VA Establishes New Rule for Reporting VA Debts to Consumer Reporting Agencies

Makedah Salmond is the director for the Veterans Assistance Project.

The Department of Veterans Affairs (VA) published a final rule in the Federal Register amending VA’s procedures for reporting benefits and medical debt to consumer reporting agencies, effective March 4, 2022. “Reporting debt to consumer reporting agencies impacts credit worthiness and negative reports may cause financial distress for Veterans,” said VA Secretary Denis McDonough in a recent press release. “Late remittance or nonpayment can lead to debt collection. However, overpayment of benefits funds is often debt accrued through no fault to the Veteran.”

Previously, roughly 530,000 VA debts were reported annually to Consumer Reporting Agencies (CRA), with approximately 60,000 delinquent VA debts. As noted by the rule, debts arising from a benefit administered by the Under Secretary for Benefits or the Under Secretary for Health may result from a variety of scenarios. For example, unexpected medical debts can throw a family into an immediate financial crisis. The issue is compounded when veterans cannot pay for essential expenses and the debt is then reported to credit bureaus. In some cases, medical debts result from payment delays due to billing or insurance disputes and consumer confusion, and through no fault of the veteran. Among other barriers, reporting such debt to the CRAs limits veterans’ ability to secure employment, obtain security clearances, and realize opportunities to buy or rent a home.

Under these new amendments, the VA will not issue reports to CRAs until all available collection efforts are exhausted and the specified debt becomes classified as not collectible. While the current rule is intended to help veterans experiencing financial hardship, the minimum threshold prescribed is extremely low and it is difficult to conceive that there will be a significant reduction in debt reported to CRAs. (For example, there is an established minimum threshold of over $25.00 for a debt arising from a benefit or medical debt that will be reported to consumer reporting agencies.) Thus, while the VA has taken an important step in acknowledging the detrimental impact debt accumulation has on the lives of veterans and their families, much remains to be done to support the veteran community such as increasing the minimum threshold.

The change in this rule and the conversations that have sparked as a result, come at a crucial time for veterans as the VA has resumed debt collection as of October 1, 2021. Relief options for veterans currently include repayment plans, waivers, and temporary hardship suspension. Notably, the VA will continue to report any debt incurred by individuals who have committed fraud, misrepresentation or bad faith.

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