CFPB Targets Medical Debt — That Could Increase the Cost of Healthcare

The Consumer Financial Protection Bureau’s (CFPB) rules that seek to remove medical debt from credit reports and cap card late fees are proving wildly popular with the general public.

But there may be unintended consequences — upending the ways in which providers and patients interact and upending credit access in general.

The rules have yet to be the law of the land, so to speak — indeed, the credit card late fee shift is still winding its way through the courts — and the ripple effects will take time to play out.

But for at least some consumers, we may see a disincentive to keep payments timely … with significant consequences to healthcare practitioners and card-issuing financial institutions (FIs).

Most recently, and as reported earlier this month, the CFPB introduced a new rule that would stop credit reporting companies from sharing medical debts with lenders and prohibit card issuers and other lenders from making decisions based on medical information.

“We expect that Americans with medical debt on their credit reports will see their credit scores rise by 20 points, on average, if today’s proposed rule is finalized,” the CFPB said — and the implication is that more credit (and even mortgages) would be extended to more consumers as the $88 billion in medical debt would disappear from those reports.

Among the critics of the proposal, Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, said stripping medical debt from credit reports “will have a negative impact on our credit and healthcare systems,” adding, “It is badly misguided to remove consequences for consumers who do not pay a debt by wiping out an entire category of debt from credit reports.”

What Happens Next?

What might happen with the card companies (should the cap at $8 in late fees become a reality) may be instructive as a read across to some possibilities in the health care arena. Companies such as Synchrony and Bread Financial have boosted fees in some areas, and interest rates on some lending products including credit cards, to offset the impact of losing late-fee-based income.

The larger question may be whether consumers have less incentive to make timely payments — where, arguably, an $8 fee might be viewed as an “affordable” penalty for revolving debt. None of this is to say that consumers don’t run into real crises that demand at least some juggling of revolving debt. PYMNTS Intelligence estimated that high-debt consumers with overdue payments are late on 14 payments, on average, across their credit products, whereas low-debt consumers average seven late payments. Reducing the fee income, with some attendant fraying of credit metrics at the edges, may wind up making credit more expensive for other borrowers.

As far back as 2021, in the darkest days of the pandemic, we noted that out-of-pocket expenses for medical care were increasing at a double-digit percentage point rate, with unpaid medical debt at $140 billion. Might it be the case that at least some consumers could conceivably opt to get care, but not pay for it on a timely basis, or at all, with the knowledge that the ultimate impact will not extend to their credit scores? For the providers, there may be the incentive to demand payment upfront, or to work more closely with consumers on installment plans that are auto debited from accounts. Or perhaps they might lessen their acceptance on credit cards, overall, winnowing down at least one payment option for patients.