Even with the Affordable Care Act (ACA), which has helped many uninsured Americans get health insurance, medical debt is still the most common type of debt that goes into collection. It also shows up on credit reports, which can affect virtually every aspect of a person’s life.
According to the Consumer Financial Protection Bureau (CFPB), it accounts for over half (58%) of all third-party debt on Americans’ credit reports. The CFPB also notes that 20% of Americans have some medical debt collection on their credit reports. That’s despite the fact that the three credit reporting companies limit that reporting to amounts of $500 and over.
The chief damage that this debt-related information does is drag down credit scores. As Vice President Kamala Harris noted, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.”
Inaccuracies are rampant in medical bills
Some of it isn’t even accurate. It’s been estimated that a whopping 80% of medical bills contain errors. The CFPB’s Director Rohit Chopra says, “These bills, even ones where the patient doesn’t owe anything further, can end up being reported on the patient’s credit report, and millions of people have spent millions of hours disputing these errors, often while dealing with serious illness.” Further, the CFPB has found that medical debt isn’t an accurate predictor of whether a person is a good credit risk. Therefore, it’s not helpful for underwriting purposes.
The proposed rules
The Biden administration has tasked the CFPB with doing something about it. The CFPB has announced proposed rules for prohibiting credit reporting agencies from including any medical debt or collections on that debt in reports used by lenders for underwriting considerations. In announcing the proposed rules, the CFPB noted that with medical debt no longer on credit reports or used to make underwriting decisions, “debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.”
Since these the federal government’s rulemaking process takes considerable time, there won’t be a final rule until later this year. In the meantime, if you’re dealing with overwhelming medical debt that’s impacting your financial health (and likely not helping your physical or mental health), seeking legal guidance can help you find the right path forward for you.
