New CFPB Paper Highlights Unfair Reporting of Medical Debt


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By Consumers Union on Wednesday, May 21st, 2014

Do you think that your medical bills are calculated fairly in your credit score? New research from the Consumer Financial Protection Bureau (CFPB) suggests that they’re not. The CFPB’s new report reveals that the way medical debt is currently calculated in credit scores does not accurately represent consumers’ creditworthiness.

Medical debt has become a significant problem for consumers seeking to maintain good credit. Healthcare providers such as hospitals often send unpaid bills directly into collections, which are then reported to the credit bureaus – even though many of those bills reflect a billing error or misunderstanding. The Federal Reserve Board estimates that over half of the reported items in collections are medical debts.

Medical debt is typically calculated in a credit score just like any other type of debt. And paying off a medical debt in collections likely won’t improve a consumer’s credit score.

But the CFPB’s research shows that medical debt shouldn’t be considered the same as other types of debts, and that credit scores inaccurately depict the creditworthiness of consumers who have medical debt in collections. It indicates that consumers who had more medical debt than other types of debt in collections had similar credit behavior to consumers whose scores were around 10 points higher. And consumers who had more paid off medical debt than unpaid had similar credit behavior to consumers with scores up to 22 points higher.

Many consumers have told us that medical debt has unfairly affected their credit scores. For example, Phyllis from Maine wrote:

“Had a near perfect credit score, had paid off 5 mortgages and 6 car loans. Am solid wage earner, pay my bills, am pretty debt free. My credit score was dropped 100 points by a report of collections over a medical bill I did not know I had. I had changed health insurance plans and initially thought the problem was billing to the wrong plan. When I figured out about the due amount was legitimate – I paid the bill. The collections agency refused to remove the collections report from my credit report . . .”

As we show in our recent policy brief, fair, accurate credit scoring is especially important because credit card companies, mortgage and other lenders, and in many states, homeowner and auto insurers, look at scores while making important financial decisions about consumers. And medical debt can have a devastating effect on a consumer’s creditworthiness.

Consumers Union believes that paid or settled medical debts should be removed from consumers’ credit reports within 45 days. That’s why we strongly support legislation now pending in Congress, the Medical Debt Responsibility Act of 2013, which would guarantee this important step for consumers. Please help us support this bill by sharing your medical debt story with us today!

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