By GEORGE BUCK & JUDD PEAK
The basic concept of credit bureaus can be traced back as early as the 1860s. They functioned primarily to provide local merchants with a way to keep tabs on people who traded and did business in their immediate area. The ‘Credit Bureau’ of the time was merely a list of individuals who were poor credit risks. Prior to the use of a list, merchants extended only a very small amount of credit, and that was based on the merchant’s personal knowledge (and subjective beliefs) about the borrower.
Today, these local lists have become consolidated into national entities. Equifax, Experian and TransUnion are the nation’s three major consumer credit bureaus, also called credit reporting agencies (CRA). Collectively, they manage approximately 190 million consumer records.
The Consumer Financial Protection Bureau estimates that approximately 188.6 million Americans have credit records at one of the national consumer CRAs that can be scored by commercially-available analytic models. This represents over 80 percent of the adult population. An additional 19.4 million Americans, representing 8.3 percent of the adult population, have credit records that cannot be scored. The remaining 11 percent of adults, or about 26 million Americans, are credit invisible.
The Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA), is a federal law enacted in 1970 with the goal to promote the accuracy, fairness, and privacy of consumer information contained in the records of CRAs. It was intended to protect consumers from the willful and/or negligent inclusion of inaccurate information in their credit reports. To that end, the FCRA provides guidelines for the collection, dissemination, and use of consumer information, including consumer credit information.
Together with the Fair Debt Collection Practices Act (FDCPA), the FCRA forms the foundation of consumer rights law in the United States. It is overseen by the Federal Trade Commission (FTC) as well as the the Consumer Financial Protection Bureau (CFPB), both of which have the power to order rules for enforcement. Additionally, the FCRA contains a private right of action for civil litigants.
Under the FCRA, consumers are given the following rights:
- You must be told if information in your consumer credit file has been used against you.
- You have the right to know what is in your file.
- You have the right to ask for a credit score.
- You have the right to dispute incomplete or inaccurate information.
- Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information.
- Consumer reporting agencies may not report outdated negative information.
- Access to your file is limited.
- You must give your consent for credit information to be provided to employers.
- You may limit “prescreened” offers of credit and insurance based on information in your credit report.
Credit Reporting of Medical Accounts
The Fair Credit Reporting Act (FCRA) and the Health Insurance Portability and Accountability Act (HIPAA) generally permit furnishers to report some information related to medical debts to consumer reporting agencies. Policies of the CRAs (such as adoption of the Metro II format for electronic reporting) also impact what information can be reported regarding medical debt. Consumer reports may include information arising from the receipt of medical services, products or devices. However, the name, address, and telephone number of any medical information furnisher may not be included in a consumer report unless the information is coded in such a manner that the name of the provider and the nature of the services cannot be inferred by a person other than the consumer.
Medical information is defined under the FCRA as:
Information or data, whether oral or recorded, in any form or medium, created by or derived from a healthcare provider or the consumer, that relates to – (A) the past, present, or future physical, mental, or behavioral health or condition of an individual; (B) the provision of healthcare to an individual; or (C) the payment for the provision of healthcare to an individual.
While many see credit reporting as a valuable tool for collecting delinquent medical accounts, the CRAs and regulators see it differently. For many patients, an unexpected healthcare event can quickly grow into a financial disaster. The CFPB reports that some 60 percent of all debt that appears on credit reports is related to medical expenses, and for some 40 percent of those individuals it represents the only debt on their report.
Former CFPB Director Richard Corday made the following statement during a CFPB field hearing in 2015:
“Medical debt amplifies many of the problems generated by debt collection and the credit reporting system. When people fall ill and end up at the hospital with unexpected bills, far too often they have entered into a financial maze.”
Due to this heightened awareness, regulators have begun to take action. Changes in the way credit agencies report and evaluate medical debt have occurred and should reduce some of the financial consequences of a catastrophic healthcare event. The changes are largely a result of two efforts by states to aid consumers: a 2015 settlement negotiated by the New York Attorney General and the three credit reporting agencies and an agreement shortly afterward between the agencies and 31 state attorneys general. The changes have been instituted nationwide.
Pursuant to the settlements, there is now a mandatory 180-day waiting period from date of delinquency before a CRA can include a medical debt on a consumer’s credit report. The six-month period is intended to ensure there is enough time to resolve disputes with insurers and delays in payment. One of the challenges furnishers face is that very few providers define “date of delinquency” in their financial policies. It is left up to the data furnisher to determine a date of delinquency based upon placement with the collection agency.
In addition, the CRAs are required to remove medical debt from a consumer’s credit report once it has paid by an insurer. As in the case of defining a date of delinquency, the collection agency (furnisher) must have the ability to discern between an insurance payment and a consumer payment so an individual’s credit file can be updated accurately.
There is also a movement to lessen the impact of medical debt on an individual’s credit score. Credit-scoring companies like FICO and VantageScore have developed credit scoring models that lessen the weight of medical debt to account for the fact that medical debt is not an accurate predictor of whether someone is a good credit risk. “Those with medical accounts are less likely to default on their accounts than non-medical accounts,” said Ethan Dornhelm, vice president of scores and analytics at FICO. To address the issue, these newer FICO and VantageScore models differentiate between medical and non-medical debt.
Aside from medical debt, the CRA’s no longer list civil judgments and tax liens on consumer credit reports.
Where Do We Go From Here?
Bottom line, a medical account on a consumer’s credit report no longer caries the impact that many imagine. The enforcement attacks on credit reporting of medical debt are unlikely to end soon. Regulators are becoming increasingly cognizant of the fact that medical debt differs from other types of debt. On top of that, you have a very active and vocal consortium of consumer advocacy groups lobbying those same regulators for tighter restrictions. As a result, future scrutiny of medical debt reporting is likely to continue without abatement.
 12 C.F.R. § 717.3(k)(1).
President Emeritus George Buck and Chief Compliance Officer and General Counsel Judd Peak are part of the leadership team at Nashville-headquartered Frost-Arnett Company, which has been helping healthcare clients resolve healthcare account balances for 125 years. Now staffing three offices, Frost-Arnett works with clients nationwide on early-out, bad debt recovery, as well as pre-certification, pre-service, insurance follow-up and cleanup work for legacy systems. For more information, go online to frost-arnett.com.