The Federal Reserve Bank of New York (New York Fed) recently released its Quarterly Report on Household Debt and Credit. In addition to showing the breakdown of credit origination and delinquency by type of debt, the report points to something interesting: a sharp incline of accounts closing on credit reports and a decrease in the number of consumer credit accounts appearing on credit reports. Specifically, accounts closing increased by 9.7% since the first quarter of 2018.
According to the New York Fed, this change is due to the new National Consumer Assistance Plan (NCAP) which began its rolling implementation in mid-2016 and was fully implemented by late 2017. The NCAP, as discussed in a previously-published article by insideARM, sets additional rules regarding what can be reported and what information is needed prior to reporting an account. For example, collection agencies were advised not to report debts that did not arise from a contract or agreement to pay and not to report medical debt that is less than 180 days old.
This decline in reported collection accounts is likely temporary. According to the New York Fed, once collection agencies accustom themselves to the NCAP requirements, the number of reported accounts in collections is likely to increase from its current point.
The New York Fed accompanied this report with a blog post that discussed NCAP’s impact on consumers’ credit scores. Roughly 18% of consumers saw their credit score increase by over 30 points and 20% of consumers saw their credit score decrease, which, according to the New York Fed, is likely attributed to other negative aspects of the consumer’s credit file. The majority of consumers saw only a slight increase in their credit score.
As the New York Fed pointed out, the sharp decline in reported collection accounts is not surprising considering the implementation of the NCAP. Agencies that credit report dedicate a fair portion of their resources to ensure the process is accurate and runs smoothly. Any time compliance requirements are changed, it takes some time to adjust to the new directions. Agencies with more resources or smaller inventory may be able to pivot quickly, while others may need to put a pause on credit reporting until they can ensure they comply with the new requirements. Once agencies catch up, the number is likely to rise again. However, due to the new restrictions on the type of accounts that may be reported and when, the number is unlikely to stabilize at its former rate from a time when such restrictions were not in place.