Recent research released by the Consumer Financial Protection Bureau shows that consumers’ credit may be overly penalized for medical debt that goes into collection and shows up on their credit report.According to the 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.
Medical debt is the largest focus of debt collection activity in the U.S., according to the CFPB.The CFPB’s study considered five million anonymized credit records from September 2011 to September 2013 to assess how well a common credit score predicted a consumer’s future likelihood of paying back debt.
The study found that credit scoring models have not been weighing medical debt very well. It found that if the credit scoring models accounted differently for medical debt in collection and medical debt that is repaid by the borrower, the models could be more precise.
As the CFPB develops rules for the debt collection industry, questions about inclusion of medical debt in the process remain unanswered. The CFPB has excluded medical debts from much of its work to date. There also remains some question about whether medical debt falls within the bureau’s scope under the Dodd-Frank Act. There are bills in Congress currently that seek to address medical debt credit reporting.