Kate Berry has an interesting article with some nice alliteration in the American Banker, Debt collectors defend doctors in skewering CFPB medical debt plan (behind paywall but available at Lexis). The CFPB has proposed to block medical debt from appearing in credit reports. The proposal is based in part on the theory that medical debt, because of its special nature, is not very predictive of consumers’ creditworthiness. Debt collectors are angry about that.
At least some in the industry agree that credit scores don’t depend much on medical debt. The article quotes John Utzheimer, president of Ulzheimer Group in Atlanta, a critic of the rule:
Ulzheimer said he is trying to debunk the CFPB’s claim that consumers can expect a 20-point increase in their credit score, an issue that Vice President Kamala Harris repeated on a call with reporters last month.
“The scoring models have already bypassed medical debts,” said Ulzheimer. “The CFPB’s plan is not going to improve anybody’s credit score.”
But if medical debt doesn’t affect consumer creditworthiness–which is supposed to be the principal purpose of credit reports–what purpose is served by having them on credit reports? Here’s another quote from the article:
“We all know that sometimes firms will litigate in order to establish the reputation that they’re going to get paid,” said Andrew Nigrinis, an economist at Legal Economics LLC, and a former enforcement economist at the CFPB, * * * “If you take away [debt collectors’] ability to credit-report, do you think they’ll just forgive the debt or do you think they’re going to litigate?”
When you put those quotes together, what you get is that debt collectors value having medical debt on credit reports not because they adversely affect credit scores but because consumers think they adversely affect credit scores and so consumers will pay to get the damaging debt off the report. That’s probably an oversimplification, but if that’s true, then it looks as if debt collectors want medical debt to appear on credit reports to deceive consumers into thinking paying the debts will improve their credit scores when doing so really won’t help their credit scores. Now of course consumers should pay debts that are genuinely owed but one policy undergirding the federal Fair Debt Collection Practices Act is that collectors shouldn’t deceive consumers even if the debt is legitimately owed.
I should also note that the article has a lot more in it than those two quotes, including discussion of an industry-sponsored report.
