Millions of debt collections disappeared from American consumers’ credit reports during the COVID-19 pandemic, according to reports from the Consumer Financial Protection Bureau (CFPB). Even though a large number of collections cases dropped off credit reports, overdue medical debt still remains a major consumer problem.
According to the CFPB, the total number of debt collection cases on consumer credit reports went from 261 million in 2018 to 175 million in 2022, dropping 33 percent (33%). Additionally, the number of consumers who had a debt collection on their credit report decreased by 20 percent (20%) between 2018 and 2022.
Of the collection matters that disappeared during this time period, medical debt collections also increased by 17.9 percent (17.9%). Unfortunately, that drop in medical debt collection cases was not enough to truly help consumers struggling with medical debt. In fact, medical debt still makes up 57 percent (57%) of all collection accounts reported on credit reports. This percentage by and far surpasses any other type of debt listed, including credit cards, utilities and rent accounts.
In their report, the CFPB expressed concerns that medical bill and collection practices still present a major issue for American consumers. The CFPB believes these figures underscore their concerns that current medical billing practices lack transparency for the consumer, resulting in damage to the person’s credit scores and their overall financial health.
Medical debt only shows up on a person’s credit report after the original creditor, the medical provider, sends the bill to a third-party debt collection agency. This practice is not just limited to medical providers but is also utilized by student loan servicers, credit card companies, among others.
After debts are sent to collections, they can stay on the consumer’s credit report for up to seven years. Having these dings on a person’s credit score can hurt their chances of receiving financing or new credit in the future, making it hard to do things such as rent a home, purchase a car, or be approved for credit.
The CFPB attributes this decrease in collections to debt collectors underreporting data to credit bureaus. According to the CFPB report, debt collectors reported 38 percent (38%) fewer collection tradelines between 2018 and 2022. Half of all consumers have medical collections on their credit reports. These collections represent most of the outstanding amount owed on medical collections remaining on consumers’ credit reports.
The CFPB also analyzed the administration’s goal of strengthening the Affordable Care Act and creating new consumer protections in an effort to reduce the burden of medical costs on the average consumer.
The CFPB report also cited how inaccurate medical debt collections unfairly harm consumer credit scores. These inaccurate reports hurt consumer credit scores, but they also have long term consequences. For example, consumers may be more likely to avoid receiving medical care out of fear of the cost. They may also have a hard time securing credit or employment in the future due to their low credit scores.
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