The Trickiest Part of CFPBs Pending Debt Collection Proposal BY RACHEL WITKOWSKI WASHINGTON — Medical debt may prove to be one of the complex areas that the Consumer Financial Protection Bureau will tackle in its highly anticipated rulemaking on debt collection next year. The proposal itself is a massive undertaking which could have a widespread effect on the entire cycle of debt, from creditors like banks to collectors and reporting agencies. But how to treat medical debt under the plan is turning out to be a complicated endeavor. The CFPBs jurisdiction is limited because it cannot directly regulate medical providers or health insurers, but must address how accurately and quickly medical debt is sent to collectors and reported to credit reporting agencies. The CFPB has the power to write rules and within that rulemaking process, they are considering implications with regard to medical debt in particular, said Stuart Pratt, president and chief executive of the Consumer Data Industry Association. They are concerned about whether [consumers] understand the billing process and if there is confusion from the health care provider to the debt collector and ultimately, the nationwide credit reporting bureaus. Earlier this month, the CFPB released a study and hosted a field hearing highlighting problems in reporting medical debt accurately and addressing consumer complaints or errors in a timely manner. The Dec. 11 study looked at overall consumer credit reports, but found that 52% of all debt is medical-related, and that it drives a lot of consumer complaints. The study and field hearing came ahead of a proposal on debt collection that the agency has tentatively scheduled to release in April, though that date may change. Its unclear if the proposal will address medical debt specifically, but even if it doesnt, the overall plan would have a significant impact on such debt because of what most believe are widespread inaccuracies related to medical debt reporting. This is just one piece of a bigger problem in the healthcare system that over time has developed high deductibles, high copay plans that are just difficult to sort out as a consumer, said Tom Gavinski, vice president of Healthcare at I.C. System, a collection agency based in St. Paul, Minn. I deal with this every day and still get confused on my own coverage. Im skeptical of whether everything has been billed properly versus other debt like a credit card where you bought something and the pricing is very clean. One significant complication within medical debt that the CFPB may address is establishing a timeframe for when debt must be reported. Most lenders have uniform timeframes for when a debt becomes delinquent, like a mortgage, but that is not the case with medical debt. Today, at best there are just loosely defined guidelines on reporting medical debt to collections, said Ethan Dornhelm, principal scientist at credit scoring developer Fair Isaac Co. (FICO). For example, medical debt can be reported anywhere from 30 days to 180 days after the bill went out … the idea of establishing a common wait period in reporting medical debt to collections would help ensure accuracy. CFPB Director Richard Cordray alluded to that idea during the field hearing on Dec. 11, when he noted that the IRS is proposing a 120-day hold for nonprofit hospitals reporting debt to a collector. We support the Internal Revenue Services recent proposal that, among other things, requires nonprofit hospitals to give the consumer 120 days before beginning extraordinary debt collection methods, including reporting medical debts as collection items to credit reporting agencies, Cordray said at the field hearing in Oklahoma City. In our view, consumers would benefit if for-profit hospitals and all other medical providers adopted the same approach. FICO and VantageScore have already created new scoring models to lower the impact medical debt has on a consumers credit score. But it would have to be voluntarily adopted by creditors and the new model, FICO 9, is still in the early stages as some lenders test out the system, according to Dornhelm. The CFPBs study has been a good benchmarking confirmation that we felt was supportive of this decision to launch a new FICO system, Dornhelm said. Another issue the CFPB could address through rulemaking is requiring greater accuracy from data furnishers and credit reporting agencies. This is a particularly prevalent problem with medical debt because there are often multiple billing parties involved when medical providers send a bill to an insurance company, which then determines what it will cover based on certain billing codes — a process largely not seen or verified by the consumer until they receive the final bill, sometimes months after the procedure.
Posted on: Wed, 24 Dec 2014 16:37:32 +0000
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