A good credit history takes years to build, and can be instantly destroyed when even a modest medical co-payment bill is sent to collection. Currently, American consumers have no effective redress if a medical bill is sent to collection and reported to the credit bureaus. Even if the bill sent to collection is promptly paid, or is in dispute, it can drag down a credit score. The Fair Isaac Corporation, which produces the FICO score, has said that medical collections may lower a score by “100 points or more” for someone with a spotless credit history.
Recognizing the financial problems caused by medical bills that appear on credit reports, U.S. Senators Jeff Merkley of Oregon, Charles Schumer of New York, Robert Menendez of New Jersey and Sherrod Brown of Ohio called on the Consumer Financial Protection Bureau (CFPB) to investigate medical collections.
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At a recent hearing of the House Committee on Small Business, CFPB Director Richard Cordray made it clear that he would do so. Director Cordray was asked by Rep. Nydia Velazquez of New York whether the CFPB’s recent announcement that it would regulate credit bureaus would also include addressing medical debt on credit reports. His response revealed his intimate understanding of medical collection problems.
Cordray described delays in medical billing, insurance disputes, confusion regarding co-payment amounts, and acknowledged that it is a “hard issue” whether disputed insurance claims should be considered debt. He responded that the CFPB was “going to be overseeing and supervising the larger participants in the credit reporting industry.” Noting that the credit reporting companies keep consumer files on millions of Americans, Cordray went on to say, “We will be overseeing all of their approach to this, including medical debt.”
Quite possibly, the scrutiny of Congress and the CFPB will result in a review by the Consumer Data Industry Association of its policies and practices for reporting medical debt.
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The Senators who have called on the CFPB to investigate medical debt have also introduced legislation to address this problem. They are sponsors of The Medical Debt Responsibility Act, a proposal that would amend the Fair Credit Reporting Act and require consumer reporting agencies to remove medical accounts from credit reports within 45 days of being fully paid or settled. To repeat, only medical accounts with a zero balance due would be removed from credit reports. Similar legislation has been filed in the U.S. House with strong bi-partisan support.
This legislative proposal would help millions of Americans who are now shut out of the affordable credit market due to medical collections that inaccurately portray them as risky consumers. It has the potential to save American consumers millions in dollars due to overpriced loans; money that could stimulate the economy by being spent on consumer goods. This multi-pronged approach — legislation and CFPB oversight of industry practices — may finally crack open the black box that the Consumer Data Industry Association does not want Americans looking into. Hopefully, Congress will act to pass the Medical Debt Responsibility Act AND the CFPB will further investigate the unfair practice of penalizing American who had the misfortune of having a medical bill sent to collection. Such scrutiny of the medical debt collection problem could not come at a better time.
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Image: rosmary, via Flickr