Medical debt burdens millions and is not a reliable predictor of credit risk
WASHINGTON – Consumer Reports urged the CFPB in a letter today to adopt a proposal by the Bureau to ban the listing of medical debt on consumer’s credit reports. The CFPB’s proposed ban would benefit an estimated 15 million Americans who have $49 billion in outstanding medical bills in collections. CR’s letter to the CFPB includes a petition signed by nearly 22,000 consumers calling on the Bureau to adopt the ban and highlights the stories of consumers who have been unfairly harmed by medical debt on their credit reports.
While several states have recently passed similar bans on medical debt credit reporting, including Colorado, Connecticut, Illinois, Minnesota, New Jersey, New York, Rhode Island, and Virginia, the CFPB’s proposed rule would protect consumers throughout the country. Research has shown that medical debt on credit reports is not a good indicator of a consumer’s creditworthiness.
“Medical debt can unfairly ruin a person’s credit record and make it costly or even impossible for them to get loans or the credit they need,” said Chuck Bell, advocacy program director for Consumer Reports. “Because of our complex medical billing and insurance reimbursement system, many consumers have medical debt on their credit reports that is inaccurate, under dispute or even flat out wrong.”
Bell continued, “No one should be denied credit or charged a higher interest rate because of medical debt since it’s not a reliable predictor of credit risk. The CFPB’s proposed rule provides critical protection to consumers burdened by medical debt so that they can get the health care they need without fearing that their credit record will be ruined beyond repair.”
According to the CFPB, twenty percent of Americans have at least one medical debt collection item in their credit reports, and over half of collection items on credit reports are for medical debts. The problem disproportionately affects people of color: 28 percent of Blacks and 22 percent of Latinx people carry medical debt versus 17 percent of whites. While the national credit reporting agencies have voluntarily agreed not to report medical debt under $500, many consumers throughout the U.S. have medical debt on their credit reports higher than this threshold.
Medical billing is both confusing and difficult to navigate. Patients often receive multiple bills and insurance forms for the same visit, which are hard to decipher and interpret, especially for non-native speakers. Providers and insurers go back and forth over whether a particular treatment or service is covered and the patient is caught in the middle. Frequently, providers go ahead and send bills to collections even when they are still arguing with the insurance company over whether the service is covered.
After billing, providers or their collection agencies often send unpaid accounts to credit reporting agencies. The credit reporting agencies do not have access to provider and insurance records and make it difficult for patients to dispute the accuracy of their debt or to make corrections if there is a billing reporting error.
In addition to supporting the CFPB’s proposed ban on medical debt on credit reports, CR is joining with other consumer groups in urging the Bureau to adopt a number of other reforms:
- Extend the credit reporting ban to negative information about lending products used to pay for medical debts, especially medical credit cards;
- Address other common abuses with medical lending products, such as prohibiting deferred interest on credit cards, prohibiting issuance of medical credit cards or loans to consumers whose insurance covers a procedure or when they qualify for financial assistance, and prohibiting services from being charged to a credit card before they are tendered; and
- Extend the medical debt ban to credit reports used for employment and tenant screening.
Michael McCauley, michael.mccauley@consumer.org