Medical collections a majority of all collections despite wider overall decline

A report from the Consumer Financial Protection Bureau examining trends of credit reporting of debt collections from 2018 to 2022 found the total number of collections declined by 33%. However, medical debt continues to be a problem, as it constitutes the majority of all collections on consumer credit reports, even though the number of people with medical debt on their reports fell 18% in the analyzed time period.

Medical collections represent 57% of all collections, despite the wider decline. Upcoming changes to medical collections reporting will remove smaller amounts (debts less than $500) and paid medical collections from consumer credit reports.

The CFPB says this move will reduced the total number of medical collections, but an estimated half of all consumers with medical collections will still have them on their credit reports, with the larger collection amounts – representing a majority of the outstanding dollar amount of medical collections – remaining on credit reports.

“Our analysis of credit reports provides yet another indicator that, due to a strong labor market and emergency programs during the pandemic, household financial distress reduced over the last two years,” said CFPB Director Rohit Chopra, in a statement. “However, false and inaccurate medical debt on credit reports continues to be a drag on household financial health.”

The decline in collections tradelines was driven by fewer reports by contingency-fee-based debt collectors, who primarily collect on medical bills, according to the CFPB. Contingency-fee-based debt collectors reported 38% fewer collections tradelines from Q1 2018 to Q1 2022, while the number of collections reported by the subset of debt buyers increased by 9% over the same period. The number of unique contingency-fee-based debt collectors also declined by 18% (from 815 to 672). Medical bills account for 68.9% of furnished collections by contingency-fee-based debt collectors.

Collections tradelines are furnished to credit reporting companies by third-party debt collectors. Commonly reported collection items include medical, rental and leasing, credit card, and utility accounts. Unlike most other tradelines, debt collection tradelines rarely report positive information like on-time payments, and result in reporting of collections tradelines being almost entirely harmful to consumers. Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks. Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful.