According to a report issued yesterday by the CFPB entitled “Data point: Medical debt and credit scores,” credit scoring models may be overly penalizing consumers with medical debts that go into collection by producing credit scores that underestimate such consumers’ creditworthiness.
To conduct its analysis, the CFPB used data in its Consumer Credit Panel (CCP). The CCP is described in the report as a “longitudinal, nationally representative sample of approximately 5 million de-identified credit records from one of the three nationwide credit reporting agencies.” The CFPB used CCP data from September 2011 and September 2013. To assess how well a credit score predicted a consumer’s future creditworthiness, the CFPB looked at consumers’ credit histories and scores in September 2011 and then examined actual debt payment patterns over the next two years.
The report found that:
Credit scores may underestimate the creditworthiness of consumers who owe medical debt in collections by about 10 points (meaning consumers with medical debt were found to generally pay back their debts comparably with consumers with scores about 10 points higher).
Credit scores may underestimate the creditworthiness of consumers who have repaid medical debts in full by up to 22 points (meaning consumers who paid off medical debt were more likely to pay back their debts comparably with consumers with scores about 16 to 22 points higher).
In the report, the CFPB noted that credit scoring models generally do not distinguish between medical and non-medical debts reported by third-party collectors and traditionally have also not distinguished between fully repaid collections and those that remain unpaid. Based on its analysis, the CFPB observed in its press release that treating medical and non-medical collections differently in credit scoring models may make such scores more predictive by increasing the scores of consumers with medical collections. It also observed that allowing for different treatment of paid and unpaid medical collections would also likely result in higher scores for consumers who have fully repaid their medical collections.
These CFPB observations seem likely to become the basis for future guidance or rulemaking by the CFPB. Collection practices of hospitals and other medical providers relating to medical debts have also been the subject of CFPB scrutiny, with the CFPB indicating that more protections are needed for consumers. However, as we have noted, the CFPB has very limited authority to address debt collection by medical providers.