ICYMI — Consumer Protection News: Credit-Reporting Agencies to Improve Medical Debt Policies

WASHINGTON, D.C. — In Case You Missed It: This month brought big news for consumers, with credit-reporting agencies agreeing to major changes in how they treat medical debt.

The three big credit-reporting agencies, Equifax, Experian, and TransUnion, will now have to wait 180 days before adding medical debt to a credit report. They have also agreed to promptly remove medical debts after they are paid by insurance companies.

Oregon’s Senator Jeff Merkley has been a congressional leader in pushing for pro-consumer changes to how medical debt impacts credit reports and credit scores. He was the lead sponsor of the Medical Debt Responsibility Act, which would prohibit paid off or settled medical debt collections from being used in assessing a consumer’s creditworthiness, in the 112th and 113th Congresses.

Medical debt is different from other types of debt. For one thing, unlike other types of debt that consumers willingly take on, no one chooses to incur debt due to an unexpected accident or illness. Additionally, due to byzantine medical billing systems and the often confusing and bureaucratic process of determining which charges should be paid by insurance, medical debts are often sent to collections before the consumer realizes he or she owes that money.

Because of the unusual nature of medical debt and the fact that consumers rarely make a conscious decision to take it on, it is not an accurate predictor of creditworthiness. A 2014 Consumer Financial Protection Bureau (CFPB) report found that medical debt was less predictive of consumers’ future behavior than other types of debts.

More than half of all debts on credit reports are medical, and having a delinquent debt on your credit report – even one that has since been paid off – can seriously damage your credit score for up to seven years. This can make it more difficult or costly for consumers to obtain credit cards or to buy a home or a car, even if they may not have realized they owed any money until the point when they went to check their credit report to apply for a loan.

“These new, pro-consumer changes to medical debt reporting are a great step forward,” said Merkley. “No one should have to pay more on their credit card or their home loan just because they had the bad luck to need medical care. While these changes are a big move in the right direction, there is still more work to be done to ensure that consumers don’t face seven-year black marks on their credit scores for debts they may not have even known about. In particular, it makes no sense to have a debt removed from a credit report if it’s paid by insurance, but not by the consumer. This prevents responsible consumers from being in control of their own credit scores, and leaves them no recourse in a situation where an insurance co-pay has been sent to collections without the consumer’s knowledge. I’ll keep pressing both Congress and the CFPB to do everything they can to take the headaches out of the system and make it fairer and more accurate for consumers and lenders alike.”

Merkley is the leading Democrat on the Senate Financial Institutions and Consumer Protection Subcommittee.