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Prepared Remarks of Seth Frotman, General Counsel and Senior Advisor to the Director, at New Jersey Citizen Action Education Fund’s 14th Annual Financial Justice Summit

Lessons Learned: The Need for State and Federal Cooperation on Medical Debt

Thank you so much for inviting me today. I think this might be the fourth or fifth time I have had the privilege of speaking at this wonderful event. It’s always great to be back home in New Jersey to see what you guys have been able to accomplish over all these years.

New Jersey has made great progress on a range of crucial consumer protection issues, from last year’s legislation providing important protections against predatory lending by for-profit schools to building momentum on basic debt collection standards to fighting off efforts to allow problematic earned wage access products. And I know so much of that is because of the tireless work of New Jersey Citizen Action, including Phyllis Salowe-Kay, Dena Mottola Jaborska, Maura Collinsgru, and Beverly Brown Ruggia.

First, I want to address the case involving the CFPB that was argued in the Supreme Court yesterday down in Washington. Here is what I will say about that:

  • This is not the first time the CFPB has faced challenges to our important work in the Supreme Court. And I am very proud that the Bureau and its staff have not let these challenges deter us from rigorously pursuing the critically important mission Congress gave us – to protect the hundreds of millions of Americans that rely on the market for consumer financial products and services. You can rest assured that in the months and years ahead, under Director Chopra’s watch that will continue to be the case.
  • As some of you may have heard me say before, most people – like those I grew up with just down the road from here – aren’t putting a roof over their head or sending their kids to school with the change underneath their couch cushions. They rely on credit. They need well-functioning credit markets in which they’re treated fairly.
  • And the CFPB has their back. Since the Bureau opened its doors just over a decade ago, our enforcement actions have gotten back nearly nineteen billion dollars for almost two hundred million people. And during Director Chopra’s tenure alone, CFPB enforcement actions have resulted in more than seven and a half billion dollars in consumer relief and penalties for more than twenty million Americans.
  • Since the Bureau’s creation, we have also made progress on a number of crucially important issues that affect people’s lives, from helping clean up a mortgage market that crashed the global economy; to cracking down on junk fees that cost consumers tens of billions of dollars per year; to highlighting breakdowns in the student loan market that has resulted in relief for millions of borrowers. And we’ve given more than four million people a voice to address their problems through consumer complaints.
  • Yet in many ways, we are just getting started. We are working now to provide consumers relief from billions of dollars in credit card late fees that they pay due to an outdated regulation and, as I will discuss today, to address problems in the terribly broken credit reporting system, including beginning the process of taking medical bills off consumers’ reports. I could go on and on, and I look forward to coming back in the years ahead to report on our progress.

The Impact of Medical Debt

Today, I’ll spend most of my time talking about the impact medical bills are having on millions of families across this country. And most importantly, how the CFPB and the rest of the federal government is working – and must continue to work – with states on this crucially important issue.

So here is what we know. Recent research from the Kaiser Family Foundation indicates that, in the past five years, more than half of American adults report that they've gone into debt because of medical or dental bills. A quarter of those owe more than five thousand dollars, and one in five don't expect to ever be able to pay it off. Two-thirds of people with unpaid medical bills report putting off necessary medical care for themselves or a family member because of the cost, and one in seven has been denied access to care.

The last few times I have been here, it has been to talk about the problems borrowers face in the student loan market. And in too many ways, the problems with medical debt are all too similar. Millions upon millions of American families are unfairly burdened. We know that two-thirds of medical debts are the result of a one-time or short-term medical expense arising from an acute medical need. It is simply wrong for families to be forced into crippling debt just because their kid gets sick, they get into a car accident, or a member of the family is diagnosed with cancer. And that burden is made exponentially worse by exploitative market practices.

There’s a lot of work to be done, and with so many problems on so many levels, we are going to have to work together. We are well aware that Washington has too often ignored, or even impeded, efforts at the state level to sound the alarm and combat the most pressing consumer protection challenges facing our country. Research has shown that when Washington regulators blocked state efforts to curb abuses in the housing market, it contributed to the 2008 financial crisis. We are committed now not only to avoiding that same mistake, but to really take the opposite approach with respect to emerging challenges – working side by side with states to make the biggest possible impact.

And that is going to be what it takes to help the millions of people struggling with medical bills. We need to understand and leverage our unique tools and authorities, together, to help those who are facing this tremendous problem in New Jersey and across the country. So today I am going to talk about just a few areas where I think working together on medical debt can make a real difference in people’s lives.

Medical Bills Not Actually Owed

We all know that healthcare is expensive, but the CFPB has deep concerns that families are being saddled with medical bills that they should not – or do not – owe. For example, federal law and the law of many states require non-profit hospitals to have financial assistance programs for people who cannot afford to pay, and require hospitals to let people know about these programs. But too often we have seen this to be an empty promise. We are very concerned that many patients have trouble navigating and accessing these programs. This is often due to their complexity, a lack of clear and specific guidance from medical providers, and even the outright steering of consumers away from financial assistance. For instance, we have heard that some hospitals have financial assistance programs with documentation or other requirements that are at least very burdensome and at worst outright unrealistic for families. Moreover, we have heard that many hospitals train their employees poorly on these programs, and in turn employees then demand more documentation from patients than is really required or reject documents that the hospitals officially accept. In severe cases, we have heard reports that hospital employees may lie to – or at least mislead – patients about the existence of these programs and people’s eligibility for them. For example, we have heard reports about hospital employees giving people forms to apply for a loan or credit card when they ask for financial assistance. And all too often, the resulting bills end up in debt collection and credit reporting that we see at the CFPB in consumer complaints.

On this issue, states have stepped up. I would flag – in particular – actions by the Attorneys General of California, Minnesota, and Washington State, based on the strong laws in those states, alleging that certain medical providers have failed to make charity care accessible to their patients. And the federal government is now closely examining its authorities in this area. The CFPB, Department of Health and Human Services, and Department of Treasury recently solicited comments from the public on issues involving medical loans and other payment products, including whether these products are interfering with the availability of financial assistance for patients. We are reviewing those comments, and I am hopeful that the agencies will be able to close loopholes and take other action to enable patients to access the financial assistance that non-profit hospitals are required to make available.

We also know that errors in medical billing are common. Consumers have told the CFPB that, among those with medical debt, more than four in ten received an inaccurate bill, and nearly seven in ten were asked to pay a bill that should have been covered by insurance. We see these issues across all demographics, including in groups that we tend to think of as having excellent healthcare coverage, such as military families and older adults. The CFPB’s Office of Servicemember Affairs has found that many servicemembers and their families have received unexpected medical bills after finding out that healthcare providers didn’t process claims through TRICARE, the military's insurance. Providers also do not consistently handle the claims process appropriately for older adults who have multiple sources of coverage, resulting in older Americans receiving bills they should not owe.

These problems are then exacerbated when we see debt collectors chasing people for medical bills with little basis to believe that they are collecting the right amount. Medical providers often send unpaid accounts to third-party debt collectors with little or no supporting documentation or access to providers’ records. We also know that patients and their families looking at a bill for medical services can have trouble identifying whether the bill is actually for the services they received and in the right amount. This presents a substantial opportunity for abuse by unscrupulous collectors who contact consumers about debts without knowing they are valid and accurate.

Indeed, the CFPB recently ordered a medical debt collector to pay redress to consumers and more than a million dollars in penalties because the collector continued to collect on debts without verifying that they were valid after consumers disputed them. We know that there is a lot more to be done, and I want to highlight for you that the CFPB is eager to partner with states to help clean up the many abuses in this space.

Medical Financial Products

Another area of growing concern with respect to medical debt is medical financial products. This includes special-purpose credit cards and installment loans used to cover the cost of medical treatment. While these products may promise increased access to care and convenient payment plans, as well as administrative ease for medical providers, the CFPB’s research indicates that in many cases, patients who use these products end up worse off.

Our research shows that these payment products have less favorable terms than your average credit card and can land patients with significant amounts of deferred interest. The cost associated with deferred interest products isn’t something that’s fair or transparent – consumers may not understand that “deferred interest” means that a big chunk of interest comes due after six months or a year even if the consumer has been making on-time payments all along. Interest and fees for these products can also be high. The typical medical credit card has an interest rate of 27 percent – substantially higher than the average credit card. And the Bureau has found that over a three-year period, patients paid a billion dollars in deferred interest on medical credit cards.

Moreover, most consumers who enroll in medical payment products do so at a medical provider’s location. These products may appear to be a way to pay for medical services that would otherwise be unaffordable, such as procedures not fully covered by insurance. However, we have heard troubling accounts of medical providers steering patients to these products so that they will buy more and more expensive services. But if providers enroll patients in medical payment products, people may miss opportunities to have insurance pay for what would be covered or to apply for financial assistance. The promotion of these high-cost products – instead of more affordable options – ultimately drives up health care costs and medical debt.

Again, this is an area where states have taken the lead. California, for example, has a law that, among other things, sets limits on deferred interest medical payment products.

The Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices also applies to those who offer or provide medical payment products such as medical credit cards or installment loans, as well as to those who provide a material service to those who offer or provide such products. The complaints that the CFPB has received raise concerns about possible violations of this prohibition with respect to the steering of people toward medical payment products. The CFPB as well as states can enforce this prohibition.

Credit Reporting of Unpaid Medical Bills

Finally, though the issues that consumers face with respect to medical billing are bad enough, we cannot talk about medical bills without talking about how they affect people’s credit. When a consumer has a medical debt, it’s not just that debt that hangs over their head. To add insult to injury, debt collectors often provide this information to credit bureaus, where it then appears on peoples’ credit reports, affecting their ability to get a loan or even a job or housing. In this situation, when the consumer needs to apply for a loan or a job, they have a strong incentive to pay the medical bill, even when they think it’s not the right amount or don’t owe it at all.

There are a multitude of problems here, but I will flag just two that are interrelated. First, a growing body of evidence makes clear that a person’s history with respect to medical bills does not actually shed very much light on whether they will pay other bills. The CFPB has put out research demonstrating what so many already know – getting an unexpected medical bill and struggling to pay it doesn’t mean you won’t pay back your car loan or credit card. So having medical debt simply does not do a very good job of predicting repayment risk on other loans. Yet un-useful information about medical bills nonetheless often makes its way onto consumers’ credit reports.

In fact, industry has acknowledged many of these facts, and we have made some real progress. In April 2023, the three largest credit reporting agencies removed medical bills under five hundred dollars from credit reports. They have also removed paid medical bills from credit reports and medical bills that are less than a year old. These changes eliminated medical collection tradelines for two-thirds of the people that previously had medical debt on their credit reports.

And in 2022, the U.S. Department of Veterans Affairs also stopped reporting medical debt to consumer reporting agencies until after all other collection attempts had been exhausted and the VA has determined that the consumer is not entitled to free medical care from the VA. This helped to reduce the amount of unfavorable debt the VA reports to consumer reporting agencies by 99%. I’d flag this as a possible model for states that are considering steps with respect to their hospitals.

That takes me to my second point about the credit reporting of medical bills. We are very concerned that the credit reporting of medical bills is being used inappropriately as a debt collection tool. I believe that it is appropriate for lenders to use credit reports when they are assessing a consumer’s ability to repay a loan. But it’s something else entirely – and quite problematic – when credit reporting is used as a coercive tool by the debt collection industry to get people to pay bills. We believe this is a deliberate misuse of the credit reporting system, which is supposed to be used to assess credit risk, not as a debt collection tool.

On this issue, we have seen the lawyers and the lobbyists say the quiet part out loud. In DC as well as in statehouses and court rooms, whenever people talk about removing medical bills from credit reports, we have heard complaints that this will stop people from paying. This is actually the centerpiece of a recent class-action lawsuit brought by a medical provider that is trying to force the credit bureaus to resume reporting medical debts less than five hundred dollars.

I can assure you: debt collectors have ample legal remedies to collect legitimate medical bills without resorting to coercive credit reporting that affects everything from a consumer’s ability to get a job to renting an apartment to getting a car loan. The purpose of the credit reporting system was never to coerce consumers to pay bills they may not even owe. Indeed, including this un-useful data on credit reports actually hurts legitimate users of the system.

That is why the CFPB recently announced a proposal that would prohibit the credit bureaus from including medical debts and collection information on consumer reports that creditors use in making underwriting decisions. Yet I would flag for you the many ways that the CFPB is working alongside states who have taken the lead on this issue. For example, Colorado recently became the first state in the nation to prohibit medical bills from being included on credit reports. The New York legislature has passed similar important legislation, which is pending with the Governor, to protect consumers from having this unhelpful information reported to credit bureaus or appear on credit reports. This builds on the work of other states across the country – from Maine to Texas to Nevada – to delay the reporting of medical bills until consumers have a fair opportunity to pay them or contest them where appropriate.

Indeed, the CFPB has put out guidance making clear – as upheld by two different federal Circuit courts – that states have substantial flexibility to pass laws involving consumer reporting to reflect emerging problems affecting their local economies and citizens. Our guidance indicates that states may prohibit consumer reporting agencies – and those who provide information to them – from including information about medical debt on credit reports, or at least from including such information for a period of time.

I would encourage lawmakers to look at the legislation in Colorado and New York as an example of the important role that states can play on this issue. As we have seen in so many other contexts, strong state action provides essential support for federal policymaking.


In closing, I believe that the state of New Jersey is lucky for such fierce and brilliant advocates and stakeholders working to move the ball forward on critically important consumer protection issues. I hope I have given a sense of just how much there is to be done with respect to medical debt and the urgency of our working together. Thank you.