Medical debt can impact people’s ability to borrow money or buy or rent a home.
Dreamstime
The government’s consumer watchdog has begun a process to remove medical debt from credit reports.
The Consumer Financial Protection Bureau (CFPB) announced a proposal on Thursday that would build on existing work by regulators, Congress, and others to mitigate the impact of medical debt on consumers’ financial lives. Currently, certain types of medical collections activity can no longer appear on credit reports: paid debt, debt less than one year old, and debt under $500 dollars. But larger unpaid balances can remain, hurting consumers’ ability to borrow money, rent or buy a home, and achieve other financial goals.
Nearly one in 10 adults owe medical debt over $250, according to an analysis last year by the Peterson Center on Healthcare and the Kaiser Family Foundation. As of the second quarter of 2021, 58% of bills that were in collections and on people’s credit records were medical bills, the Consumer Financial Protection Bureau found. Debt collectors contact patients and their families about medical bills more than any other type of debt, according to the agency. People with medical debt may also avoid seeking additional care, according to Rohit Chopra, director of the CFPB.
“All of this can have disastrous consequences for individuals,” Chopra told reporters on Thursday.
Yet the presence of medical debt is less indicative of a person’s overall creditworthiness than other types of consumer debt, research has shown. What’s more, medical bills are rife with errors, and even under the best circumstances it can take a long time for patients to understand their responsibility for a medical procedure or device.
If finalized, the CFPB’s initiative would remove medical bills from credit reports, stop creditors from relying on medical bills for underwriting decisions, and stop coercive collections practices.
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