Since its inception, the CFPB has made debt collection a top priority. I have highlighted some of the Bureau’s activities in previous posts (in April and January of last year). Last month, the CFPB again demonstrated laser-focused interest in this subject by holding a field hearing in Oklahoma City on medical debt collections. Not surprisingly, there were several noteworthy developments.
The event featured a major speech by Director Richard Cordray, the announcement of several new Bureau initiatives, as well as a panel discussion on medical collections involving a group of experts. Jim Wehmann, the leader of FICO’s Scores division, was invited to join the panel of industry and consumer advocates.
Jim highlighted FICO’s research efforts in developing the latest and most predictive credit score version, FICO® Score 9. He discussed the positive impacts derived from the score’s innovative treatment in differentiating between unpaid medical and non-medical collections, as well as new findings that improved the score’s predictive strength by ignoring all paid third-party collections regardless of the amount.
In conjunction with the event, the CFPB released a new report on medical collections that detailed the presence of collections trade lines on credit reports and examined the varying practices of furnishers who report medical and non-medical collections to the credit bureaus. The study revealed that collections trade lines appear on nearly a third of all credit reports and more than half of all collections trade lines relate to medical debt. Medical collections affect nearly 20% of the 220 million US consumers who have credit reports.
Among a number of important findings, perhaps the key takeaway from the report was the CFPB’s concern over the accuracy of collections information found in credit reports. The CFPB study found a large and varied number of third parties collecting debts. These entities have only an indirect and short-term connection to the underlying credit obligation. When you couple this with a lack of objective standards for when a debt should be reported to the credit bureaus as a collections trade line, you have a situation where reporting inaccuracies can occur.
The CFPB study provided the foundation for what many believe was the big news coming out of the event. The CFPB announced it is requiring the major consumer reporting agencies to provide regular accuracy reports. These reports will inform the CFPB on what furnishers have the most disputes and compare them to their industry peers. In addition, the information captured on the reports will also highlight which industries are subject to the most disputes. In short, the CFPB believes this initiative will complement their ongoing efforts to improve and foster greater data accuracy within the credit reporting system.
The message is clear. Whether you are third-party debt collector, a debt buyer or a first-party creditor, if you are reporting information to the credit bureaus, you must ensure that you are complying with the responsibilities outlined in the Fair Credit Reporting Act’s Furnisher Rule.
For the CFPB, accuracy and integrity are not just ideals to strive for but requirements that must be met. In a year where significant regulatory changes in the debt collection space are expected, credit reporting practices should be high on your 2015 compliance checklist.
