The Consumer Financial Protection Bureau has found that low-income consumers are being pursued for medical debts that should have been paid for by financial assistance programs at non-profit hospitals. Rather than provide the so-called charity care that is required for hospitals to maintain their non-profit status, the medical facilities are partnering with financial institutions to offer payment products that can be pursued by debt collectors, the CFPB said.
On Thursday, the
Medical debt has become a campaign issue for Vice President Kamala Harris, who joined CFPB Director Rohit Chopra in June to announce from the White House a
The CFPB said it has received many complaints from consumers being pursued for debts that should have been paid by non-profit hospitals. To maintain their tax-exempt status, non-profit community hospitals are required under federal law to offer financial assistance to patients who may not be able to afford medical care. The criteria for financial assistance are largely determined by hospital policies with minimum requirements set by the Internal Revenue Service and state laws. The CFPB said some hospitals' policies exclude patients from getting assistance.
"Many hospitals place restrictions so that patients are ineligible if they don't have a large enough medical bill, if they have insurance, if they have already paid, if they have signed up for a medical credit card, or if they're not a resident of the area where they happen to have received emergency care," the report stated.
The CFPB said IRS rules prohibit non-profit hospitals from engaging in some of the collections activities that consumers have complained about.
"When a non-profit hospital partners with a financial institution in the offering of a medical payment product, the patient is set up to be pursued by debt collectors in ways that those hospitals are themselves prohibited from doing," the CFPB said in the 54-page report.
The CFPB cited one study that estimated non-profit hospitals' tax exemptions were worth $28 billion in 2020. Yet it found that nearly 80% of non-profit hospitals spent less on charity care and community investment than the value of their tax exemption. Some consumer advocates and policymakers have raised concerns that consumers who should be eligible for free or reduced costs are not receiving it, the bureau said.
The report to Congress also addressed complaints about rental debt, collection fees charged by landlords, and the infusion of consumer financial products into the rental market. Debt collectors often furnish rental debt to credit-reporting companies as a means of "collecting debt through coercion," the report stated.
The CFPB said some real estate companies are engaging in illegal price-fixing and are inflating rental debt by using revenue management software.
Renters and some landlords have complained to the CFPB about fees that rental payment processing companies add on as a condition for paying rent.
"It is often not clear whether these fees are allowed under the lease agreement or local law, and, thus, able to be targeted by debt collectors," the CFPB said.
Landlords and debt collectors also may be improperly charging tenants for basic repairs and routine upkeep that should be the landlord's financial responsibility and typically are not allowed under state laws. If rental bills including the unowed amounts end up in debt collection, debt collectors may be violating the Fair Debt Collection Practices Act, the CFPB said.
The CFPB said rental debt is estimated to be more than $9 billion, with over 4.5 million households behind on rent payments.
For years, the CFPB has been focused on medical-debt issues. Consumer advocates have pushed for the bureau to take medical debt off credit reports, claiming that millions of consumers are pursued for debts they don't owe or that are inaccurate. The debt-collection industry rebuts the CFPB's claims by citing the Fair Credit Reporting Act, which requires collectors verify the accuracy and validity of debts before reporting them to credit bureaus.
Banks and
"Not focusing on the root cause of the problem is not solving the problem and is actually harming the safety and soundness of community banks," said David Schroeder, senior vice president of federal governmental relations at the Community Bankers Association of Illinois, who called the CFPB's proposal "misguided and misdirected rulemaking."
Though the three major credit bureaus—Equifax, Experian and TransUnion—removed most medical debt from credit reports last year, the CFPB's research has found that 15 million Americans still had medical bills on their reports in mid-2023, a 14% drop from roughly a year earlier. The CFPB administers the Fair Debt Collection Practice Act and is the primary regulator of 6,400 collection agencies in the $20 billion-dollar industry. The CFPB's proposal would amend the Fair Credit Reporting Act.
Chopra did not comment on the report but has said that medical debts have "little predictive value in credit decisions." Last month, at a CFPB forum on medical debt, Chopra said debt collectors have repeatedly used the threat of reporting debts to the credit bureaus to force consumers to repay money they may not owe.
"The credit reporting system is being used as a weapon, rather than a tool for lenders to assess someone's likelihood to repay a loan," Chopra said in August. He said the proposed rule "would stop debt collectors from using the credit report as a cudgel to coerce consumers in bills they may not even owe, and make sure the credit reporting system doesn't just punish people for getting sick."
