(d) and (e). The CFPB proposes to remove the exception at Sec.
1022.30(d) (the financial information exception) to the creditor
prohibition. As explained in part V.A.3, Medical information related to
income, benefits, or the purpose of the loan, the CFPB proposes to
retain certain elements of the financial information exception related
to income, benefits, and purpose of the loan by moving relevant
provisions to the list of specific exceptions to the creditor
prohibition at Sec. 1022.30(e). The CFPB also proposes conforming
amendments to Sec. 1022.30(c) to remove the reference to the Sec.
1022.30(d) financial information exception.
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\98\ FCRA section 604(g)(2) (15 U.S.C. 1681b(g)(2)).
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Congress put in place strong privacy protections for consumers'
medical information in the FCRA, including by enacting the creditor
prohibition through FCRA section 604(g)(2).\99\ Congress also provided
additional protections by stipulating that the CFPB may permit
exceptions to the creditor prohibition only when the CFPB has
determined the exceptions to be ``necessary and appropriate to protect
legitimate operational, transactional, risk, consumer, and other needs
. . . consistent with the intent of [FCRA section 604(g)(2)] to
restrict the use of medical information for inappropriate purposes.''
\100\
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\99\ As described above, Congress also limited the circumstances
under which consumer reporting agencies can provide consumer reports
containing medical information for credit, employment, or insurance
purposes, and required consumer reporting agencies to restrict or
code contact information for medical information furnishers. 15
U.S.C. 1681b(g)(1), 1681c(a)(6).
\100\ 15 U.S.C. 1681b(g)(5).
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Consistent with the general creditor prohibition in FCRA section
604(g)(2), current Sec. 1022.30(b)(1) provides that ``[a] creditor may
not obtain or use medical information pertaining to a consumer in
connection with any determination of the consumer's eligibility, or
continued eligibility, for credit, except as provided in this
section.'' In 2005, before the CFPA transferred primary regulatory
authority for the FCRA to the CFPB, the Agencies adopted the exceptions
to this prohibition that are now codified in Sec. 1022.30(d) (the
financial information exception) and (e) (listing specific exceptions).
The financial information exception allows a creditor to consider
medical information pertaining to a consumer in connection with any
determination of the consumer's eligibility, or continued eligibility,
for credit if the conditions of the following three-part test are met:
(1) the information is the type routinely used in making credit
eligibility determinations, such as information relating to debts,
expenses, income, benefits, assets, collateral, or the purpose of the
loan, including the use of proceeds; (2) the creditor uses the medical
information in a manner and to an extent no less favorable than it
would use comparable information that is not medical information; and
(3) the creditor does not take the consumer's physical, mental, or
behavioral health, condition or history, type of treatment, or
prognosis into account as part of the credit eligibility
determination.\101\
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\101\ 12 CFR 1022.30(d)(1).
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The predecessor Agencies explained their belief that the financial
information exception struck a balance between permitting creditors to
obtain and use certain medical information about consumers when
necessary and appropriate to satisfy prudent underwriting criteria and
ensuring that credit is extended in a safe and sound manner, while
restricting the use of medical information for inappropriate
purposes.\102\ However, the Agencies did not cite evidence or provide
analysis in support of this statement of their conclusion.
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\102\ Fair Credit Reporting Medical Information Regulations
(2004 NPRM), 69 FR 23380, 23384 (Apr. 28, 2004).
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1. Medical Information Related to Debts
The financial information exception permits a creditor to consider
certain medical information related to a consumer's debts in connection
with any determination of the consumer's eligibility, or continued
eligibility, for credit.\103\ Medical information related to medical
debt includes, for example, ``[t]he dollar amount, repayment terms,
repayment history, and similar information regarding medical debts to
calculate, measure, or verify the repayment ability of the consumer,
the use of proceeds, or the terms for granting credit'' \104\ and
``[t]he identity
[[Page 51690]]
of creditors to whom outstanding medical debts are owed in connection
with an application for credit, including but not limited to, a
transaction involving the consolidation of medical debts'' \105\
(collectively referred to herein as financial information). By
proposing to eliminate the financial information exception, the CFPB
would prohibit creditors from considering, in connection with credit
eligibility determinations, such financial information related to
consumers' medical debts, unless one of the specific exceptions in
proposed Sec. 1022.30(e) applies.
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\103\ 12 CFR 1022.30(d)(1)(i).
\104\ 12 CFR 1022.30(d)(2)(i)(A).
\105\ 12 CFR 1022.30(d)(2)(i)(D).
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Owes or Owed to a Health Care Provider
The FCRA section 603(i) definition of ``medical information,''
incorporated in Regulation V at Sec. 1022.3(k), informs the types of
medical debt that creditors are generally prohibited from considering,
but for which the financial information exception currently applies.
Medical information is defined as ``[i]nformation or data, whether oral
or recorded, in any form or medium, created by or derived from a health
care provider or the consumer'' that relates to, among other things,
``[t]he payment for the provision of health care to an individual.''
With regard to ``[t]he payment for the provision of health care to
an individual''--i.e., the subset of ``medical information'' concerning
debt--the CFPB has preliminarily interpreted FCRA section 603(i) to
mean that medical information about a consumer's debt must relate to a
debt the consumer owes, or at one time owed (for example, in the case
of paid medical debt), directly to a health care provider or to the
health care provider's agent or assignee.\106\ Specifically, the
statute provides that medical information is information or data
``created by or derived from a health care provider or the consumer''
that relates to ``the payment for the provision of health care to an
individual.'' The CFPB has preliminarily interpreted the statute's use
of the phrase ``provision of health care,'' following the requirement
that the medical information must be ``created by or derived from a
health care provider or the consumer,'' to mean that for information on
a debt to be medical information under the FCRA, the information must
relate to a debt arising from a payment obligation that the consumer
owes (or at one time owed) directly to a health care provider for the
provision of the health care underlying the payment obligation.
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\106\ The CFPB uses the word ``owed'' to refer to the
characterization of the debt by the health care provider or its
agent or assignee. As discussed in part I.C, Unique characteristics
of medical debt in the United States, the American medical billing
system is byzantine and consumers frequently find errors with their
medical bills and with medical collections tradeline information on
their consumer reports. Accordingly, in some instances consumers may
not truly ``owe'' the debt in question.
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The CFPB's interpretation also includes medical debt that has been
sold or resold to a debt buyer, who has become the health provider's
assignee for the debt, because the payment obligation that was sold was
created by a health care provider and at one time was owed to the
health care provider. It would also include medical debt that has been
assigned to a third-party debt collector, who is acting as an agent on
behalf of the health care provider or debt buyer, to whom the debt is
owed.\107\ Further, it would include medical information in the form of
a civil judgment arising from a debt collection action as to a medical
debt directly owed to a health care provider or debt buyer, whether
provided on a consumer report, by the consumer on a credit application,
or if the creditor learns of the civil judgment through other means; a
credit score that had weighed medical debt information; and debts
arising from medical care that is elective, or otherwise not medically
necessary (e.g., some cosmetic surgeries).
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\107\ Cf. 15 U.S.C. 1681s-2(a)(9) (providing that the term
``medical information furnisher'' includes the ``agent or assignee''
of a medical provider).
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Because medical information on a consumer's debt must relate to a
debt the consumer owes (or owed) directly to a health care provider
under the CFPB's preliminary interpretation, medical debt would not
include a debt owed to a third-party lender (including a medical credit
card issuer whose products are offered specifically for the payment of
medical services or general purpose credit card issuer), from whom a
consumer took out a loan to pay medical expenses or bills. Such loans
are new debt obligations used to pay the medical debt obligation owed
to a health care provider. The CFPB also preliminarily concludes that
debts owed to such third-party lenders are distinguishable from debts
that health care providers have sold to debt buyers because medical
debts are assigned to such debt buyers, but not to third-party lenders.
The CFPB seeks comment on its approach and also seeks comment on
whether, in the alternative, the CFPB should consider information about
debts generally incurred to pay for medical bills and expenses to be
``medical information'' that is ``derived'' from a health care provider
or consumer. And, the CFPB also seeks comment on the feasibility of
furnishing such medical debt information under this latter approach to
consumer reporting agencies and reporting to creditors in a way that
distinguishes between loan obligations and disbursements that pay for
medical expenses and those that do not.
FCRA section 603(i) specifies that medical information must relate
to the payment for the provision of health care to ``an individual.''
The CFPB has preliminarily interpreted the FCRA definition for medical
information to mean that for information about a debt to be considered
medical information, the debt must arise from the provision of health
care to a human being.\108\ And, as a result, information relating to
debts arising from veterinary care would not be considered medical
information under the CFPB's preliminary interpretation.
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\108\ See Mohamad v. Palestinian Auth., 566 U.S. 449, 454-55
(2012) (explaining that ``individual'' usually refers to a ``natural
person'' when used in a statute).
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Generally, much of what Americans consider to be medical debt is
owed directly to health care providers such as hospitals or doctors' or
dentists' offices, even though, as noted previously, medical debt
furnishing to consumer reporting agencies is usually done by third-
party debt collectors.\109\ The CFPB believes that such directly owed
debt is likely the type of debt a consumer would clearly consider
medical debt. Furnishers of information about these types of debt
obligations are required to notify consumer reporting agencies of their
status as medical information furnishers and thus debts are likely to
be clearly marked as medical debts in consumer reports and in consumer
reporting agency databases.\110\ Therefore, the CFPB anticipates that a
consumer reporting agency should also be able to easily identify or
determine if information concerning a specific debt is medical debt
information, which will make compliance with the proposed rule less
burdensome.
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\109\ See, e.g., Michael Karpman, Urban Inst., Most Adults with
Past-Due Medical Debt Owe Money to Hospitals (Mar. 2023), <a href="https://www.urban.org/sites/default/files/2023-03/Most%20Adults%20with%20Past-Due%20Medical%20Debt%20Owe%20Money%20to%20Hospitals.pdf">https://www.urban.org/sites/default/files/2023-03/Most%20Adults%20with%20Past-Due%20Medical%20Debt%20Owe%20Money%20to%20Hospitals.pdf</a> (survey
results indicate that 72.9 percent of adults with past-due medical
debt owe at least some of that debt to hospitals, including 27.9
percent to hospitals only and 45.1 percent to both hospitals and
other providers).
\110\ See 15 U.S.C. 1681c(a)(6), 1681s-2(a)(9).
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Definition--Medical Debt Information (Sec. 1022.3(j))
Accordingly, the CFPB proposes to add a definition for medical debt
information at Sec. 1022.3(j) to facilitate
[[Page 51691]]
compliance with various aspects of the proposed rule, including by
clarifying the types of medical debts that a creditor would be
prohibited from considering in connection with a credit eligibility
determination if the financial information exception is removed and
that a consumer reporting agency would be limited from including
information about on consumer reports under proposed Sec. 1022.38
(which uses the proposed defined term).\111\ Medical debt information
would be defined as medical information that pertains to a debt owed by
a consumer to a person whose primary business is providing medical
services, products, or devices (e.g., a medical or health care
provider), or to the person's agent or assignee, for the provision of
such medical services, products, or devices. The definition would also
clarify that medical debt information includes, but is not limited to,
medical bills that are not past due or that have been paid.
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\111\ See part V.B, Limits on consumer reporting agency's
disclosure of medical debt information.
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The CFPB intends for the definition of medical debt information to
align with the scope of information about medical debt that creditors
would be prohibited from considering if the financial information
exception is removed. The proposed definition is adapted from FCRA
section 623(a)(9), which defines the term ``medical information
furnisher'' as a person whose primary business is providing medical
services, products, or devices, or the person's agent or assignee, who
furnishes information to a consumer reporting agency on a
consumer.\112\ The CFPB believes that aligning the definition of
``medical debt information'' with the FCRA definition for ``medical
information furnisher'' will provide a familiar standard under the FCRA
that will facilitate compliance with the proposed rule. For consumer
reporting agencies specifically, the self-identification of medical
information furnishers under FCRA section 623(a)(9) will assist
consumer reporting agencies in identifying and excluding medical debt
information from consumer reports provided to creditors, as would be
required under proposed Sec. 1022.38.
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\112\ 15 U.S.C. 1681s-2(a)(9) (requiring a medical information
furnisher to notify a consumer reporting agency of its status as a
medical information furnisher).
---------------------------------------------------------------------------
The proposed definition for medical debt information would also
clarify that the term includes information about a debt owed to a
health care provider's agent or assignee. By including agents and
assignees in the medical debt information definition, the CFPB intends
to include medical debt that has been purchased by a debt buyer or that
is being collected by a third-party debt collector. As explained above,
the CFPB considers medical debt that has been sold to a debt buyer or
otherwise assigned to a third-party debt collector to be debt arising
from a payment obligation that the consumer owes (or owed, for debt
that has been paid or sold) directly to the health care provider that
provided the health care at issue. The CFPB seeks comment on whether
this aspect of the proposed definition should be modified, such as to
ensure it accommodates circumstances where the medical debt has been
sold and then resold, as well as on its proposed definition for medical
debt information generally.
In the course of the SBREFA process for this rulemaking, a few
small entity representatives asked the CFPB to define medical debt and
asked whether debts arising from certain health-related expenses would
be included within the scope of the CFPB's creditor prohibition
proposal.\113\ The CFPB seeks comment on whether the proposed
definition provides the clarity needed for consumers, creditors, and
consumer reporting agencies to implement the proposed rule if
finalized.
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\113\ SBREFA Report at 35 (noting small entity representatives'
questions about whether gym memberships, counseling or therapy
sessions, veterinarian services, and dental care, or medical
expenses charged to credit cards would be covered).
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Preliminary Determination That Medical Debt Information is Not
Necessary and Appropriate for Credit Eligibility Determinations
Under the FCRA, the CFPB has authority to permit an exception that
it determines to be necessary and appropriate, consistent with the
intent of the creditor prohibition to restrict the use of medical
information for inappropriate purposes.\114\ Upon further review of
predecessor Agencies' rationale for the financial information
exception, it appears that while the Agencies addressed specific
comments on the parameters of their proposal for the financial
information exception (which they substantially finalized as proposed),
the Agencies did not provide evidence or analysis to support their
determination.\115\
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\114\ FCRA section 605(g)(5) (15 U.S.C. 1681b(g)(5)).
\115\ 70 FR 33958, 33966-67 (June 10, 2005). See also part II.B,
Fair and Accurate Credit Transactions Act of 2003 and implementing
regulations.
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The CFPB understands that the financial information exception is
the primary regulatory exception by which creditors are able to obtain
and use financial information relating to a consumer's medical debts.
However, since the predecessor Agencies enacted their rule, there has
been a significant body of research and marketplace changes that have
shed more light on the nature of medical debt and financial information
available to creditors about medical debt. These developments, which
provide a more nuanced picture that raises questions about the
necessity and appropriateness of creditors' use of medical debt
information in credit underwriting, show that a broad exception for
creditors to consider information on a consumer's medical debt is not
necessary and appropriate, consistent with the intent of the creditor
prohibition to protect consumers' sensitive medical information.
First, recent research has demonstrated that unlike other types of
debt, medical debt often results from an event such as an accident or
sudden illness.\116\ In these circumstances, consumers have no control
over whether to incur a debt; they may have limited or no ability to
shop around and may not be able to control the amount or timing of
their costs.
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\116\ Lunna Lopes et al., Kaiser Fam. Found., Health Care Debt
in the U.S.: The Broad Consequences of Medical and Dental Bills
(June 16, 2022), <a href="https://www.kff.org/health-costs/report/kff-health-care-debt-survey/">https://www.kff.org/health-costs/report/kff-health-care-debt-survey/</a> (results of national survey show that 7 in 10
adults with health care debt say that the bills that led to their
debt were for a one-time or short-term medical expense).
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Second, in the period of time since the predecessor Agencies
enacted their rule, more evidence has come to light showing that
information about medical debt is prone to error. Third-party surveys
and complaints received by the CFPB have shown that medical bills
commonly contain errors and are frequently disputed by consumers.\117\
Further, the complexity of medical billing, the third-party
reimbursement process, and debt collection practices can lead to
consumer confusion on payment due dates and amounts owed for medical
bills, as well as questions about the accuracy of their bills.\118\
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\117\ See, e.g., Karen Pollitz & Kaye Pestaina, Kaiser Fam.
Found., Could Consumer Assistance Be Helpful to People Facing
Medical Debt? (July 14, 2022), <a href="https://www.kff.org/policy-watch/could-consumer-assistance-be-helpful-to-people-facing-medical-debt/">https://www.kff.org/policy-watch/could-consumer-assistance-be-helpful-to-people-facing-medical-debt/</a>
(reporting survey results that 43 percent of all adults and 53
percent of adults with health care debt say they thought they
received a medical or dental bill with an error).
\118\ See, e.g., Consumer Fin. Prot. Bureau, Medical Debt Burden
in the United States, at 9-14 (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a> (describing issues with medical
billing and collections practices); Gideon Weissman et al., Frontier
Grp. & U.S. Pub. Int. Rsch. Grp. Educ. Fund, Medical Debt
Malpractice: Consumer Complaints About Medical Debt Collectors, and
How the CFPB Can Help (Spring 2017), <a href="https://publicinterestnetwork.org/wp-content/uploads/2017/04/Medical-Debt-Malpractic-vUS-1.pdf">https://publicinterestnetwork.org/wp-content/uploads/2017/04/Medical-Debt-Malpractic-vUS-1.pdf</a> (63 percent of medical debt collection
complaints submitted to the CFPB asserted that the debt had never
been owed in the first place, had already been paid or discharged in
bankruptcy, or was not verified as the consumer's debt).
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[[Page 51692]]
Third, the CFPB's work shows that medical debt information has
relatively limited predictive value. Research by the CFPB in 2014 found
that medical debt collections tradelines (also referred to as medical
collections) are less predictive of future consumer credit performance
than nonmedical collections.\119\ The CFPB's 2014 analysis showed that
individuals with more medical than nonmedical collections and
individuals with more paid than unpaid medical collections were less
likely to be delinquent than other individuals with the same credit
score.\120\
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\119\ Kenneth P. Brevoort & Michelle Kambara, Consumer Fin.
Prot. Bureau, Data point: Medical debt and credit scores (May 2014),
<a href="https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf">https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf</a>.
\120\ Id. at 4-5, 13-16, 17-19.
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Other recent CFPB research also supports that medical debt
information, in the form of medical collections, has limited value for
credit underwriting. As described in part XI, Technical Appendix, CFPB
researchers reviewed de-identified consumer report data after the NCRAs
implemented changes pursuant to a 2015 settlement with over thirty
State attorneys general requiring the NCRAs to prevent the reporting
and display of medical debt furnished by debt collection agencies when
the date of first delinquency is less than 180 days prior to the date
the debt is reported by the debt collector.\121\ After this reporting
change, the NCRAs had data on consumers' medical debts that were less
than 180 days past due, but creditors making credit eligibility
determinations did not receive them in consumer reports provided by the
NCRAs. The CFPB researchers compared the performance of credit accounts
originated just before a medical collection was added to a consumer
report to the performance of credit accounts originated just after a
medical collection was added to a consumer report. Under the assumption
that consumer delinquency risk is similar in both scenarios, the only
difference in these originated accounts is the inclusion of the medical
collection on the consumer's report when the consumer applied for the
credit account. The CFPB researchers noted that if medical collection
reporting is useful in creditor underwriting to reduce delinquency
risk, the CFPB would have generally expected a credit account
originated for a consumer with unreported medical collections at the
time the creditor was making the credit eligibility determination to
have a higher delinquency risk than a credit account originated for a
consumer that had medical collection information on their consumer
report. However, the CFPB researchers found that, on average, new
credit accounts of consumers whose medical collections were not
included on their consumer reports at the time of their credit
applications were no more likely to be seriously delinquent within two
years of a credit account's origination than the new credit accounts of
consumers whose medical collections were included on their consumer
reports at the time of their credit applications. This research
suggests that not only can creditors underwrite credit without
information about consumers' medical debts, but also that such
information may lead to a market failure because it may be an
inaccurate signal of whether a consumer will pay a future debt. Under
the assumption that two-year serious delinquency is a good proxy for
the overall risk of a credit account, the CFPB's research described the
Technical Appendix implies that information about consumers' medical
debts distorts underwriting decisions, impairs creditors' ability to
make safe and low-risk credit approvals, and thus reduces credit
approval volumes within creditors' risk-tolerances.
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\121\ Assurance of Voluntary Compliance/Assurance of Voluntary
Discontinuance (May 20, 2015), In re Equifax Info. Servs., <a href="https://www.ohioattorneygeneral.gov/Files/Briefing-Room/News-Releases/Consumer-Protection/2015-05-20-CRAs-AVC.aspx">https://www.ohioattorneygeneral.gov/Files/Briefing-Room/News-Releases/Consumer-Protection/2015-05-20-CRAs-AVC.aspx</a>.
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Further confirming the limited value of medical debt information
for ensuring that credit decisions are based on whether a consumer will
repay a loan, in the time since the CFPB's 2014 study, two major credit
score providers adjusted their newer models to reduce or eliminate the
weight of medical debt collections.\122\ Nonetheless, some widely used
models still weigh medical and nonmedical collections equally.\123\
This means that consumers with medical debt may still be negatively
affected if creditors use older scoring models that overweigh medical
debt.
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\122\ See VantageScore, Major Credit Score News: VantageScore
Removes Medical Debt Collection Records From Latest Scoring Models
[Update] (Aug. 10, 2022), <a href="https://www.vantagescore.com/major-credit-score-news-vantagescore-removes-medical-debt-collection-records-from-latest-scoring-models/">https://www.vantagescore.com/major-credit-score-news-vantagescore-removes-medical-debt-collection-records-from-latest-scoring-models/</a> (VantageScore to remove medical
collection data from VantageScore 3.0 and 4.0 models by January
2023); Ethan Dornhelm, The Impact of Medical Debt Collections on
FICO Scores, FICO Blog (July 13, 2015), <a href="https://www.fico.com/blogs/impact-medical-debt-collections-ficor-scores">https://www.fico.com/blogs/impact-medical-debt-collections-ficor-scores</a> (describing changes to
FICO Score 9 with regard to medical collections).
\123\ Consumer Fin. Prot. Bureau, Medical Debt Burden in the
United States, at 27-28 (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a>.
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Fourth, the inconsistent nature of medical collection furnishing
and medical debt collection practices likely limits the value of such
information for credit underwriting. Data suggests that medical debt
collections are disproportionately represented on consumer reports
compared to, for example, collections for credit card and other
financial debt.\124\ The vast majority of such medical debt reporting
is done by third-party debt collectors,\125\ who use consumer reporting
as a way to coerce consumers to pay medical debt, even in some cases
for medical debt that the consumer may not owe or that has already been
paid.\126\ But, not all medical debt is reported; not all medical debt
collectors report medical debts to consumer reporting agencies and
health care providers themselves rarely do so.\127\ These issues
suggest that even consumers with similar amounts amount of medical debt
may face markedly different outcomes in the credit market based on
whether their medical debt is furnished or not.
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\124\ Id. at 5.
\125\ Consumer Fin. Prot. Bureau, Market Snapshot: An Update on
Third-Party Debt Collections Tradelines Reporting, at 16 (Feb.
2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf</a> (as of Q1 2022, 57 percent of all tradelines were medical
collections and were the most common collections type); Consumer
Fin. Prot. Bureau, Market Snapshot: Third-Party Debt Collections
Tradeline Reporting, at 12-13 (July 2019), <a href="https://files.consumerfinance.gov/f/documents/201907_cfpb_third-party-debt-collections_report.pdf">https://files.consumerfinance.gov/f/documents/201907_cfpb_third-party-debt-collections_report.pdf</a> (finding that 58 percent of collections
tradelines in credit records from 2004 to 2018 were for medical
debt); Consumer Fin. Prot. Bureau, Consumer credit reports: A study
of medical and non-medical collections, at 5 (Dec. 2014), <a href="https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf">https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf</a> (medical collections account
for 52.1 percent of all collections tradelines).
\126\ See Consumer Fin. Prot. Bureau, Market Snapshot: An Update
on Third-Party Debt Collections Tradelines Reporting, at 12 n.9
(Feb. 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_market-snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf</a> (describing how medical tradelines often do
not persist on consumer reports, how medical collections accounts
are rarely marked as paid, and noting ``pay-to-delete'' practices
used by debt collectors and debt buyers to pressure consumers into
paying or settling debt).
\127\ Consumer Fin. Prot. Bureau, Medical Debt Burden in the
United States, at 26 (Feb. 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf</a>.
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Fifth, many industry participants have reduced or stopped their
reliance
[[Page 51693]]
on information about medical debt, casting doubt on its value. The
three NCRAs have stopped reporting medical collections that are under
$500, less than a year old, or paid.\128\ And, as already noted, large
credit scoring companies are moving to models that completely or
partially exclude medical collections.\129\ In addition, the CFPB
learned from several small entity representatives during the SBREFA
process that some creditors have stopped considering medical
collections in their underwriting.\130\
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\128\ Business Wire, Equifax, Experian, and TransUnion Support
U.S. Consumers With Changes to Medical Collection Debt Reporting
(Mar. 18, 2022), <a href="https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting">https://www.businesswire.com/news/home/20220318005244/en/Equifax-Experian-and-TransUnion-Support-U.S.-Consumers-With-Changes-to-Medical-Collection-Debt-Reporting</a>.
\129\ One such credit score provider, VantageScore, has
completely stopped factoring medical collections in the latest
versions of its models due to lack of their predictiveness as
compared with other accounts in collections. See AnnaMaria
Andriotis, Major Credit-Score Provider to Exclude Medical Debts,
Wall St. J. (Aug. 10, 2022), <a href="https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729">https://www.wsj.com/articles/major-credit-score-provider-to-exclude-medical-debts-11660102729</a>.
\130\ See Comment from Arlington Cmty. Fed. Credit Union, Re:
FCRA Proposals and Alternatives Under Consideration, at 2-3 (Nov. 6,
2023), SBREFA Report app. A; Comment from First Sec. Bank & Tr., Re:
CFPB's Outline of Proposals and Alternatives Under Consideration,
Small Business Advisory Review Panel for Consumer Reporting
Rulemaking, at 7 (Nov. 6, 2023), SBREFA Report app. A (bank does not
consider medical collections unless aware the consumer has made
periodic payment arrangements with a collection agency or medical
establishment).
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Sixth, some States and some Federal agencies have also acted to
limit creditors' access to, or ability to consider, certain medical
debt information. For example, several States have prohibited, or are
considering prohibiting, the inclusion of consumer medical debt on
consumer reports.\131\ Although such efforts are in their early stages,
the CFPB is not aware of evidence that such actions have affected
creditors' underwriting standards or that creditors have materially
curtailed access to credit or tightened credit terms in those States.
Some Federal government agencies have also been reviewing and modifying
their underwriting practices to reduce or eliminate medical debt
collections from consideration when evaluating whether a consumer will
repay a loan.\132\ These changes by the States and by the Federal
government indicate a growing awareness that medical debt information
may have limited value for credit underwriting purposes. Consumer
reporting agencies and creditors will already need to comply with these
new laws and best practices and, given operational and business
realities, may need to do so on a broad basis. Removing the financial
information exception in Regulation V would create a uniform nationwide
baseline consistent with these advancements.
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\131\ See Colo. Rev. Stat. section 5-18-109; N.Y. Pub. Health
Law art. 49-A; 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751. The
Illinois and Minnesota State legislatures have also passed
legislation that would prevent medical debt from being on consumer
reports, which will become law upon each State's respective
governor's signature. See Forest Nelson, Medical debt may no longer
negatively impact your credit in Illinois, WIFR (May 16, 2024),
<a href="https://www.wifr.com/2024/05/16/medical-debt-may-no-longer-negatively-impact-your-credit-illinois/">https://www.wifr.com/2024/05/16/medical-debt-may-no-longer-negatively-impact-your-credit-illinois/</a>; Off. of Minn. Att'y Gen.
Keith Ellison, Attorney General Ellison commends Senate for final
passage of the Debt Fairness Act (May 16, 2024), <a href="https://www.ag.state.mn.us/Office/Communications/2024/05/16_DebtFairnessAct.asp">https://www.ag.state.mn.us/Office/Communications/2024/05/16_DebtFairnessAct.asp</a>. Similar legislation is under consideration
in California, Maine, New Jersey, Virginia, and Rhode Island. See
SB-1061(Cal. 2024), <a href="https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB1061">https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB1061</a>; Libby Palanza, Maine
Lawmakers Consider Insulating Medical Debt from Credit Score
Calculation, Interest Accumulation, and Legal Action, Maine Wire
(Mar. 20, 2024), <a href="https://www.themainewire.com/2024/03/maine-lawmakers-consider-insulating-medical-debt-from-credit-score-calculation-interest-accumulation-and-legal-action/">https://www.themainewire.com/2024/03/maine-lawmakers-consider-insulating-medical-debt-from-credit-score-calculation-interest-accumulation-and-legal-action/</a>; Robert Walker,
New Jersey Seeks to Ban Medical Debt Collectors from Credit Agency
Reporting, Shore News Network (Mar. 21, 2024), <a href="https://www.shorenewsnetwork.com/2024/03/21/new-jersey-seeks-to-ban-medical-debt-collectors-from-credit-agency-reporting/">https://www.shorenewsnetwork.com/2024/03/21/new-jersey-seeks-to-ban-medical-debt-collectors-from-credit-agency-reporting/</a>; HB 1265 (Va. 2024),
<a href="https://lis.virginia.gov/cgi-bin/legp604.exe?241+ful+HB1265+pdf">https://lis.virginia.gov/cgi-bin/legp604.exe?241+ful+HB1265+pdf</a>; RI
H7103 (R.I. 2024), <a href="https://webserver.rilegislature.gov/BillText24/HouseText24/H7103.pdf">https://webserver.rilegislature.gov/BillText24/HouseText24/H7103.pdf</a>.
\132\ See The White House, Fact Sheet: The Biden Administration
Announces New Actions to Lessen the Burden of Medical Debt and
Increase Consumer Protection (Apr. 11, 2022), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/">https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/11/fact-sheet-the-biden-administration-announces-new-actions-to-lessen-the-burden-of-medical-debt-and-increase-consumer-protection/</a>.
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Given these developments, the CFPB has preliminarily concluded that
a creditor's consideration of sensitive financial information
concerning a consumer's medical debt under the broad financial
information exception in existing Sec. 1022.30(d) is not ``necessary
and appropriate'' to protect legitimate operational, transactional,
risk, or consumer needs. Nor is it consistent with the intent of the
creditor prohibition to restrict the use of medical information for
inappropriate purposes, as required for an exception under FCRA section
604(g)(5). The CFPB seeks comment on this preliminary conclusion
regarding medical debt information, as well as on whether any
adjustments to the proposed rule would be ``necessary and appropriate
to protect legitimate operational, transactional, risk, consumer, and
other needs (and which shall include permitting actions necessary for
administrative verification purposes).'' \133\
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\133\ 15 U.S.C. 1681b(g)(5).
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2. Medical Information Related to Expenses, Assets, and Collateral
In addition to debts, the financial information exception permits a
creditor to consider medical information relating to expenses, assets,
and collateral, including the value, condition, and lien status of a
medical device that may be collateral to secure a loan. By proposing to
eliminate the financial information exception, the CFPB would prohibit
a creditor from obtaining and using sensitive medical information
relating to expenses, assets, or collateral in making a determination
of the consumer's credit eligibility, unless a specific exception in
Sec. 1022.30(e) applies.
Medical expenses and medical debts are closely related. Unpaid
medical expenses may become medical debts that a creditor would be
prohibited from considering in making a credit eligibility
determination under the CFPB's proposal discussed in part V.A.1,
Medical information related to debts. Because of the similarities
between medical expenses and medical debts, the CFPB is proposing to
treat these categories of medical information the same. The CFPB has
preliminarily determined that the financial information exception for a
creditor to consider medical information relating to a consumer's
expenses is also not ``necessary and appropriate'' to protect
legitimate operational, transactional, risk, or consumer needs and is
not consistent with the intent of the creditor prohibition to restrict
the use of medical information for inappropriate purposes as required
under FCRA section 604(g)(5).
The CFPB has also considered the existing financial information
exception for medical information relating to a consumer's assets and
collateral and, upon further review, has preliminarily determined that
the financial information exception for assets and collateral is not
warranted. The CFPB understands that medical information related to a
consumer's assets and collateral generally refers to medical equipment
serving as an asset or as collateral for a loan, which a creditor may
potentially seize or anticipate could be liquidated to pay off a loan.
However, such medical equipment is often necessary and potentially
lifesaving. Given the importance of medical assets and collateral to a
consumer's well-being, the CFPB has preliminarily determined that it is
not ``necessary and appropriate . . . to
[[Page 51694]]
protect legitimate operational, transactional, risk, consumer, and
other needs'' as required under FCRA section 604(g)(5) to continue to
have the financial information exception to the creditor prohibition
apply to information about medical assets and collateral.
The CFPB seeks comment on its proposed approach to removing the
financial information exception at existing Sec. 1022.30(d) for
expenses, assets, and collateral. In particular, the CFPB is interested
in feedback from creditors and their representatives about whether they
take medical devices as collateral or into consideration as assets that
may be used by consumers to pay a future debt obligation, and if so,
the business justification for doing so.
3. Medical Information Related to Income, Benefits, or the Purpose of
the Loan
The financial information exception also permits creditors to
consider medical information related to income, benefits, and the
purpose of the loan, including the use of the loan proceeds. Although
the CFPB is proposing to remove the financial information exception,
the CFPB intends to retain elements of the exception relating to
income, benefits, and the purpose of the loan by moving relevant
material to the list of specific exceptions in Sec. 1022.30(e), as
outlined below.
Proposed Sec. 1022.30(e)(1)(x) generally retains the financial
information exception's test for medical financial information.
However, given the proposed narrow scope of the exception (applying
only to income, benefits, or the purpose of the loan, including the use
of proceeds), it is not necessary to retain Sec. 1022.30(d)(1)(i),
which requires the medical information creditors may consider under the
exception to be information routinely used in making credit eligibility
determinations. Instead, proposed Sec. 1022.30(e)(1)(x)(A) would
provide that the exception only applies to medical information relating
to income, benefits, or the purpose of the loan, including the use of
proceeds. Proposed Sec. 1022.30(e)(1)(x)(A) also provides examples of
the types of financial information related to income and benefits
relied upon as a source of repayment by restating the examples of
financial information in existing Sec. 1022.30(d)(2)(i)(C). Proposed
Sec. 1022.30(e)(1)(x)(B) and (C) would also provide, as currently
required, that the creditor must use the information in a manner and to
an extent that is no less favorable than comparable, nonmedical
information and that the creditor cannot take the consumer's physical,
mental, or behavioral health, condition or history, type of treatment,
or prognosis into account.
The CFPB believes that the elements of the exception relating to
income, benefits, and the purpose of the loan are necessary and
appropriate to protect legitimate operational, transactional, risk,
consumer, and other needs, including permitting actions necessary for
administrative verification purposes, consistent with FCRA's intent to
restrict the use of medical information for inappropriate purposes. For
example, consumers whose primary source of income is disability
benefits might not be able to obtain credit at all if creditors could
not consider their income.\134\ And since creditors may be unwilling to
underwrite if they lack information about the purpose of a loan,
consumers might not be able to obtain needed credit unless creditors
have access to that information.
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\134\ The CFPB notes that ECOA and Regulation B prohibit
creditors from discriminating in any aspect of a credit transaction
against an applicant because all or part of the applicant's income
derives from a public assistance program, which includes but is not
limited to Social Security disability income. 15 U.S.C. 1691(a)(2);
12 CFR 1002.2(z), 1002.4(a); see also Regulation Z comment
1002.2(z)-3.
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The CFPB proposes to move an existing example illustrating a use of
medical information related to long-term disability income from Sec.
1022.30(d)(2)(ii)(B) to proposed Sec. 1022.30(e)(7). The CFPB does not
propose incorporating certain examples from existing Sec.
1022.30(d)(2)(iii) because they do not relate to a consumer's income,
benefits, or the purpose of a loan, including the use of proceeds. Some
examples describe the creditor's consideration of the consumer's health
condition in each instance in denying credit. In light of the CFPB's
preliminary determination that certain types of medical information are
not necessary and appropriate for use in credit determinations, the
CFPB believes that these examples do not need to be restated.\135\
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\135\ See 12 CFR 1022.30(d)(iii)(B) (regarding a consumer's
conversation with a loan officer about the consumer's potentially
terminal disease), (C) (regarding a loan officer's observation of a
consumer's apparent medical condition).
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The CFPB seeks comment on its approach to the exception in proposed
Sec. 1022.30(e)(1)(x) and the accompanying example at proposed Sec.
1022.30(e)(7). The CFPB also seeks comment on whether each of the
other, existing specific exceptions are necessary and appropriate and
whether the CFPB should amend any of the other existing exceptions and
examples in the list of specific exceptions at Sec. 1022.30(e).
B. Limits on Consumer Reporting Agency's Disclosure of Medical Debt
Information
The CFPB is proposing to add new Sec. 1022.38 to subpart D to
address how a consumer reporting agency's medical debt information
reporting responsibilities would be impacted by the proposal to remove
the financial information exception for obtaining and using medical
information in connection with any determination of the consumer's
eligibility for credit. Proposed Sec. 1022.38 would permit a consumer
reporting agency to include medical debt information in a consumer
report furnished to a creditor for credit eligibility purposes only if
the following criteria are met: (1) the consumer reporting agency has
reason to believe the creditor is not prohibited from obtaining or
using the medical debt information under Sec. 1022.30; and (2) the
consumer reporting agency is not otherwise prohibited from furnishing
to the creditor a consumer report containing the medical debt
information, including by a State law that prohibits furnishing to the
creditor a consumer report containing medical debt information.
FCRA section 604, entitled Permissible purposes of consumer
reports, identifies an exclusive list of permissible purposes for which
consumer reporting agencies may provide consumer reports.\136\ The
statute states that a consumer reporting agency may furnish consumer
reports under these circumstances ``and no other.'' \137\ One such
circumstance, covered by FCRA section 604(a)(3)(A), permits a consumer
reporting agency to furnish a consumer report to a person which it has
reason to believe ``intends to use the information in connection with a
credit transaction involving the consumer on whom the information is to
be furnished and involving the extension of credit to, or review or
collection of an account of, the consumer'' (credit permissible
purpose).\138\ But, FCRA section 604(g)(2) imposes a specific
limitation on the
[[Page 51695]]
ability of creditors to obtain or use medical information pertaining to
a consumer in connection with any determination of the consumer's
eligibility for credit, for which there are limited exceptions.
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\136\ 15 U.S.C. 1681b(a) (providing that, ``[s]ubject to
subsection (c), any consumer reporting agency may furnish a consumer
report under the following circumstances and no other'').
\137\ Id. Other sections of the FCRA identify additional limited
circumstances under which consumer reporting agencies are permitted
or required to disclose certain information to government agencies.
See 15 U.S.C. 1681f, 1681u, 1681v. Further, the Debt Collection
Improvement Act of 1996, Public Law 104-134, 110 Stat. 1321, tit.
III, section 31001(m)(1), allows the head of an executive, judicial,
or legislative agency to obtain a consumer report under certain
circumstances relating to debt collection. See 31 U.S.C. 3711(h).
\138\ 15 U.S.C. 1681b(a)(3)(A).
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The CFPB preliminarily interprets the FCRA section 604(a)(3)(A)
credit permissible purpose limitation and the FCRA section 604(g)(2)
limitation on the ability of creditors to obtain or use medical
information in connection with credit eligibility determinations
together to mean that a creditor does not have a credit permissible
purpose to obtain or use a consumer report containing medical
information that the creditor is prohibited from obtaining or using.
Under this interpretation, if the CFPB removes the financial
information exception in Sec. 1022.30(d) as proposed, a creditor would
be prohibited from obtaining or using medical debt information--a
subcategory of medical information--in connection with any
determination of the consumer's eligibility for credit under the
general prohibition in Sec. 1022.30(b), unless a specific exception
for obtaining and using medical information in Sec. 1022.30(e) applies
to the medical debt information; therefore, absent a specific
exception, the creditor would not have a credit permissible purpose for
a consumer report containing the medical debt information. Because a
consumer reporting agency may only furnish a consumer report to a
person if it has reason to believe the person has a permissible purpose
for the information, it follows that a consumer reporting agency may
not furnish to a creditor a consumer report containing medical debt
information if it has reason to believe the creditor is prohibited from
using the medical debt information. This limitation is clarified in
proposed Sec. 1022.38(b)(1).
The CFPB has also preliminarily determined that the proposed limits
on a consumer reporting agency's disclosure to a creditor of a
consumer's sensitive medical debt information are necessary or
appropriate to administer and carry out the purposes and objectives of
the FCRA, and to prevent evasions or to facilitate compliance.\139\
These limitations on consumer reporting agencies would markedly
facilitate compliance. If consumer reporting agencies continued to
furnish to creditors, in connection with eligibility determinations,
consumer reports containing medical debt information, creditors would
need to screen out such information to comply with the creditor
prohibition. Doing so may be cumbersome, especially for creditors that
use automated underwriting processes. On the other hand, consumer
reporting agencies could more easily implement automatic processes that
remove medical debt information provided by medical information
furnishers from those reports that are requested for credit eligibility
determinations because medical information furnishers are required to
identify themselves to consumer reporting agencies.\140\ The CFPB has
also preliminarily determined that this proposed limitation is
necessary and appropriate to administer and carry out the purposes and
objectives of the FCRA, especially that of ``need[ing] to insure that
consumer reporting agencies exercise their grave responsibilities with
fairness, impartiality, and a respect for the consumer's right to
privacy.'' \141\ Medical information is uniquely sensitive and intimate
information, and it thus advances the purposes and objectives of the
FCRA to protect consumers' privacy by limiting the circumstances under
which consumer reporting agencies may furnish medical debt information.
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\139\ See 15 U.S.C. 1681s(e)(1).
\140\ See 15 U.S.C. 1681s-2(a)(9).
\141\ See 15 U.S.C. 1681(a)(4).
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Proposed Sec. 1022.38(b)(2) would incorporate other limitations on
consumer reporting agencies' furnishing of consumer reports containing
medical debt information to make clear that proposed Sec. 1022.38 does
not override any other prohibition regarding the furnishing of consumer
reports. For example, State legislatures and Federal agencies have
enacted policies that limit the inclusion of medical debts on consumer
reports. The CFPB commends the work of States to proactively protect
consumers against the harms of medical debt reporting. In 2022, the
CFPB issued an interpretive rule explaining that, with limited
exceptions, States are permitted to enact State-level laws that provide
consumer protections involving consumer reporting, including regarding
the content of information contained in consumer reports, in addition
to those provided by the Federal FCRA.\142\ The CFPB intends for the
proposed intervention to operate alongside Federal and State-level
efforts to increase consumer protections around medical debt consumer
reporting.
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\142\ Consumer Fin. Prot. Bureau, The Fair Credit Reporting
Act's Limited Preemption of State Laws (June 2022), <a href="https://files.consumerfinance.gov/f/documents/cfpb_fcra-preemption_interpretive-rule_2022-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fcra-preemption_interpretive-rule_2022-06.pdf</a>.
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The CFPB is also proposing a related amendment to remove the
example in Sec. 1022.30(c)(3)(iii), which describes a creditor
receiving medical information on a consumer report furnished by a
consumer reporting agency. While there may be some instances where a
consumer reporting agency may furnish to a creditor a consumer report
containing medical information, the proposed amendments would limit
those instances and render the example less instructive and potentially
confusing. Therefore, the CFPB proposes to remove the example.
SBREFA panelists raised concerns about the consequences of
prohibiting the inclusion of medical debts on consumer reports used for
credit underwriting. The CFPB is not proposing to impose a blanket
prohibition on the consumer reporting of medical debt information.
Proposed Sec. 1022.38 addresses how a consumer reporting agency's
responsibilities, with respect to medical debt information, would be
impacted by the proposal to remove the financial information exception
discussed in part V.A, Removal of the financial information exception
to the creditor prohibition on obtaining or using medical information.
The CFPB has considered alternatives to this approach. For example,
as discussed in the SBREFA Outline, the CFPB considered mandating a
delay in the furnishing and reporting of medical debt for a particular
period of time, and not reporting or furnishing medical debt below a
particular dollar amount.\143\ This approach would have been similar to
the voluntary changes that the NCRAs implemented in 2022 and 2023 that
stopped the reporting of some, but not all, medical debt on a consumer
report. SBREFA panelists questioned whether the proposals under
consideration were necessary, given recent market changes regarding
medical debt consumer reporting.\144\
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\143\ SBREFA Outline at 19.
\144\ See generally SBREFA Report.
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The CFPB acknowledges the value of these voluntary consumer
reporting changes by the three NCRAs, but has preliminarily determined
that these types of changes do not do enough to protect the privacy of
consumers' medical data during the credit underwriting process.
Although these market changes have reduced the total number of medical
collections tradelines reflected on consumer reports, their voluntary
nature means there is some uncertainty about whether the changes could
be reversed in the future, and, as discussed in part I.D, Medical debt
and consumer reporting, 15 million Americans still have $49 billion in
medical bills on their consumer reports even after the NCRAs'
[[Page 51696]]
voluntary changes. In addition, as discussed in part V.A.1, Medical
information related to debts, the CFPB has preliminarily determined
that a creditor's consideration of sensitive financial information
concerning a consumer's medical debt is not warranted.
The CFPB also considered requiring consumer reporting agencies and
medical information furnishers, upon receiving a dispute, to conduct an
independent investigation to certify that a disputed medical debt is
accurate and not subject to pending insurance disputes.\145\ However,
consumer reporting agencies are already subject to accuracy and dispute
resolution requirements. Therefore, the CFPB has preliminarily
determined that its rulemaking goals are best achieved through the
proposed approach.
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\145\ SBREFA Outline at 19.
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The CFPB seeks comment on all aspects of proposed Sec. 1022.38.
C. Example To Comply With Applicable Requirements of Local, State, or
Federal Laws
During the SBREFA process, several financial institutions,
furnisher small entity representatives, and debt collectors expressed
concern about how the proposal under consideration to remove the
financial information exception in Sec. 1022.30(d) and prohibit
consumer reporting agencies from including medical debt collections
tradelines on consumer reports furnished to creditors for credit
eligibility determinations would interact with repayment ability
determination requirements under the Truth in Lending Act (TILA) and
Regulation Z for mortgage loans and credit cards.\146\ Stakeholders
stated that these laws require creditors to consider all of a
consumer's current debt obligations, such that the proposal under
consideration would impede their ability to make the required
determination in compliance with Federal law. A small entity
representative recommended that the CFPB consider stating what
creditors should tell consumers regarding whether medical debt
information should be disclosed on applications for credit, and any
limitations on financial institutions' use of consumer-provided
information for underwriting.
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\146\ SBREFA Report at 36.
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For the reasons discussed above, the CFPB preliminarily finds it is
generally not necessary and appropriate for creditors to obtain or use
information about a consumer's medical debt in determining a consumer's
credit eligibility. However, the CFPB has preliminarily determined to
not repeal other exceptions, including one for medical information is
necessary to comply with applicable local, State, or Federal laws. In
response to comments during the SBREFA process, the CFPB is proposing
an example in new Sec. 1022.30(e)(6) to direct creditors and card
issuers that are creditors regarding how to obtain and use medical
information provided by the consumer in compliance with TILA and
Regulation Z, as set forth in Sec. 1022.30(e)(1)(ii), for purposes of
compliance with the ability-to-repay rule under Sec. 1026.43(c) for
closed-end mortgages, the repayment ability rule under Sec.
1026.34(a)(4) for open-end, high-cost mortgages, and the ability-to-pay
rule under Sec. 1026.51(a) for open-end (not home-secured) credit card
accounts.
Under existing Sec. 1022.30(c)(1), a creditor does not violate the
prohibition on obtaining medical information in Sec. 1022.30(b) if the
creditor receives medical information pertaining to a consumer in
connection with the creditor's determination of the consumer's
eligibility for credit without specifically requesting such
information. For example, if a consumer applies for a mortgage loan and
the creditor has not specifically requested medical information on the
application, but asks for all current debts or obligations, and the
consumer self-discloses by providing medical information in the form of
a monthly medical payment plan, the creditor does not violate the
prohibition on obtaining medical information. In this circumstance, the
creditor would be permitted to use this limited category of information
by considering the existence and the amount of the medical payment plan
as required in considering certain factors under Sec. 1026.43(c)(2),
such as the current debt obligations, consumer's monthly debt-to-income
ratio, and residual income, in making the repayment ability
determination required under Sec. 1026.43(c)(1). Proposed Sec.
1022.30(e)(6) also provides that, in accordance with Sec.
1026.43(c)(3)(iii), the creditor would not be required to independently
verify the existence and amount of the consumer's monthly medical
payment plan if the consumer's application states a current debt, even
if that debt is not shown in the consumer report. This is also
consistent with Regulation Z comment 43(c)(3)-6 describing a situation
where a consumer, through the application, provides a creditor with
information on a debt obligation that is not listed on a consumer
report. Therefore, the creditor would not violate the prohibition on
obtaining or using medical information in Sec. 1022.30(b) if the
creditor obtains and uses this limited category of medical information
disclosed by the consumer on their application as an ongoing payment
obligation.
Proposed Sec. 1022.30(e)(6) explains that a creditor (for mortgage
loans) or card issuer (for credit cards) relying on the specific
exception for compliance with applicable laws at Sec.
1022.30(e)(1)(ii) is not permitted to obtain or use medical information
from a consumer report. The CFPB has preliminarily determined that the
creditor or card issuer can comply with the applicable laws using the
information provided by the consumer on the application, including any
unsolicited medical information; therefore, it would not be necessary
or appropriate for a creditor or card issuer to use medical information
contained in a consumer report or request a consumer report in an
attempt to obtain medical information in order to comply with the
applicable laws. As explained in part V.B, Limits on consumer reporting
agency's disclosure of medical debt information, the CFPB also believes
it would be administratively difficult for consumer reporting agencies
to determine which information in a consumer's credit file is necessary
for a particular creditor's compliance with the requirement to make a
repayment ability determination and which information is not. In the
context of creditors' obligations to make repayment ability
determinations under Regulation Z, the limited amount of medical debt
information that would be relevant to ability-to-repay or ability-to-
pay rules, as well as the administrative burdens of segmenting this
information out, is impractical for a consumer reporting agency to
undertake. For the reasons discussed above, the CFPB preliminarily
finds that preventing creditors from purposefully obtaining--and under
new Sec. 1022.38, consumer reporting agencies from furnishing--medical
information on consumer reports for credit eligibility purposes will
both ease burdens on consumer reporting agencies and prevent attempts
by creditors to evade the rule by requesting consumer reports in the
hopes of learning indirectly the same sensitive medical information the
rule prohibits creditors from soliciting directly under the guise of
compliance with the ability-to-repay and ability-to-pay rules, and is
necessary and appropriate and will prevent evasions
[[Page 51697]]
and facilitate compliance with the FCRA.
The CFPB does not believe that creditors would need to begin
obtaining medical information from consumers under the proposed rule if
they do not already do so. For example, the CFPB does not intend this
proposal to change any existing law or guidance regarding the extent to
which creditors may rely on consumer reports to assess consumers'
current obligations in complying with repayment ability determination
requirements.\147\
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\147\ See, e.g., Regulation Z comment 51(a)(1)(i)-7 (``A card
issuer may consider the consumer's current obligations based on
information provided by the consumer or in a consumer report.'');
see also Sec. 1026.43(c)(3)(iii) (``[I]f a creditor relies on a
consumer's credit report to verify a consumer's current debt
obligations and a consumer's application states a current debt
obligation not shown in the consumer's credit report, the creditor
need not independently verify such an obligation.'')
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The CFPB requests feedback on this aspect of the proposed rule and
whether the proposal under consideration would assist a creditor or
card issuer in making its repayment ability determination under TILA/
Regulation Z. The CFPB also seeks comment on whether amendments should
be made to Sec. 1022.30(e)(1)(ii) to reflect the language in proposed
Sec. 1022.30(e)(6)--providing that a creditor or card issuer may not
obtain or use medical information from a consumer reporting agency to
comply with the ability-to-repay rule under 12 CFR 1026.43(c) for
closed-end mortgages, the repayment ability rule under 12 CFR
1026.34(a)(4) for open-end, high-cost mortgages, or the ability-to-pay
rule under 12 CFR 1026.51(a) for open-end (not home-secured) credit
card accounts--or if the language in proposed Sec. 1022.30(e)(6) is
sufficient to explain how creditors can comply with the repayment
ability determination requirements under TILA/Regulation Z.
VI. Proposed Effective Date
The Administrative Procedure Act generally requires that rules be
published not less than 30 days before their effective dates.\148\ The
CFPB proposes that, once issued, the final rule for this proposed rule
would be effective 60 days after it is published in the Federal
Register. The CFPB preliminarily concludes that 60 days should be
enough time for implementation. Creditors will likely need to do very
little to comply with the rule to the extent that creditors currently
only utilize medical debt information provided through consumer
reports, which the CFPB understands is creditors' main source of
medical debt information. In such cases, so long as the consumer
reporting agency providing the consumer report has complied with the
rule, no medical debt information would be conveyed to the creditor,
unless the consumer reporting agency has reason to believe the creditor
intends to use the medical debt information in a manner not prohibited
by the creditor prohibition. Creditors who currently obtain and use
medical debt information (and other prohibited medical information)
from other sources will need to establish controls to ensure that they
do not obtain or use the medical debt information in a manner
prohibited by the rule. Consumer reporting agencies will need to make
coding changes to exclude data identified as medical information from
consumer reports sent to creditors. However, the CFPB expects this to
be a relatively simple coding change, particularly for the NCRAs and
the consumer reporting agencies that obtain consumer reports from NCRAs
for resale because the NCRAs already limit their reporting of medical
collections. In addition, consumer reporting agencies may have already
scoped out this kind of coding change to comply with reforms in several
States. The CFPB requests comment on this proposed effective date.
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\148\ 5 U.S.C. 553(d).
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VII. CFPA Section 1022(b) Analysis
The CFPB is considering the potential benefits, costs, and impacts
of the proposed rule. The CFPB requests comment on the analysis
presented below, as well as submissions of additional data that could
inform its consideration of the impacts of the proposed rule. This
section contains an analysis of the benefits and costs of the proposed
rule for consumers, consumer reporting agencies, creditors, and other
entities, such as health care providers and debt collectors.
A. Statement of Need
The FCRA supports the fairness, accuracy, and privacy of personal
information in consumer reporting. Among the protections in the FCRA
for consumers' medical information, FCRA section 604(g)(2) generally
restricts creditors from obtaining or using medical information in
connection with credit eligibility determinations, absent a regulatory
exception. FCRA section 604(g)(5) requires that the CFPB determine that
any such exception be necessary and appropriate and consistent with the
intent of FCRA section 604(g)(2) to restrict the use of medical
information for inappropriate purposes. The CFPB is also authorized
under section 621(e) of the FCRA to issue regulations as may be
necessary or appropriate to administer and carry out the purposes and
objectives of the FCRA, and to prevent evasions thereof or to
facilitate compliance therewith. The CFPB anticipates that the proposed
rule would enhance consumer privacy by removing the financial
information exception at Sec. 1022.30(d) that currently permits
creditors to consider medical debt information and medical information
about expenses, assets, and collateral, among other types of medical
information, in underwriting decisions under certain circumstances.
Medical debt is prevalent in the United States, with 20 percent of
households reporting that they had medical debt in 2022.\149\
Reflecting this prevalence, medical collections have recently comprised
the majority of credit collection tradelines found on consumer
reports.\150\ Like other information on consumer reports, medical
collections information may be used by creditors to assess a consumer's
ability to handle credit obligations.
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\149\ Consumer Fin. Prot. Bureau, CFPB Estimates $88 Billion in
Medical Bills on Credit Reports (Mar. 1, 2022), <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-estimates-88-billion-in-medical-bills-on-credit-reports/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-estimates-88-billion-in-medical-bills-on-credit-reports/</a>.
\150\ Consumer Fin. Prot. Bureau, Medical debt burden in the
United States, at 5 (Mar. 1, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/">https://www.consumerfinance.gov/data-research/research-reports/medical-debt-burden-in-the-united-states/</a>.
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Medical collections may result from unplanned expenditures, making
medical collections information on consumer reports a potentially noisy
or inaccurate signal of a consumer's ability to meet credit
obligations. In the United States, high health care prices, uneven
insurance coverage, complex health insurance networks, and cost-sharing
features of health insurance may cause unexpected or chronic illnesses
to result in large medical bills for individual consumers. Due to
opaque medical pricing and billing practices, consumers often do not
know the cost of medical services at the time those services are
incurred, and may receive medical bills that they are uncertain they
actually owe.\151\ Some consumers are unable to pay these bills on
time, and some of these past-due medical bills eventually become
medical collections.
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\151\ See Consumer Fin. Prot. Bureau, Complaint Bulletin:
Medical billing and collection issues described in consumer
complaints, at 7-8 (Apr. 20, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/">https://www.consumerfinance.gov/data-research/research-reports/complaint-bulletin-medical-billing-and-collection-issues-described-in-consumer-complaints/</a>.
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Another factor that potentially makes medical collections an
imprecise signal is that they are unevenly reported. Some health care
providers allow debt collectors to furnish to consumer reporting
agencies, while others do not.
[[Page 51698]]
Because of this, it is possible for consumers' medical debt in
collections to be included unevenly on consumer reports, potentially
leading to different financial outcomes. While a consumer could
theoretically be able to factor this into their decision when selecting
a health care provider, it is more likely that a consumer is not aware
of which health care providers furnish and usually does not choose a
health care provider based solely on a health care provider's
collection policies, if they consider them at all.\152\
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\152\ Noam M. Levey, Hundreds of Hospitals Sue Patients or
Threaten Their Credit, a KHN Investigation Finds. Does Yours?, KFF
Health News (Dec. 21, 2022), <a href="https://kffhealthnews.org/news/article/medical-debt-hospitals-sue-patients-threaten-credit-khn-investigation/">https://kffhealthnews.org/news/article/medical-debt-hospitals-sue-patients-threaten-credit-khn-investigation/</a>.
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When creditors base underwriting decisions on information that is
unevenly reported and potentially erroneous, an economic tradeoff
arises. Creditors balance the probabilities of making two types of
error when deciding whether to lend to consumers. The first type of
error occurs when creditors lend to consumers who are unable to repay
the loan. The second type of error occurs when creditors choose not to
lend to consumers who are able and willing to repay. Creditors lose
potential revenues when they decline credit for consumers with reported
medical collections. Similarly, consumers, who would have benefitted
from access to credit, also lose from being denied credit because of
reported medical collections.
The likelihood of making each of these types of error is affected
by the informativeness of the signal medical collections provide to
creditors. When medical collections are reported for debts that do not
exist (for instance, because medical bills have been paid by insurance)
and are prevalent, using this information will tend to increase the
likelihood of the second type of error, without reducing the likelihood
of the first type of error. In that situation, creditors who use
medical collection information would benefit from not considering this
information in their credit decisions. When medical collections are
reported on the basis of debts that may in fact impair consumers'
future repayment and are prevalent, creditors would experience a
reduction in revenue if they do not consider medical collections in
their credit decisions, due to an increase in likelihood of the first
type of error. As a result, whether creditors would benefit from not
being able to consider medical collections in their credit decisions is
an empirical question. As discussed in part XI, Technical Appendix,
empirical analysis suggests that on balance, preventing creditors from
using medical collection information in credit decisions would result
in creditors extending credit to more consumers without diminishing the
average performance of newly opened credit accounts.
If creditors could in fact benefit from disregarding medical debt
information when making credit decisions, one would expect that
creditors would have abandoned the practice out of their own profit
motive. While, as discussed above, the industry has trended in this
direction in recent years, the transition has not occurred fully, or
quickly. The CFPB hypothesizes that the nexus of current contracts,
expectations, and institutional structures that govern creditors'
behavior prevents markets from moving to a potentially better
equilibrium outcome. For instance, the market for mortgages is heavily
driven by the secondary market for those loans. Similar factors likely
drive creditor behavior in other consumer loan markets. Mortgage
originators must follow underwriting practices that are expected by
buyers in the secondary market, or they will not be able to securitize
their loans. Since consideration of medical debt information has been
expected by the market (if only implicitly through the use of
commercially available credit scores), it is difficult for any one firm
to move away from using that information, even if doing so would not
increase risks for investors.\153\
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\153\ Loretta J. Mester, Fed. Rsrv. Bank of Phila., What's the
Point of Credit Scoring?, Bus. Rev., at 6 (Sept./Oct. 1997), <a href="https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/1997/september-october/brso97lm.pdf">https://www.philadelphiafed.org/-/media/frbp/assets/economy/articles/business-review/1997/september-october/brso97lm.pdf</a>.
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The proposed rule would generally prohibit creditors from
considering medical debt information from consumer reports (among other
sources) in underwriting decisions. Consequently, the incentive for
medical debt holders and collectors to furnish to consumer reporting
agencies would decrease. As a result, the proposed rule would enhance
consumers' privacy with respect to their medical information, while
also reducing the likelihood that the uneven reporting of medical
collections would affect credit outcomes. While the proposed rule would
reduce the amount, though not necessarily the quality, of information
on which creditors can base underwriting decisions, the CFPB expects
that, over time, those credit scoring models that currently use medical
collections would be adjusted to reweight the remaining information on
consumer reports. In the long run, the expected adjustments to credit
scoring models may help markets move toward a more efficient allocation
of credit.
Adjustments to credit scoring models may result in credit being
extended to more consumers who are able and willing to repay their
credit obligations. This may allow consumers to benefit from increased
access to credit and creditors to increase overall revenues. Moreover,
since medical collections tradelines on consumer reports are prone to
error, removing medical debt from consumer reports would reduce the
need for dispute resolution, potentially saving both consumers and
consumer reporting agencies time and resources.
B. Data and Evidence
The CFPB's analysis of costs, benefits, and impact is informed by
data from a range of sources. As discussed in part III.A, when the
interventions discussed in this proposed rule were part of the broader
Consumer Reporting Rulemaking, the CFPB convened a Small Business
Review Advisory Panel in October 2023 to gather input from small
businesses. The discussions at the panel meetings and the comment
letters submitted by small entity representatives during this process
were presented in a Panel Report completed in December 2023. The CFPB
also invited and received feedback on the proposals under consideration
from other stakeholders, including stakeholders who were not small
entity representatives. The impact analysis is further informed by
academic research, reports on research by industry and trade groups,
practitioner studies, and comment letters received by the CFPB. Where
used, these specific sources are cited in this analysis.
The CFPB also used its own Consumer Credit Information Panel (CCIP)
to estimate the potential impacts of the proposed rule on consumers and
creditors. The CCIP is a 1-in-50, nationally representative sample of
deidentified consumer reports from one of the three nationwide consumer
reporting agencies (NCRAs). The data allowed the CFPB to conduct
analyses of the predictive value of medical collections information in
the context of whether a consumer's application for credit was
successful (determined by whether a creditor's inquiry following such
an application led to the origination of a credit account or, in other
words, inquiry success) and future credit account delinquencies. Such
analyses are useful for quantifying the proposed rule's potential
impacts to consumers and creditors. While the
[[Page 51699]]
CCIP is nationally representative, it only contains information for
consumers who have consumer reports. In addition, because the CCIP data
are drawn from consumer reports from a single NCRA and because medical
collections are unevenly reported, the data might not contain all
medical collections that exist in the United States. The CFPB requests
additional data that can be used to expand the impact analysis.
To quantify health care providers' exposure to unpaid medical
bills, the CFPB used data from the Hospital Cost Reporting Information
System (HCRIS), which is administered by the Centers for Medicare and
Medicaid Services. The HCRIS data contain annual cost reports filed by
Medicare-certified hospitals in the United States. The data comprise
information on hospitals, their revenues, operating costs, and bad debt
expenses not reimbursable by Medicare. While almost all hospitals file
these cost reports, the data do not include unpaid medical debts owed
to health care providers that are not hospitals.\154\ The CFPB requests
additional data from health care providers and debt collectors that can
be used to quantify potential impacts on entities other than hospitals.
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\154\ Nat'l Pub. Radio, Nursing homes are suing friends and
family to collect on patients' bills (July 28, 2022), <a href="https://www.npr.org/sections/health-shots/2022/07/28/1113134049/nursing-homes-are-suing-friends-and-family-to-collect-on-patients-bills">https://www.npr.org/sections/health-shots/2022/07/28/1113134049/nursing-homes-are-suing-friends-and-family-to-collect-on-patients-bills</a>.
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Due to these data limitations, the analysis presented in this part
generally provides a qualitative discussion of the proposed rule's
costs and benefits and includes quantitative estimates whenever
possible. The CFPB requests data that can be used to quantify the
analysis of impacts, or submission of studies that contain relevant
estimates that can be used in the analysis of impacts.
C. Coverage of the Proposed Rule
Part VIII.B.3 provides a discussion of the estimated number and
types of entities potentially affected by the proposed rule.
D. Baseline for Consideration of Costs and Benefits
The impact analysis compares the proposed rule's potential benefits
and costs against a baseline in which the CFPB takes no regulatory
action. This baseline includes existing Federal and State law and
current furnishing practices. Under the baseline, creditors are
generally allowed to consider medical collections information on
consumer reports in underwriting decisions due to the financial
information exception at Sec. 1022.30(d).
Over the last few years, the three NCRAs implemented several
voluntary changes in the consumer reporting of medical debt. In
September 2017, the NCRAs implemented a 180-day waiting period before
including furnished medical collections on consumer reports.\155\ In
July 2022, the NCRAs extended the waiting period from 180 days to one
year and removed all paid medical collections from consumer reports.
Finally, in April 2023, the NCRAs removed both paid and unpaid medical
collections under $500 from consumer reports.\156\
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\155\ Nat'l Pub. Radio, Credit Agencies To Ease Up On Medical
Debt Reporting (July 11, 2017), <a href="https://www.npr.org/sections/health-shots/2017/07/11/536501809/credit-agencies-to-ease-up-on-medical-debt-reporting">https://www.npr.org/sections/health-shots/2017/07/11/536501809/credit-agencies-to-ease-up-on-medical-debt-reporting</a>.
\156\ Fredric Blavin et al., Urban Wire, Urban Inst., Medical
Debt Was Erased from Credit Records for Most Consumers, Potentially
Improving Many Americans' Lives (Nov. 2, 2023), <a href="https://www.urban.org/urban-wire/medical-debt-was-erased-credit-records-most-consumers-potentially-improving-many">https://www.urban.org/urban-wire/medical-debt-was-erased-credit-records-most-consumers-potentially-improving-many</a>.
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It is the CFPB's understanding that health care providers and debt
collectors they contract with currently use three types of collection
practices to collect medical debt: contacting consumers by mail, phone,
or other means; debt collection litigation; and furnishing medical
collections information to consumer reporting agencies. The impact
analysis considers how health care providers and debt collectors may
respond to the proposed rule by switching to the first two collection
practices if furnishing becomes a less effective means of inducing
payment.
The evolving landscape of State laws and consumer reporting
practices may change medical collections reporting in the absence of
the proposed rule, affecting the baseline. The voluntary changes
recently implemented by the NCRAs could be reversed at any time, and
such reversals would tend to amplify the impacts of the proposed rule.
In the current state of the world, creditors are generally allowed
to consider medical debt information in underwriting decisions,
including medical collections information found on consumer reports.
Some recently passed State laws establish when medical collections
information originating from these States can be furnished to consumer
reporting agencies or included on consumer reports.\157\ The only
medical collections that the NCRAs include in their consumer reports
are those that: (1) are more than one year past due, (2) are for
collection amounts greater than $500, (3) are unpaid, and (4) would not
violate State laws that restrict or prohibit consumer reporting of
medical collections. By August 2023, after the voluntary NCRA changes
were fully implemented but before most of the State-level changes took
effect, an estimated 5 percent of consumers had medical collections on
their consumer reports.\158\ The proposed rule would remove these
remaining medical collections from, and generally prohibit future
medical collections from being included in, consumer reports provided
to creditors.
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\157\ See, e.g., Colo. Rev. Stat. section 5-18-109; N.Y. Pub.
Health Law art. 49-A; 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.
\158\ Ryan Sandler & Zachary Blizard, Consumer Fin. Prot.
Bureau, Recent Changes in Medical Collections on Consumer Credit
Records Data Point, at 3-4 (Mar. 2024), <a href="https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_recent-changes-medical-collections-on-consumer-credit-reports_2024-03.pdf</a>.
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E. Potential Benefits and Costs to Consumers and Covered Persons
1. Costs to Consumer Reporting Agencies
The proposed rule would generally prohibit consumer reporting
agencies from including medical collections information on consumer
reports provided to creditors. Consumer reporting agencies may lose
revenue if, due to the proposed rule, debt collectors perceive consumer
reports as less informative for guiding collection activities. This
prohibition may also decrease the incentive for health care providers
and debt collectors to furnish medical collections to consumer
reporting agencies, although consumer reporting agencies would still be
able to include medical collections information on the reports that
they provide for non-credit eligibility determination purposes such as
with regard to employment or insurance, or to consumers seeking a copy
of their own consumer reports. This means that health care providers
and debt collectors may still see some value in reporting medical
collections to consumer reporting agencies, including to the three
NCRAs. However, it is possible that in response to the proposed rule,
consumer reporting agencies would remove medical collections from
consumer reports under all circumstances. Consumer reporting agencies
may also incur fixed operational and compliance costs to conform to the
proposed rule.
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Creditors May Be Less Willing To Pay for Consumer Reports
Creditors use information from consumer reports, usually obtained
from the NCRAs, to reduce the risk of lending to consumers who may be
unable to repay. Removing medical collections information from consumer
reports provided to creditors for credit decisions would reduce the
information they contain relative to the case today or, in other words,
the baseline. In theory, if creditors expect medical collections
information to be on consumer reports, or if they view medical
collections information as critical to their assessment of the
riskiness of lending to consumers, their willingness to pay consumer
reporting agencies for consumer reports that do not contain medical
collections information may decrease. While this is not a view shared
by the CFPB, one NCRA commenter who submitted views to the CFPB during
the SBREFA process stated that it considers medical collections as
predictive of a consumer's willingness and repayment ability and
believes that the complete removal of medical collections from consumer
reporting would ``degrade the accuracy of consumer reporting.''
However, creditors would likely find the remaining information on
consumer reports to still be valuable, mitigating the reduction in
demand for consumer reports that may result from the proposed rule. The
CFPB requests comment on this issue, as well as data that can be used
to quantify creditors' demand for consumer reports.
CFPB research finds that the use of medical collections information
from consumer reports provided by the NCRAs to creditors seems to vary
by creditor type. Medical collections information appears to be most
used by credit card providers, with a credit card inquiry being less
successful when it is made after (rather than before) a medical
collection appears on a consumer report of a consumer that previously
had no nonmedical collections tradelines. To a lesser extent, mortgage
providers also appear to use medical collections information.\159\
However, the CFPB has no information on the extent to which consumer
reporting agencies' revenues from consumer reports generally are driven
by sales to these creditor types. The CFPB requests further information
to quantify its analysis of the potential revenue losses due to
different creditors' decreased demand for consumer reports.
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\159\ See part XI, Technical Appendix, to this proposed rule.
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Debt Collectors May Be Less Willing To Pay for Consumer Reports
At baseline, debt collectors may use information from consumer
reports to determine a consumer's ability to pay the collection amount
and to guide what collection practices will be most cost-effective.
Debt collector small entity representatives, in their submitted
comments, stated that they found medical debt information on consumer
reports to be relevant to estimating whether a consumer will repay a
debt that is in collections.\160\ Should medical debt holders and their
assignees (e.g., debt collectors or debt buyers) cease furnishing
medical collections information to consumer reporting agencies as a
result of this proposed rule, debt collectors would no longer have
access to medical collections information previously included in
consumer reports to assess whether a consumer will repay a specific
medical debt in collections. While the remaining information on
consumer reports may still be useful to guide their decisions, the loss
of medical collections information may reduce debt collectors'
willingness to pay for consumer reports from consumer reporting
agencies. The CFPB requests data from debt collectors to assess the
usefulness of medical collections information for debt collectors'
collection practices, as well as data from the NCRAs and other consumer
reporting agencies, to quantify the potential revenue losses from
reduced sales of consumer reports to debt collectors.
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\160\ SBREFA Report at 36.
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One-Time Operational and Compliance Costs
Consumer reporting agencies may incur one-time costs to comply with
the proposed rule. Consumer reporting agencies may need to modify their
reporting systems and databases and revise the guidance documents they
provide to furnishers. Consumer reporting agencies may also need to
reorganize their computer systems and databases such that no medical
debt information is contained in consumer reports provided to creditors
for credit eligibility determinations. However, some operational and
compliance costs that may have otherwise been caused by the proposed
rule may have already been incurred to some degree to comply with
certain States' laws. The CFPB does not have information on the
reporting systems and databases used by most consumer reporting
agencies at baseline and requests data that can be used to quantify
costs that may be incurred or have already been incurred by consumer
reporting agencies.
Compliance costs may be different for the three NCRAs (Equifax,
Experian, and TransUnion) and Innovis compared to other consumer
reporting agencies. The NCRAs and Innovis are known to provide a
standardized data format to furnishers, called Metro 2, and have
organized their databases to process and screen data furnished in this
format.\161\ At baseline, the three NCRAs do not include medical
collections under $500, medical collections that are less than one year
past due, or paid medical collections on any consumer report provided
to third parties. The use of the Metro 2 format constitutes an ongoing
compliance cost for the NCRAs. It is likely that they already have
systems in place to screen out any furnished medical collections that
may violate these conditions. It is possible that the NCRAs' and
Innovis's screening process may have to be expanded such that they do
not accidentally include medical collections submitted by furnishers on
consumer reports provided to creditors. However, the Metro 2 format
that the NCRAs and Innovis currently provide to furnishers may help
facilitate compliance, because tradeline information submitted by
furnishers is already required to include codes that specify when a
debt is a medical debt.\162\ In addition, complying with the proposed
rule may only require an extension of the changes the NCRAs and Innovis
have made or plan to make to account for laws passed in several states,
including New York, Colorado, Connecticut, and Virginia.\163\ A SBREFA
commenter, not representing the NCRAs, posited that making the
necessary changes would be a significant undertaking in terms of time
and cost and that the NCRAs would have to reconfigure, test, and
validate their current compliance programs. Consumer reporting agencies
that have different screening processes and databases that do not rely
on the Metro 2 format may incur different compliance costs associated
with their own systems, though, as noted above, some
[[Page 51701]]
compliance costs may already have been incurred to comply with State
laws. The compliance costs for consumer reporting agencies could be
greater if medical information furnishers do not comply with their FCRA
section 623(a)(9) obligation to notify consumer reporting agencies of
their status,\164\ though the CFPB does not have any indication that
medical information furnishers are not complying with that notification
requirement. Consumer reporting agencies may incur costs to screen
medical information provided by such furnishers, or for which there is
no medical information furnisher within the meaning of FCRA section
623(a)(9), from consumer reports provided to creditors for credit
eligibility determinations. The CFPB requests comment and information
on this potential compliance cost. The CFPB also requests data to
quantify general operational and compliance costs that may be incurred
by consumer reporting agencies, as well as information on other
possible one-time costs.
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\161\ The CFPB does not have information on whether other
consumer reporting agencies also rely on the Metro 2 format. For an
overview of how NCRAs and Innovis, another CRA, receive and screen
furnished data, see Consumer Fin. Prot. Bureau, Key Dimensions and
Processes in the U.S. Credit Reporting System: A review of how the
nation's largest credit bureaus manage consumer data, at 19 (Dec.
2012), <a href="https://files.consumerfinance.gov/f/201212_cfpb_credit-reporting-white-paper.pdf">https://files.consumerfinance.gov/f/201212_cfpb_credit-reporting-white-paper.pdf</a>.
\162\ Id. at 16-19.
\163\ See, e.g., Colo. Rev. Stat. section 5-18-109; N.Y. Pub.
Health Law art. 49-A; 2024 Conn. Act 24-6; 2024 Va. Acts ch. 751.
\164\ 15 U.S.C. 1681s-2(a)(9).
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2. Benefits to Consumer Reporting Agencies
The removal of medical collections information from consumer
reports provided to creditors may also reduce consumer reporting
agencies' costs by potentially reducing the number of accounts that
consumer reporting agencies must screen or conduct accuracy checks for,
and the number of consumer disputes that they may need to resolve.
Consumer reporting agencies regularly process significant amounts of
data. For example, the NCRAs receive information on over 1 billion
tradelines each month and must accurately compile this information for
each consumer.\165\ Under the FCRA, consumers have the right to dispute
inaccuracies on their consumer report, and consumer reporting agencies
are obligated to investigate and resolve them if necessary.\166\ This
dispute resolution process imposes costs on consumer reporting
agencies. A CFPB analysis shows that 5.7 percent of medical collections
tradelines had a dispute flag at one point, much higher than the rate
of dispute flags for credit cards and student loans.\167\ One NCRA
commenter reported that their data shows that while consumers dispute
medical collections tradelines more often than other tradelines, they
do so at a similar rate to consumers disputing delinquent tradelines.
To the extent that medical collections tradelines contribute to the
number of disputes that consumer reporting agencies resolve, removing
medical collections information from consumer reports may reduce
consumer reporting agencies' costs associated with dispute resolution.
However, the CFPB does not have data to estimate the cost reduction in
dispute management that consumer reporting agencies may experience if
medical debt information is prohibited from appearing on most consumer
reports provided to creditors. The CFPB requests data to quantify these
potential cost-reducing benefits.
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\165\ Id. at 23.
\166\ 15 U.S.C. 1681i(a)(1)(A).
\167\ Consumer Fin. Prot. Bureau, Paid and Low-Balance Medical
Collections on Consumer Credit Reports (July 27, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/">https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/</a>.
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3. Costs to Health Care Providers
As discussed above, the CFPB understands that some health care
providers and their debt collectors currently use furnishing of medical
debt information as a means of inducing payment on post-service billed
amounts owed by the patient, although this is not one of the purposes
of credit reporting as stated in the FCRA.\168\ Because medical debt
information generally would no longer be included on consumer reports
provided for credit eligibility determinations, the proposed rule may
reduce the effectiveness of this means of inducing payment on post-
service billed amounts owed by the patient. However, post-service
billed amounts paid out of pocket by patients is a small fraction of
overall health care revenue and thus the overall impact on revenue is
likely to be limited. In addition, the effect on health care providers
that incur additional costs from pursuing debt collection lawsuits to
mitigate non-payment would be marginal given that, at baseline,
recovery rates associated with furnished medical collections are
already low and health care providers already use litigation to pursue
some debts.\169\ As discussed in Costs to Medical Debt Collectors, debt
buyers that also engage in debt collection may be less willing to pay
for medical debt if furnishing becomes a less effective way of inducing
payment from consumers. This may further reduce the revenues of health
care providers that sell medical debt to debt buyers. The CFPB requests
comment on these issues, as well as data that can be used to quantify
potential impacts to health care revenues and costs from potential non-
payment of post-service bills, increases in debt collection litigation,
and reduction in sales of medical debt to debt buyers who also engage
in debt collection. These impacts are discussed in detail below.
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\168\ See 15 U.S.C. 1681(a).
\169\ It is possible for debt collectors to furnish to consumer
reporting agencies and pursue debt litigation for the same account.
As discussed in Costs to Medical Debt Collectors, only 2.5 percent
of medical collections on consumer reports are ever reported as
paid. See Consumer Fin. Prot. Bureau, Paid and Low-Balance Medical
Collections on Consumer Credit Reports (July 27, 2022), <a href="https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/">https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/</a>.
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Potential Reduction in Revenues From Post-Service Bills Sent to
Patients
The vast majority of health care providers' revenues comes from
insurance (e.g., Medicare, Medicaid, private insurance) and other
third-party payers. Out-of-pocket spending by consumers only accounts
for about 11 percent of national health expenditures.\170\ Of that 11
percent, a significant proportion is paid at point of service at a
pharmacy or doctor's office.\171\ The CFPB's analysis of hospital-level
cost reports from the Healthcare Provider Cost Reporting Information
System (HCRIS) provided by the Centers for Medicare and Medicaid
Services (CMS) indicates that 72 percent of hospitals had non-Medicare
bad debt expenses in 2021.\172\ These bad debt expenses on average
represent about 6 percent of total costs in 2021 for hospitals that had
non-Medicare bad debt. At baseline, industry expectations of bad debt
recovery are low, with a 25 percent recovery rate used as a
benchmark.\173\ Assuming that
[[Page 51702]]
health care providers achieve a 25 percent recovery rate at baseline,
the CFPB estimates that bad debt expenses may rise to at most 7.5
percent of total costs on average. However, this rise assumes that bad
debt recovery rates decrease to zero. This may be unlikely given health
care providers' use of other collection practices, such as patient
outreach and debt collection litigation.\174\ The CFPB requests comment
on this issue, as well as data that may be used to quantify potential
increases in non-Medicare bad debt.
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\170\ Ctrs. for Medicare & Medicaid Servs., NHE Fact Sheet,
<a href="https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet">https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet</a> (last modified Dec.
12, 2023). Several SBREFA commenters claimed that the voluntary
reporting changes implemented by the NCRAs would result in an 11
percent decrease in their revenues, which likely is an outlier or
perhaps a misstatement given the overall share of out-of-pocket
spending.
\171\ In addition, 55 percent of patients with health insurance
paid their out-of-pocket bill in 2021. See Crowe, Hospital
collection rates for self-pay patient accounts, at 8 (Aug. 2022),
<a href="https://www.crowe.com/insights/asset/h/hospital-collection-rates-for-self-pay-patient-accounts-report">https://www.crowe.com/insights/asset/h/hospital-collection-rates-for-self-pay-patient-accounts-report</a>.
\172\ 2021 is the latest year for which the cost report data are
available. Hospitals classify medical bills as bad debt expenses
when they determine that consumers are unlikely to repay. Non-
Medicare bad debt consists of past-due medical bills from patients
who are not Medicare beneficiaries. See Am. Hosp. Ass'n,
Uncompensated Hospital Care Cost Fact Sheet (Feb. 2022), <a href="https://www.aha.org/fact-sheets/2020-01-06-fact-sheet-uncompensated-hospital-care-cost">https://www.aha.org/fact-sheets/2020-01-06-fact-sheet-uncompensated-hospital-care-cost</a> and Ctrs. for Medicare & Medicaid Servs.,
Hospital Provider Cost Report Data Dictionary (Dec. 13, 2023),
<a href="https://data.cms.gov/resources/hospital-provider-cost-report-data-dictionary">https://data.cms.gov/resources/hospital-provider-cost-report-data-dictionary</a>.
\173\ See, e.g., MD Clarity, RCM Metrics Bad Debt Recovery Rate,
<a href="https://www.mdclarity.com/rcm-metrics/bad-debt-recovery-rate">https://www.mdclarity.com/rcm-metrics/bad-debt-recovery-rate</a> (last
visited May 22, 2024).
\174\ In practice, the bad debt recovery rate may be even lower
than the industry benchmark, further limiting the potential rise in
non-Medicare bad debt that may result from the proposed rule. Using
a 2018 survey, the recovery rate for collection accounts generally
was estimated to be 11 percent. See ACA Int'l, Kaulkin Ginsberg 2020
State of the Industry Report (Sept. 21, 2020), <a href="https://policymakers.acainternational.org/whitepapers/2020/09/21/2018-state-of-the-industry-report/">https://policymakers.acainternational.org/whitepapers/2020/09/21/2018-state-of-the-industry-report/</a>.
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Given the state of health care industry billing practices and
business models at baseline, it is unlikely that the proposed rule
would change industry practices with respect to billing. In theory, to
mitigate potential revenue losses, health care providers could
implement operational changes including adding upfront payment options
for patients and refusing non-emergency services if patients have an
overdue account. However, the CFPB notes that it is illegal to refuse
to provide some health care services in certain emergency contexts and
that emergency services represent a significant share of health care
spending.\175\ At baseline, there is already a substantial economic
incentive to require upfront payment or deny service to patients with
overdue accounts given that recovery rates on billed expenses to
patients are already low.\176\ The proposed rule may only marginally
increase the incentive to require prepayment or upfront payment.
Upfront payment is already a uniform practice in pharmacies, and
prepayment or point-of-service payment for out-of-pocket expenses is
commonplace for providers of health care services as well.\177\ The
CFPB expects that it is unlikely that a decrease in the recovery rates
of furnished medical collections would cause health care providers to
substantially change their operational and billing procedures in light
of already existing incentives. The CFPB requests comment on these
issues and requests information on health care providers' billing
practices and provision of health care services that can be used to
quantify the magnitude of potential revenue losses and consequences.
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\175\ See, e.g., Scott KW et al., Healthcare spending in US
emergency departments by health condition, 2006-2016, PLoS One (Oct.
2021), <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8550368/">https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8550368/</a>.
\176\ According to a Healthcare Financial Management Association
(HFMA) report, the industry expectation is health care providers
will recover only 30 percent of amounts billed after discharge.
Healthcare Fin. Mgmt. Ass'n, Address Patient Financial Risk in Pre-
Service to Boost Revenue and Earn Loyalty (July 12, 2018), <a href="https://www.hfma.org/revenue-cycle/financial-counseling/61208/">https://www.hfma.org/revenue-cycle/financial-counseling/61208/</a>. In addition,
collecting post-service bills is time consuming, with 75 percent of
health care providers needing more than one statement to collect a
patient balance. See J.P. Morgan Healthcare Payments, Trends in
Healthcare Payments (Mar. 26, 2024), <a href="https://www.jpmorgan.com/insights/payments/payment-trends/healthcare-payment-trends">https://www.jpmorgan.com/insights/payments/payment-trends/healthcare-payment-trends</a>.
\177\ According to an HFMA survey, 96 percent of health care
industry respondents reported having pre-payment or point-of-service
collection policies and procedures. Healthcare Fin. Mgmt. Ass'n,
Analyzing pre-payment and point-of-service collections efforts (Aug.
15, 2021), <a href="https://www.hfma.org/technology/analyzing-pre-payment-and-point-of-service-collections-efforts/">https://www.hfma.org/technology/analyzing-pre-payment-and-point-of-service-collections-efforts/</a>.
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The CFPB understands that many health care providers sell medical
debt to debt buyers. These debt buyers often also engage in debt
collection and furnish medical collections information to consumer
reporting agencies. Debt buyers purchase these bundles of medical debt
from health care providers at a price that is a fraction of the nominal
value of the medical bills.\178\ Because the proposed rule may reduce
the effectiveness of furnishing medical collections as a collection
practice, the CFPB expects debt buyers' demand for medical debt bundles
sold by health care providers to potentially decrease. If so, the
resulting decrease in the price of medical debt bundles would further
reduce the revenues of the affected health care providers. Depending on
the magnitude of the decrease in price, health care providers may
consider collecting the debt themselves or writing the debt off.
However, the revenues of health care providers that at baseline do not
allow debt collectors to furnish medical collections information would
not be affected in this way. The CFPB does not have data with which to
quantify the magnitude of this expected decrease in the price of
medical debt bundles on the secondary market, nor does it have
information on the current prevalence of health care providers allowing
debt collectors to furnish medical collections information to consumer
reporting agencies. The CFPB requests data from health care providers
to help quantify their potential reduction in revenues from the sale of
medical debt bundles to debt buyers.
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\178\ Fed. Trade Comm'n, The Structure and Practices of the Debt
Buying Industry, at 22-23 (Jan. 2013), <a href="https://www.ftc.gov/reports/structure-practices-debt-buying-industry">https://www.ftc.gov/reports/structure-practices-debt-buying-industry</a>.
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Potential Increased Use of Litigation To Collect Medical Debt
The potential for revenue losses described above may affect the
rate at which health care providers or the debt collectors they work
with choose to file debt collection lawsuits against consumers.\179\
Should this happen, it may impose additional costs on health care
providers, since pursuing litigation entails some fixed and variable
costs. However, repayment rates for medical debt in collections have
been historically quite low, and pursuing additional lawsuits as a
result of the proposed rule is not likely to result in an increase in
marginal recovery rates.\180\ At baseline, health care providers can
already pursue debt collection litigation in conjunction with other
collection practices. Accordingly, the CFPB expects that any increase
in overall litigation frequency would be limited. The CFPB requests
comment on this issue and requests data that may help quantify this
potential increase.
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\179\ Judith Garber, Lown Inst., Which hospitals are suing
patients? Investigation reveals hospital billing practices, (Feb.
17, 2023), <a href="https://lowninstitute.org/which-hospitals-are-suing-patients-investigation-reveals-hospital-billing-practices/">https://lowninstitute.org/which-hospitals-are-suing-patients-investigation-reveals-hospital-billing-practices/</a>.
\180\ CFPB research suggests that only around 2.5 percent of
medical collection accounts furnished to the NCRAs are ever reported
as paid. See Consumer Fin. Prot. Bureau, Paid and Low-Balance
Medical Collections on Consumer Credit Reports (July 27, 2022),
<a href="https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/">https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-collections-on-consumer-credit-reports/</a>.
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Medical debt collection lawsuits tend to be filed in small claims
courts and to involve amounts of less than $10,000, with most lawsuits
ending in default judgment in favor of plaintiffs.\181\ Health care
providers may contract with debt collectors to file debt collection
lawsuits on their behalf.\182\ Depending on whether health care
providers sell or assign medical debt to debt collectors, it can be
difficult to assess who decides to bring and incur the costs associated
with debt collection lawsuits. Health care providers may sell medical
debt to debt buyers who also engage in debt collection, thereby
transferring ownership for the debt.\183\ In such cases, the decision
of whether to pursue
[[Page 51703]]
litigation is made by the debt buyer, and they become the main
plaintiff in a debt collection lawsuit. However, some health care
providers only assign medical debt to debt collectors, while retaining
ownership of the medical debt, and ultimately deciding themselves
whether to pursue debt collection litigation. When debt collection
litigation happens this way, the debt collectors may be listed as
plaintif
[…truncated; see source link]Indexed from Federal Register on June 18, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.