Consumer agency weighs ban on medical debts in credit reports
Unpaid medical bills became a bigger concern during the pandemic, and a federal consumer agency is considering whether those debts should be banned from consumer credit reports.
Rohit Chopra, director of the Consumer Financial Protection Bureau, discussed the agency’s plans recently after pointing out new research by the bureau on medical debt and its effect on Americans.
The report found that 20% of American households say they have medical debt. It also estimated that more than half ( 58%) of the debt that appears on credit reports as being in collection stems from medical bills, a proportion that Chopra deemed “extraordinary.”
“Having a medical debt collection mark on a credit record can make it harder to get credit, rent or buy a home or find a job,” Chopra said.
Black and Hispanic people, as well as low- income and younger adults, have higher rates of medical debt than the overall population, the report noted.
As a result, the agency will be “scrutinizing” the three major credit reporting bureaus — Equifax, Experian and Transunion — and their handling of medical debt to make sure it is accurately reported in consumer files, Chopra said.
Medical debt, unlike a mortgage or car loan, is often incurred involuntarily. People get sick or are injured in accidents and may end up with a bill they cannot afford. Several prior reports, including one last year in JAMA, have suggested that medical debt is becoming even more worrisome, particularly in states that have not expanded Medicaid coverage.
Now, the bureau is being more assertive in tackling medical debt under Chopra, who was confirmed in October.
Doctors and hospitals typically do not report late payments directly to credit bureaus, but they may eventually send pastdue accounts to outside collection agencies. If patients cannot pay the bill, the bill collectors may report the debt to the credit bureaus. The debt can then tarnish patients’ credit files and potentially their credit score.
Credit reports and scores are used by lenders to determine if you qualify for a loan, and what interest rate you pay. Employers and landlords use them to screen applicants for jobs and apartments.
Of particular concern, the report said, is that collection agencies may be reporting inaccurate data to the credit bureaus. If bad data is “polluting” consumer credit reports, Chopra said, the credit bureaus should cut off the agencies furnishing the faulty information.
The bureau’s determination on whether credit bureaus should include medical debt on consumer credit reports will be based, Chopra said, on “additional research on medical billing, collections and reporting.”
Jack Brown III, a board member of ACA International, an industry group for collection companies, said in a prepared statement: “We stand with the CFPB in our desire to not have a consumer’s credit report include bills that should have been paid by insurance companies.” But, he added, the bureau’s report does not focus on what he called “significant problems” with insurance companies’ claim payment processes.
Francis Creighton, president and chief executive of the Consumer Data Industry Association, which represents credit bureaus, said banning all medical debt from credit reports could backfire because lenders need a full picture of an applicant’s credit profile. Some medical debt may not arise from emergency treatment, but from elective procedures like dental teeth whitening or cosmetic surgery, he said. “I don’t think it makes sense to eliminate all medical debt.”
Rather, Creighton said, the approach to medical billing must be streamlined. “The medical payment system is just broken,” he said.