CFPB Considers Ban on Medical Debt in Credit Reports

Medical Debt Shows Up Less Often on Credit Reports

Recent data reveals a significant drop in the number of Americans with unpaid medical bills affecting their credit files. This follows changes in reporting practices by major credit reporting agencies Equifax, Experian, and TransUnion.

A Closer Look at the Changes

In the past two years, changes were made in how medical debt was reported, resulting in a decrease in the share of Americans with unpaid medical bills in their credit files. Despite these changes, the Consumer Financial Protection Bureau (CFPB) reports that approximately 15 million people, predominantly low-income individuals and those residing in the South, still have medical bills on their credit reports. This necessitates further reforms to eliminate medical debt from credit histories, with a potential rule to ban medical debt from consumer credit files under consideration.

Impact of Unpaid Medical Bills on Credit Reports

Having unpaid medical bills on your credit report can hamper your ability to qualify for loans and credit cards, secure cellphone service, rent an apartment, or even secure a job. This is because landlords and employers often check applicants’ credit history. Despite this, the CFPB’s research suggests that medical debt is a less reliable measure of a borrower’s creditworthiness than other types of debt. This is largely due to the complexities of the American health care system and the frequent inaccuracies associated with medical collection debt.

Recent Positive Developments

In 2022, under scrutiny from the CFPB, the three major credit reporting agencies voluntarily adopted changes in how medical bills were included in credit files. Consequently, the percentage of Americans with unpaid medical bills on their credit reports dropped from 14 percent in March 2022 to 5 percent in June of the same year. Older Americans benefited the most from these changes.

Remaining Medical Bills and Credit Reports

However, medical bills that remain on credit reports are now larger on average than they used to be. Given that smaller debts have been eliminated from reports, the average debt has risen to more than $3,000 from $2,000. The reporting of these larger debts is seen as essential by the credit bureaus, as lenders should be aware of significant medical debt when assessing risk.

Removing Medical Debt from Credit Reports Doesn’t Eliminate It

It’s important to note that removing medical debt from credit reports doesn’t erase the debt. In most states, hospitals and medical providers can still take patients to court to collect it. Moreover, this could lead to unintended consequences such as healthcare providers demanding payment upfront for services or increasing their promotion of medical credit cards that add interest costs to patients’ bills.

Final Thoughts

While there have been positive strides in reducing the impact of medical debt on credit reports, there is still a long way to go. It’s crucial for consumers to regularly check their credit reports for inaccuracies and dispute any errors. This will ensure their creditworthiness is accurately represented, helping them secure financing when needed. Additionally, further reforms are necessary to completely eliminate medical debt from credit histories, thus creating a fairer and more accurate credit system.