The CFPB’s Consumer Advisory Board (CAB) meeting in Washington, DC Thursday was used as a platform to reiterate the Bureau’s focus on matters dealing with consumer credit reporting and medical debt, specifically how it is collected and appears on credit reports.
The meeting was the first of the year for the CAB, a group mandated by the Dodd-Frank Act and comprised of representatives from consumer advocacy groups, legal experts, and the credit and collection industry. The CAB provides perspective from different stakeholders to CFPB decision makers in all of the markets the agency regulates.
CFPB Director Richard Cordray, in opening remarks, spoke almost exclusively about the Bureau’s work in the credit reporting market. He noted that it is a nearly universal issue for Americans, as each of the three biggest credit reporting companies maintains files on over 200 million consumers.
One board member eloquently described credit files as “passports into the American financial mainstream.”
Of primary concern to the Bureau is consumer access and understanding of credit reports and the accuracy of information on those reports. In conjunction with the meeting, the CFPB released a new report based on credit reporting focus groups it conducted last year.
The focus groups showed that there is confusion over the difference between a credit report and a credit score, and that many people assumed that federally-mandated access to one free credit report per year meant access to a credit score, which is not the case. Credit scores, widely used by lenders in credit granting decisioning, are typically provided for a fee. But the Bureau is working on that, updating the public on its Open Credit Score initiative.
That initiative is working with major credit card issuers and other financial services firms to give consumers access to their scores on bills and account statements. The CFPB said that with recent buy in, some 50 million consumers will have free access to their credit scores on statements.
The conversation then turned to medical debt. What was billed as an exploration of medical debt collection practices really focused on issues consumers have with medical billing and confusion over insurance coverage.
One specific medical debt collection issue that was raised is the prevalence of very early stage medical collection accounts appearing on credit reports. The CFPB noted that medical accounts often appear on credit reports far before other debt types. The Bureau also presented data from its May 2014 Medical Debt and Credit Score data point that showed payment or non-payment of medical accounts was not a good predictor of future payment behavior, and should be taken into account by credit bureaus.
The panel did note that FICO has already announced it will recalibrate its FICO 9 Credit Score formula to differentiate between medical and non-medical collection agency accounts. But that change might take years to propagate through the system as lenders are typically slow to upgrade to new FICO updates.
CAB member Joann Needleman, speaking for the ARM industry as President of NARCA, noted that in her experience, many consumers ignore early intervention efforts from healthcare providers concerning outstanding bills. Much of this is due to confusion over what their insurance is covering and what the consumer’s obligation is under co-pays and out-of-pocket allocations.
Many on the panel agreed that the issue lies upstream with medical billing and coding and general misunderstandings over how much insurance covers.
A representative from the CFPB’s Research department did note, however, that the Bureau still needs to explore whether medical debt collectors are increasingly using credit reporting as a recovery tool.
That particular issue is the subject of a panel discussion at insideARM’s Third Annual Larger Market Participant Summit, April 23 in Washington, DC. The panel, Credit Reporting – Is it fast becoming the dinosaur of collection practices?, will feature stakeholders from the CFPB, TransUnion, Ontario Systems, and Credit Bureau Strategy Consulting, LLC.