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Senators pressure CFPB to remove medical debt from consumer credit reports

Jeff Merkley

Sens. Jeff Merkley (D-Ore.), Chuck Schumer (D-N.Y.), Robert Menendez (D-N.J.) and Sherrod Brown (D-Ohio) are pressuring the Consumer Financial Protection Bureau to consider regulatory structure restricting the calculation of medical debts into credit scoring.

In a letter to the watchdog agency, the senators said that medical debts are different from other debt such as auto loans and credit cards and are not indicative of a consumer’s ability to pay.

“The issue of consumer debt is usually discussed in relation to a consumer’s ability to pay,” the senators said in the letter. “But for medical debt, the problem is one of information. Consumers frequently do not even know there is a debt that they are personally responsible for paying before it goes to collections. Often, by the time they find out, the medical office has already reported the bill to collections. In this case, even if the consumer is still in discussions with the insurance company, the damage to the consumer’s credit score has already been done.”

The senators said that any unpaid debt, whether $5 or $50,000, sent to collections can cut up to 100 points off a credit score and remain on credit reports for seven years thereafter.

“Creditworthy consumers look artificially risky and their ability to contribute fully to our economy is constrained,” the senators said. “As we all know, markets do not work well when the information they rely on is not correct.”

Additionally, the senators proposed the Medical Debt Responsibility Act, S. 2149, which would amend the Fair Credit Reporting Act to require consumer reporting agencies to omit medical debts from a consumer’s credit report within 45 days after the consumer pays the debt in full.  The legislation passed the House of Representatives with a bipartisan majority of 336-82.

“Consumers would get access to credit at the prices they truly deserve, while lenders would get better and more accurate information about consumer creditworthiness,” the senators said. “But, the real winner would be our economy, as millions of creditworthy consumers would be released from artificially-low credit scores that misrepresent their ability and likelihood to pay.”