A group of lawmakers are once again asking the federal agency tasked with protecting consumers' finances to expand its purview and investigate a certain type of debt reporting.
U.S. Senators Jeff Merkley of Oregon, Charles Schumer of New York, Robert Menendez of New Jersey and Sherrod Brown of Ohio, all Democrats, recently asked the Consumer Financial Protection Bureau to look into the ways in which medical debt reporting can have a negative impact on the average American, according to a report from Menendez's website. In a letter sent to CFPB director Richard Cordray last week, they asked that the agency particularly examine the costs consumers face as a result of medical debt collections attempts and reporting, and what can be done to correct this problem.
Problems abound with medical debt reporting
Often, the actual practice of either reporting medical debt to the various credit bureaus or selling it to collections companies can be problematic, the report said. Part of this is because medical debt is typically incurred without the consumer having planned for it, and can often be sizable. And as a result of complicated insurance processes, many patients who receive any type of care often receive their medical bills before they are fully aware of what they're responsible for paying, and delays in their payments may cause those balances to be sent to collections.
Because of all these factors, it's been frequently noted that medical debt information, which if reported as delinquent or even defaulted can take a significant toll on consumers' credit, is often not wholly accurate, the report said. Making matters worse is that, even if consumers are able to pay their bills off in full once it's sent to collections, the fact that the third party companies had to deal with the balances remains on their credit reports for as long as seven years, and can lower their credit score by as much as 100 points during that period.
Why medical debt is different
Most consumer debt is taken on with the full consent of the borrower, meaning they must have gone out and applied for a mortgage, credit card, auto loan, and so forth, the report said. But in many cases, consumers enter into medical debt without proper protections such as credit checks, and may do so unexpectedly as a result of an emergency. Further, medical debts can total hundreds of thousands of dollars in some cases, meaning that those who suffer unforeseen problems could be on the hook for balances they can't possibly afford without even knowing about it, until it's sent to collections. This is particularly true for uninsured Americans.
"The issue of consumer debt is usually discussed in relation to a consumer's ability to pay," the Senators wrote. "But for medical debt, the problem is one of information. Often, by the time they find out they owe these sizable debts, 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."
A legal solution?
The Senators also noted that they are co-sponsoring a bit of legislation that would increase consumer protection regardless of what the CFPB decides to do, the report said. Their Medical Debt Responsibility Act would require that credit agencies remove medical debts from consumers' files a maximum of 45 days after the balances are either settled or paid off in full.
Technically, this law would amend the existing Fair Credit Reporting Act, the report said. In addition, it already has the backing of a number of industry groups including the American Medical Association, Mortgage Bankers Association, and American Credit Reporting Association. And further, it has already been passed in the U.S. House of Representatives by an overwhelming bipartisan majority, advancing 336-82.
Unfortunately, unfair markings on consumers' credit reports remain a very real problem that can have severe negative impacts on their credit standings. For this reason, it's important that consumers take the time to order copies of their credit reports regularly, and check these documents for erroneous entries. If any are discovered, it may be possible to work with a credit repair law firm to correct the problem and get a borrower's credit back to where it deserves to be.
Having as strong a credit score as possible may be extremely important for many consumers because of the way in which this rating affects many aspects of their lives. A credit score is used to determine not only credit eligibility in general, but also the rates, fees and other terms that may come with such an account.