Debt Collections Fell 33% Over Last Four Years, CFPB Says

Consumer debt collections fell by a third between 2018 and 2022, a sign that Americans' household finances are getting stronger, the Consumer Financial Protection Bureau said Tuesday.

The share of consumers with a collection tradeline on their credit report decreased by 20% over the same four years, the CFPB said. A collection tradeline is an item on a consumer’s credit report that includes information about that person’s allegedly unpaid bills. According to the CFPB, 57% of all collections on credit reports from 2018 to 2022 were medical collections. 

The report comes after the Federal Reserve said new consumer credit card debt fell dramatically in December from the previous month, dropping to $11.6 billion from $33.1 billion.

Revolving debt, like credit cards, fell to $7.2 billion in December from $15.2 billion the previous month, the Federal Reserve said, while nonrevolving debt fell to $4.4 billion from $17.8 billion. 

While the CFPB said the report shows improving conditions for the average American household, a decrease in collections tradelines doesn't necessarily mean fewer people are experiencing debt troubles. 

“The decline in collections tradelines does not necessarily reflect a decline in debt collection activity, nor an improvement in families’ abilities to meet their financial obligations, but a choice by debt collectors and others to report fewer collections tradelines while still conducting other collection activities,” the report said.

The decline is driven by contingency fee-based debt collectors, who were responsible for 28% fewer tradelines in the first quarter of 2022 compared with the same period in 2018. At the same time, debt buyers increased the number of collections tradelines they pursued by 9%.

Industry consolidation is another piece of that puzzle, CFPB said. Higher dispute rates on collection tradelines also contribute to the push away from providing collections. The bureau said that most collections are for low-balance, non-financial accounts, with the median balance being $382. Three-quarters of the collections were for items like medical debt, utilities, telecommunications, and rental or lease obligations. 

Medical expenses make up majority of all collections

Medical expenses dominate collections, the CFPB said, accounting for 57% of all tradelines from 2018 to 2022. Changes to medical collection reporting are ongoing, after groups like Equifax, Experian, and TransUnion said they would remove balances of less than $500 and paid medical collections tradelines from consumer credit reports.

“While this will reduce the total number of medical collections tradelines, an estimated half of all consumers with medical collections tradelines 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,” the CFPB said.