CFPB Weighs Ban On Medical Debts In Credit Reports


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More than half of the debt that appears on credit reports as being in collection stems from medical bills, the agency found.

Unpaid medical bills became a bigger concern during the pandemic, and now, 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 this week after pointing out new research by the bureau on medical debt and its effect on Americans.

The report found that 20 percent of American households say they have medical debt. It also estimated that more than half (58 percent) of the debt that appears on credit reports as being in collection stems from medical bills, a proportion that Mr. 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,” Mr. Chopra said. “Families are pushed into bankruptcy by medical debts that they cannot pay.”

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, Mr. 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 can’t afford. Several prior reports, including one last year in JAMA, have suggested that medical debt is becoming even more worrisome, particularly in states that haven’t expanded Medicaid coverage.

Now, the bureau is being more assertive in tackling medical debt under Mr. Chopra, who was confirmed in October as the agency’s director.

Doctors and hospitals typically don’t report late payments directly to credit bureaus, but they may eventually send past-due accounts to outside collection agencies. If patients can’t 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, which is calculated based on information in the report.

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, Mr. 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, Mr. 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 doesn’t 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, Mr. Creighton said, the approach to medical billing must be streamlined. “The medical payment system is just broken,” he said.

Here are some questions and answers about medical debt:

You typically have more time before a delinquent medical bill ends up on your credit report than with other types of debt because medical billing is complex and often involves insurance companies. Since 2017, the credit bureaus have instructed collection agencies to wait at least 180 days — roughly six months — from the time a bill becomes delinquent before reporting it, Mr. Creighton said. (The policy stems from a legal settlement with a group of state attorneys general.)

“Don’t panic,” said Caitlin Donovan, the spokeswoman for the Patient Advocate Foundation. Begin by checking if the bill is accurate. This usually means comparing it with an “explanation of benefits” from your health insurer (if you have coverage) or contacting the provider for clarification. The so-called EOB usually states that it is “not a bill” so people sometimes ignore them. “Don’t,” Ms. Donovan said. The benefit statement is proof that your insurer has been billed and gives you information to help challenge questionable charges. In some cases, Ms. Donovan said, hospitals may mistakenly send bills directly to the patient rather than billing the insurer first.

If the bill is accurate, call the provider’s billing office and ask about monthly payment plans. Also, many hospitals have programs to help low-income people pay medical bills — but they may not mention them unless you inquire. “You have to ask,” Ms. Donovan said.

It’s also worth asking if the provider will reduce the amount of the bill in exchange for a lump-sum payment, said Chi Chi Wu, an attorney with the National Consumer Law Center. She recalled that she once called a provider to ask about a bill and, without any prompting, the billing representative offered a 25 percent discount if she paid in full immediately.

Try to exhaust other options and negotiate the lowest bill possible before putting the balance on a credit card, consumer advocates say. Paying medical bills with a credit card and then failing to pay may be worse for your credit than not paying the bill in the first place. That’s because the latest versions of both the FICO and VantageScore credit scores ignore reports of medical debt that has already been paid and limit the effect of medical debt that remains unpaid, Ms. Wu said. Be aware, however, that not all lenders use the updated credit scoring systems, she said. Mortgage lenders, in particular, may use older versions that don’t treat medical debt differently.

And, Ms. Wu said, some credit score users, like employers and landlords, may look at your full credit report, not just your score. So medical debt can still cause problems, even if it’s not reflected in your credit score.

A law called the No Surprises Act, which took effect in January, put in place new consumer protections against surprise medical bills. Surprise bills may come when patients inadvertently get care from emergency rooms and doctors outside of their insurance plan’s network. (This happens in about one in five emergency room visits, according to an analysis by the Kaiser Family Foundation and the Peterson Center on Healthcare.) The federal government estimates that the law will apply to about 10 million out-of-network surprise bills a year.