New CFPB Report Reveals That 1 in 4 Have a Third-Party Debt Collection on Their Credit Report

Inside Subprime: September 3, 2019

By Jessica Easto

A new report by the Consumer Finance Protection Bureau (CFPB) reveals that, of those with a credit report, more than one in four consumers have at least one bill in collections by a third-party debt collector.

A third-party debt collector is a collection agency that is hired by the original creditor to collect or attempt to collect debts owed to the creditor. For example, if someone’s medical bill goes “into collections,” that means a business other than the medical provider takes over trying to settle the debt.

In some cases, original creditors sell debts to third-party debt collectors instead of either trying to settle debts on their own or hiring a third-party to collect on their behalf. Usually the debt is sold for a fraction of what is owed, but the debt collectors who buy it still try to collect for the original amount owed.

The report was drawn from data collected by the Bureau’s Consumer Credit Panel (CCP) from 2004 to 2018. According to the CFPB, the dataset is a “nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies.” About 900 third-party debt collectors provided what’s called “tradelines”—information such as an account’s balance, status, and payment history that is typically sent to credit bureaus on a monthly basis and usually informs your credit report—to the CCP.

The report found that 28 percent of those with a credit report had at least one bill in collections by a third-party debt collector and that 75 percent of the debts were non-financial debts. For instance, 58 percent were for medical debt and 20 percent were for telecommunications or utilities debt.

In the report, when one of these debt buyers reports information to a credit bureau, it’s called a “buyer tradeline.” The report found that buyer tradelines have increased over the last 15 years, but the number of individual reporters has decreased. The report also found that debt buyers tend to report more than non-buyers. In the second quarter of 2018, the four largest debt buyers reported 90 percent of buyer tradelines but the four largest non-buyers reported only 13 percent of non-buyer tradelines.

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