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CFPB to Require Credit Reporting Agencies to Regularly Report on Consumer Disputes
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) released a report that found medical debt has a significant impact on consumer credit, as 43 million Americans have overdue medical debt on their credit reports. The CFPB is concerned that the systems for incurring, collecting, and reporting medical debt can create difficult challenges for consumers. To better address these challenges, the CFPB is announcing that the major consumer reporting agencies will be required to provide regular accuracy reports to the Bureau on how disputes from consumers are being handled.
“It’s hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side,” said CFPB Director Richard Cordray. “The CFPB is taking action to improve credit report accuracy. Getting medical care should not make your credit report sick.”
The medical debt study can be found at: http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf
Medical debt is incurred differently than other unpaid bills, such as unpaid phone or utility bills. Medical debt can result from an event that is unpredictable and costly, such as an accident or sudden illness. In addition, consumers are often temporarily responsible for the whole bill until insurance works it out. Consumers can also become responsible for medical debt because of billing issues between medical providers and insurers. Complaints to the CFPB indicate that many consumers do not even know they owe medical debt until they get a call from the collections agency or they discover it on their credit report.
If a medical bill goes unpaid after a certain amount of time, the medical provider may hand over the account to a third-party debt collector. The majority of collections items that end up on consumers’ credit reports are furnished to the credit reporting agencies by third-party debt collectors. When a collection item ends up on a consumer’s credit report, it decreases the consumer’s credit score. These scores play an important role in the lives of American consumers because most lenders decide to grant credit and set interest rates based on them. A collection item generally can stay on a report for up to seven years.
Today’s CFPB study draws on sources such as information from credit reporting companies, consumer complaints to the Bureau, and interviews with debt collection agencies, healthcare providers, and observers of healthcare billing and payment processes. Among the findings:
- Half of all overdue debt on credit reports is from medical debt: A staggering 52 percent of all debt on credit reports is from medical expenses. When a debt is past due, a collector may report the consumer’s account to a credit reporting agency. On the consumer’s report, this item would appear as an account in collections, resulting in a credit score drop.
- One out of five credit reports contains overdue medical debt: Today’s study found that one out of five credit reports contain medical debt in collections. This means that 43 million Americans have unpaid medical debt adversely affecting their credit report.
- 15 million consumers have only medical debt on their credit reports: Seven percent of all consumers have medical debt and no other collection items on their reports. These 15 million consumers tend to be more reliable bill payers than consumers with other types of collections on their credit reports. They are much more likely to be consumers who normally meet their debt obligations.
- Average reported medical debt is $579: The average unpaid, non-medical collections item on a credit report is $1,000; the median is $366. Unpaid medical collections are smaller, with an average of $579 and a median of $207. These figures contrast with the much larger amounts that are due on credit cards or student loans that are seriously delinquent. Such accounts average several thousand dollars.
Medical Debt Consumer Challenges
While the CFPB has previously reported on the general problems it has found with debt collection and its impact on credit reports, today’s report found that medical debt amplifies many of these issues. The CFPB is concerned the complex processes by which medical bills are incurred, collected by a wide range of debt collectors, and reported to credit reporting agencies can create challenges for consumers. Specifically, these challenges include:
- Confusing process of incurring medical debt: The medical billing process can be confusing for consumers. From one medical treatment or incident – a trip to the hospital, a treatment for an illness – there can be multiple bills from multiple providers. The costs can depend on whether the consumer has insurance, what insurance covers, and whether the provider is within the insurer’s network. The consumer’s obligation also can vary based upon whether the consumer has reached an annual cap on the amount required to pay out-of-pocket. As a result, consumers might not know how much medical debt they are responsible for paying.
- Haphazard system for reporting overdue medical debt: Unlike many other industries, there is no standard practice on when overdue medical debt is sent to a debt collector or reported to credit reporting agencies. Consumers may have little insight into how a medical debt might wind up on their credit report. The time between when a provider sends the first bill to a patient and when it ultimately ends up on a credit report can differ dramatically. Some providers send the unpaid bill to a collections agency as soon as 30 days after billing, while other providers may wait up to 180 days. These variations mean that medical debt collection items on a credit report that appear similar can reflect very different things about a borrower’s creditworthiness.
- Opaque practice of collecting debt by “parking” it on credit reports: It is not uncommon for debt collectors to “park” medical debts on credit reports as a way to get consumers to pay. This means debt collectors may not notify the consumer that they have an overdue debt or give them an opportunity to pay it before it goes on the credit report. Some collectors deploy this tactic to avoid going through the expense or hassle of contacting consumers. Consumers may discover the debt on their reports, worry about it, then contact the collector and pay it. In some cases these debts are paid by insurers once they have processed the claims, but consumers may already have been harmed.
New Accountability for Accurate Credit Reports
Today’s report lays out the ways in which the system of collecting and reporting medical debt introduces multiple points at which error and consumer harm can occur. These errors can also be found in any information source furnished to the credit reporting agencies. A top priority for the CFPB is to hold all players in the credit reporting market accountable for ensuring the accuracy of data in credit reports. This applies to the furnishers of the information, to the credit bureaus, and to the creditors which often both furnish information and use credit reports.
As part of that effort, today the CFPB announced that it will be requiring major credit reporting companies to provide regular accuracy reports to the Bureau as part of ongoing examinations. The reports will highlight key risk areas for consumers, including disputes filed with the credit reporting agencies. Some of the metrics in the accuracy report will include:
- Furnishers with the most overall disputes: If a credit reporting company continuously experiences an outsized number of consumer disputes about information from a particular furnisher, the CFPB expects the credit reporting agency to investigate, identify if there is a problem, and take appropriate action.
- Industries with the most disputes: The credit reporting agencies will have to list the top industries they are reporting on, the volume of information received from those industries, and the total number of disputes generated by those industries.
- Furnishers with particularly high disputes relative to their industry peers: For each industry named, the credit reporting agency must also name the top furnishers with the largest number of consumer disputes.
A sample accuracy report is available at: http://files.consumerfinance.gov/f/201412_cfpb_sample-accuracy-report.pdf
Today the CFPB is also releasing consumer tips on how to deal with medical debt, both before it gets on a credit report and after. The advisory says consumers should ask for an itemized bill and review each item on the bill to see if it is for a service that they received. Consumers should act quickly to resolve or dispute the medical bills that they receive. If consumers need to dispute a bill, they should send a written notice and include a copy of all relevant documents, such as records from doctors’ offices or credit card statements.
The advisory can be found at: http://files.consumerfinance.gov/f/201412_cfpb-7-ways-to-keep-medical-debt-in-check.pdf
In May of this year, the CFPB released a research report that found consumers’ credit scores may be overly penalized for medical debt that goes into collections and shows up on their credit report. According to that study, credit scoring models may underestimate the creditworthiness of consumers who owe medical debt in collections. The scoring models also may not be crediting consumers who repay medical debt that has gone to collections. That report can be found at: http://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf
From Credit & Collection News:
A string of 12 numbers visible on an envelope sent to collect a debt is a violation of federal privacy law, according to a proposed class action filed by a New Jersey plaintiff following a precedential ruling by the Third Circuit that held just that. Lakewood, N.J. plaintiff Yosaif Richter alleges in her complaint that the Pennsylvania law firm of Allan C. Smith, P.C., violated the Fair Debt Collections Practices Act (FDCPA) by including her account number above her name and address on an Aug. 10 letter attempting to collect a $3,630.11 debt Richter allegedly owed to a third party. Richter contends that the visible account number serves to potentially identify her as a debtor, which would violate the FDCPA’s provision prohibiting a debt collector from using any language or symbol, other than the debt collector’s name and address, on an envelope to guard the financial privacy of the recipient, according to the complaint in Richter v. Smith, filed Nov. 18 in U.S. District Court for the District of New Jersey. The plaintiff identifies the potential class as consumers with accounts at HSBC Bank Nevada, N.A. and its affiliates in Delaware, New Jersey and Pennsylvania who received similar debt collection letters. The complaint requests damages and declaratory relief. The complaint cites the Aug. 28 ruling of a three-judge panel of the U.S. Court of Appeals for the Third Circuit in Douglas v. Convergent Outsourcing. The court found an account number on such an envelope is not a “meaningless” string of numbers, but instead private information that Congress intended the statute to screen from public view.
We have learned that many cases filed in the Marion County Township Small Claims courts are being transferred as a result of our Suesz decision. (The United States Supreme Court has now declined to review that decision.) The collection cases were filed in the wrong court, and the debt collectors are hoping to avoid liability for further proceedings by transferring the cases. If you have received such a motion or order, contact us, as you may be able to recover damages for violation of the Fair Debt Collection Practices Act, regardless of whether you owe the debt or whether the debt collection plaintiff can prove it is the owner of the debt.
The following is of general applicability
The attorney general continues to receive complaints about individuals impersonating legitimate debt collectors. ACA has resources available to help consumers learn their rights if contacted by a debt collection professional and how to work with a debt collector.
Florida Attorney General Pam Bondi is warning Florida residents to protect themselves against debt collection scams, particularly when the number appears to be from a legitimate governmental entity, such as the Internal Revenue Service or attorney general’s office.
Scams where impersonators pretend to be collecting legitimate debt continue to top the number of complaints received by the attorney general’s Citizen Services Division, and there are measures Floridians can take to protect themselves, according to a news release from Bondi’s office.
“I encourage all Floridians who receive high-pressure calls demanding that they pay their debts immediately to use caution,” Bondi said. “One of the simplest ways to protect yourself from this type of scam is to say you’ll call the entity back and find its legitimate number.”
In some cases, the imposters will threaten that those who owe money will be jailed—but the law prohibits imprisoning those in debt, according to Bondi. Often the scammers will attempt to get their victims to purchase Green Dot or MoneyPak cards to pay their debts. Legitimate debt collectors will never ask for payment in this way.
7th Circuit case shakes up the creditor’s bar
Contrary to longstanding practice, collection cases must now be filed in the Cook County municipal district court where the debtor lives or the contract was signed.
This summer, the seventh circuit sent shockwaves through the Cook County creditor’s bar by ruling in effect that filing a collection case in a Cook County district court other than the one where the debtor lives or the contract was signed violates the Fair Debt Collection Practices Act (FDCPA). Before that ruling, debt collectors’ regular practice – approved by an earlier seventh circuit opinion – was to file in any of the six municipal districts in the county, not necessarily in a particular district courthouse. But the court’s decision in Suesz v. Med-1 Solutions, LLC, 757 F.3d 636 (7th Cir. 2014), overruled that prior holding and, what’s more, made the new decision retroactive to cases on file when the opinion came down in July.
The facts of Suesz
In Suesz, a consumer named Mark Suesz filed a class action lawsuit against Med-1 Solutions, LLC, alleging that Med-1’s regular business practice was to file lawsuits in small claims courts located in townships where the consumer neither lives nor signed the contract that created the debt, which, he alleged, violates the FDCPA.
Mark lives in Hancock County, Indiana. He had entered into a contract with a hospital in Marion County, Indiana. That county is divided into several townships, each of which has its own small claims court.
Med-1 Solutions, LLC sued Mark for his outstanding debt in Pike Township Small Claims Court. Community North Hospital, which hired Med-1 to recover the debt is located in Lawrence Township. The FDCPA requires debt collectors to sue consumers in the “judicial district or similar legal entity” where the consumer lives or where the consumer signed the contract being sued on. 15 U.S.C. §1692i(a)(2).
Although Suesz discusses the structure of Marion County and Indiana’s courts, the opinion applies to any county that has multiple courthouses where small claims cases are heard. The Suesz court noted that the FDCPA does not define the term “judicial district.” After a lengthy discussion of the various means of defining the term, the seventh circuit held that “the relevant judicial district or similar legal entity is the smallest geographic unit relevant for venue purposes in the court system in which the case was filed, regardless of the source of the venue rules.” Suesz, 757 F.3d at 648.
“The FDCPA takes the state courts as it finds them,” the court wrote. Id. at 649. It said that even though a local rule or statute might allow a debt collector to file a lawsuit in a venue that is prohibited under the FDCPA, that fact would not excuse compliance with the Act.
Making it retroactive
The Suesz court also expressly overruled its prior ruling in Newsom v. Friedman, 76 F.3d 813 (7th Cir. 1996), which had held that the six municipal districts in the Circuit Court of Cook County were not judicial districts under the Act. The Circuit Court of Cook County is divided into six municipal districts, each of which has its own courthouse. Each courthouse handles small claims lawsuits, among others. Prior to the ruling in Suesz, debt collectors filed their small claims actions against Cook County residents at the Richard J. Daley Center, which services the County’s First Municipal District.
With Newsom overruled, debt collectors have been filing motions to transfer venue on a vast number of small claims matters. It is likely that the other courthouses in Cook County will see a large influx of collection cases.
What has members of the creditor’s bar particularly concerned is that Suesz applies retroactively. In Suesz, Med-1 asked the seventh circuit to only overrule Newsom prospectively because debt collectors had been relying on Newsom when filing their lawsuits. Suesz, 757 F.3d at 649. The court declined to do so.
First, it stated, “reliance on prior law is insufficient in itself to justify making a new judicial ruling prospective.”Id. Second, it observed, reliance on the opinion of one intermediate appellate court “does not create the degree of certainty concerning an issue of federal law that would justify reliance so complete as to justify applying a decision only prospectively in order to protect settled expectations.” Id. at 649-50.
The Suesz court’s refusal to apply the ruling only prospectively creates a significant problem for debt collectors in Cook County. Many of the small claims cases on file at the Richard J. Daley Center as of July 2, 2014, when Suesz was handed down, could potentially violate the FDCPA’s venue provisions. Any lawsuit that should have been filed at the courthouses located in Skokie, Maywood, Rolling Meadows, Bridgeview, or Markham could trigger liability under the Act.
It remains unclear whether transferring venue would “cure” any violations – the FDCPA is a strict liability statute. Merely filing the case in the wrong venue triggers liability. Even so, as Joseph R. Marconi notes in an ISBA Mutual Liability Minute blog post, “an immediate motion to transfer to the appropriate Municipal District” is a smart move for creditors. See http://www.isbamutual.com/liability-minute/debt-collectors-beware-venue-provision-of-fdcpa-re.
The case was remanded to the Southern District Court of Indiana for further proceedings. A petition for a writ of certiorari has been filed with the U.S. Supreme Court.