Most medical debt is omitted from consumers’ credit reports

Starting in July, companies will cancel medical debts that were paid after being sent to collection groups. These debts can remain on your consumer credit report for up to seven years, even if they are paid off. New unpaid medical debts will not be added to credit reports for a full year after they are sent to collections.

The companies also plan to eliminate unpaid medical debts of less than $500 in the first half of next year. That threshold may be higher, according to people familiar with the matter.

Medical debt is a heavy burden for many Americans. Medical emergencies and often unexpected diagnoses It results in huge bills It can confuse people who never miss debt payments. Unpaid bills end up on credit reports, sometimes lowering consumers’ credit scores and hampering their ability to get affordable mortgages, car loans, and other credit.

The Consumer Financial Protection Bureau estimates that about $88 billion in medical bills It sits on 43 million credit reports. The three credit reporting companies maintain reports on more than 200 million people in the United States

“This is an important step to support consumers in the wake of the COVID-19 pandemic,” the companies said in a joint statement. “These changes reflect our ongoing commitment to help facilitate access to fair and affordable credit for all consumers.”

The companies are also trying to placate the Consumer Financial Protection Bureau, according to people familiar with the matter, which has made credit reporting a priority under Director Rohit Chopra. The CFPB said earlier in March that it intended to hold credit reporting companies liable for not taking sufficient action against companies reporting erroneous medical debt.

The agency has taken a hard line on the credit reporting system in the United States, which plays a large role in deciding who gets credit and who doesn’t. Consumers have little control over what is added to their credit reports, which depend on information provided by lenders, collection companies, and others.

The company said in a recent regulatory filing that the CFPB is investigating how Equifax handles consumer disputes. Experian and TransUnion are also under investigation over their handling of the disputes, according to people familiar with the matter.

“As the CFPB is our primary regulator, we have an ongoing engagement with them on a variety of issues,” a TransUnion spokesperson said. Experian did not respond to a request for comment on the investigation.

The CFPB . said Her research indicates that medical debt is less predictive of a person’s ability to repay than other types of loans. However, the agency said, “Collection of medical debt on an individual’s credit report can affect their ability to buy or rent a home, raise the price they pay for a car or insurance, and make it harder to find a job.”

The main clients of credit reporting companies are lenders, who use the information in credit reports to assess the likelihood that loan applicants will repay their debt.

Credit reporting firms have spoken with banks to get what they do about medical debt removal, according to people familiar with the matter. Some banks said they were less concerned about removing small unpaid medical bills and those in collections for a shorter period, people said.

Banks fear that removing certain debts could make some loan applicants appear less risky than they actually are, potentially leading to defaults and unexpected losses. However, banks are in the business of lending money, and they don’t want to turn away customers if they don’t have to.

Banks today rely on A wealth of detailed data, including information derived from customers’ bank accounts, to make lending decisions. They rely less on traditional metrics, such as credit scores that are derived primarily from information on individuals’ credit reports.

Unpaid medical bills are dealt with in The settlements reached by the three companies With state attorneys general dating back to 2015. Companies now have to wait about six months before adding medical debt to their consumer credit reports, and they must remove debt that insurance companies have paid.

Credit reporting companies have Remove a bunch of negative information From collection companies in recent years, including unpaid library fines, traffic tickets, and gym memberships. In 2017, companies decided to start removing Tax lien statements and civil judgment.

write to Anna Maria Andriotis at [email protected]