The Consumer Financial Protection Bureau today announced it was beginning the rulemaking process to remove medical debts from consumers’ credit reports, removing the “leverage” that debt collectors use to “pressure” consumers into repaying unpaid medical debts.
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Read a copy of the outlined proposals by clicking here.
“Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports,” said CFPB Director Rohit Chopra. “When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”
This is the latest in a series of steps that have been taken to limit how medical debts appear on credit reports. State legislatures and the credit reporting agencies have each taken steps and the CFPB has made numerous comments about its feelings on whether credit reports should include medical debt information on them.
Among the proposals included in today’s outline are:
- Remove medical bills from consumers’ credit reports: Consumer reporting companies would be prohibited from including medical debts and collection information on consumer reports that creditors use in making underwriting decisions.
- Stop creditors from relying on medical bills for underwriting decisions: The proposal would narrow the 2005 exception and prohibit creditors from using medical collections information when evaluating borrowers’ credit applications.
- Stop coercive collection practices: As unpaid medical bills would no longer appear on consumers’ credit reports used by creditors in making underwriting decisions, debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.
During remarks with Vice President Kamala Harris, Chopra mentioned that billing errors with medical debt are “widespread” and that collectors have no way of verifying that the amounts they are trying to collect are accurate. Chopra also cited the move from the three major credit reporting agencies to remove paid medical debts from consumers’ credit reports and remove debts under $500 from reports as well.
“If credit bureaus are pulling off much of this information already because it isn’t a good predictor of risk, why should creditors see your medical bills at all?” Chopra asked. “And if creditors don’t need to see your medical billing history , why are we continuing to allow debt collectors to use credit reports to pressure people into paying questionable bills at all?”
By making these changes, Chopra said that credit decisions would be “based on someone’s ability to repay a debt, not their ability to file disputes and navigate red tape.”
What’s interesting to me is that, while “Chopra mentioned that billing errors with medical debt are “widespread” and that collectors have no way of verifying that the amounts they are trying to collect are accurate.”, he makes no mention of any steps to hold insurers accountable for the “errors” (Yes, the quotations are intentional). Apparently, it’s ok with him that they frequently don’t pay and leave the consumer holding the bag. It seems that, if Chopra has his way, neither the patient nor the insurer will be responsible. It will just be up to the medical provider that rendered the necessary services to just eat the losses and be forced to just provide their services for free. Fact: Debt is debt, medical or otherwise. ANY financial liability that a consumer carries has an affect on their ability to repay credit extended to them. If I were a creditor and were considering a credit application, the fact that the applicant has ANY kind of outstanding debt would affect my decision and justifiably so. Suppose, for example, that I extended a mortgage to a consumer without knowing that the consumer owed $100,000 in medical debt and then, the consumer were sued by the creditor for non-payment and their wages were attached, making the borrower unable to pay the mortgage What if the medical provider places a lien against the collateral to enforce the judgment? Then what? Shouldn’t a potential lender have that information during the underwriting process in order to determine risk? Medical debt is a real financial obligation and should be listed. A credit report is not a character assessment. It is a report intended to determine the likelihood that a credit grantor will be able to be repaid (whether intentional or not) The CFPB should stop pretending that that it is something that it isn’t. Will the next step be to just say consumers don’t have to pay medical debt at all? Then who does pay it? How do medical providers continue to operate? The knee jerk reactions that the CFPB has are shortsighted and foolish and the ripple effects throughout the economy are wide.