The Consumer Financial Protection Bureau outlined proposed rules to eliminate medical debt’s impact on credit reports. Under the new rules, unpaid medical bills may no longer affect patients’ credit scores.
According to the CFPB, 20% of Americans carry medical debt on their credit reports. Medical debt can trap certain consumers in a cycle of debt, limiting housing, loan, and credit card choices.
Vice President Harris highlights credit scores’ crucial role
Vice President Kamala Harris emphasized that credit scores impact economic well-being, influencing homebuying, car purchases, renting, and small business ownership.
As stated by Vice President Harris, credit scores play a pivotal role in determining one’s ability to access economic opportunities. Medical debt ranks as the primary debt in collections, making up 58% of third-party debt on credit reports, as per the CFPB.
Navigating high medical bills and their impact
Sudden and unforeseen medical bills can reach significant amounts, sometimes exceeding $1,000. While these costs are sometimes inevitable, there are measures you can take. You can inquire with healthcare providers or your insurance company to prevent excessive charges or unmanageable bills.
As of June 2021, the Consumer Financial Protection Bureau reported that approximately $88 billion in unpaid medical bills were documented on individuals’ credit records.
This substantial medical debt burden affects one out of every five Americans. It’s important to note that this figure is likely underestimated, as not all medical debt is reported to credit agencies.
Medical debt has a widespread impact, with certain demographics experiencing a more pronounced effect. This includes young adults, individuals with lower incomes, Black and Hispanic communities, veterans, and older adults who bear a disproportionate burden of medical debt.
Addressing medical billing errors and credit reporting
The intricacies of medical billing increase the likelihood of errors, with estimates suggesting errors in up to 80% of medical bills. According to Rohit Chopra, reporting these bills on patients’ credit reports can occur even when no further payment is required.
Millions of people have grappled with the burden of disputing these errors, often while managing severe health issues, as highlighted by the CFPB Director.
The CFPB proposed rules to bar consumer reporting companies like Equifax, TransUnion, and Experian from featuring medical debts and collections in credit reports.
CFPB pushes for mandatory inclusion of medical debt in credit reporting changes
Starting in July 2022, these firms stopped including medical debt under $500 in collections on credit reports. The new regulations seek to make this voluntary practice mandatory and encompass all medical debt.
The agency aims to prevent creditors from using medical bills in underwriting decisions, ensuring only non-medical data informs borrowers’ loan applications.
Vantage Score excludes medical debt and collections from its credit score calculation, while recent FICO models reduce their significance.
Rohit Chopra questions medical bill data use in credit reporting
Given its poor risk prediction, Rohit Chopra questioned the necessity of creditors accessing medical bill data. He also challenged the use of credit reports by debt collectors to pressure individuals into settling disputed medical bills.
Given their limited predictive value, Chopra raised the issue of why creditors should have access to medical bills.
CFPB officials project that they will formally announce a rule sometime next year, recognizing the time involved in rulemaking.
Divided opinions on CFPB’s medical debt reporting changes
Scott Purcell, CEO of ACA International, expressed concern that the CFPB and the White House are neglecting potential repercussions.
He stated that it’s unfortunate they aren’t considering the broader consequences of singling out medical providers in billing.
But the announcement received praise from Senator Elizabeth Warren, a strong supporter of the CFPB.
Senator Warren stated that Vice President Harris is spearheading efforts to reduce expenses for diligent citizens.
She emphasized that no one should suffer credit damage due to medical crises. She praised the CFPB for saving Americans money.