Oregon’s Senator Jeff Merkley introduced legislation Monday to prohibit companies from using paid off or settled medical debt in assessing consumer credit scores.
The Medical Debt Responsibility Act, which is cosponsored by Senators Dick Durbin (D-IL), Chuck Schumer (D-NY), Tom Harkin (D-IA), Sherrod Brown (D-OH), Robert Menendez (D-NJ) and Richard Blumenthal (D-CT), could help as many as 75 million Americans.
“Oregonians shouldn’t have to pay more on their mortgage or their credit card simply because they had the bad luck to need medical care,” said Merkley. “Unforeseen accident or illness can happen to any one of us. We can’t change that fact, but we can change the law so that responsible working families aren’t hit with unfair credit reports for years after medical debt has been paid off.”
Currently, medical debt collections can significantly damage a consumer’s credit score for years, even after the debt has been settled or paid off. As a result, consumers can be denied credit or pay higher interest rates when buying a home, obtaining a credit card, or applying for a small business loan.
“Ohioans shouldn’t be penalized on their credit scores because of medical debt that they have repaid,” Brown said. “No one chooses when they fall ill or get hurt and no one’s credit score should be permanently tarnished due to temporary health issues.”
Medical bills differ in a number of ways from other bills. The bills are often submitted first to insurance, and it can take considerable time to determine the accurate amount actually owed by the consumer. Consumers must navigate a complex and confusing billing system and wait for decisions from one or more insurance companies to find out how much they owe. For this reason, consumers often do not learn that they are delinquent on a medical bill until they hear from a collection agency, by which time their credit score has already suffered.
In addition, medical debt is atypical because consumers have little choice over whether to incur medical expenses or how much debt they accrue. Due to this unique nature of medical debt, its predictive value on credit reports is low.
The Medical Debt Responsibility Act fixes this problem by prohibiting consumer credit agencies from using paid off or settled medical debt collections in assessing a consumer’s credit worthiness. In addition, the bill will require the creditor or credit rating agency to expunge the medical debt from the consumer’s record within 45 days from the day it is paid off or settled.
“After a sudden illness or medical emergency and the skyrocketing cost of critical treatment, the last thing families should have to deal with is a plummeting credit score,” said Durbin. “But all too often unresolved medical debt bills, including those stuck in insurance red tape through no fault of the consumer, are provided to credit reporting agencies with serious negative consequences for consumers. This practice unfairly damages a consumer’s credit score for years after the debts have been paid in full. Our legislation would restore fairness in the system by ensuring that medical billing problems don’t become part of a patient’s permanent credit record.”
“A good credit score is critical for Iowans that want to obtain a loan, a new credit card, or a mortgage—but medical debt, even when paid off, can leave an unfair mark on a credit report,” said Harkin. “Oftentimes consumers are billed incorrectly, and are unaware that they have been left with medical debt. The Medical Debt Responsibility Act would ensure that consumers are treated fairly and are not punished for unexpected medical emergencies.”
“The unpredictable expense of medical debt should not confine consumers to a lifetime of bad credit,” Senator Blumenthal said. “Penalizing consumers for repaid or settled medical debt is an unfair and unnecessary practice that must be stopped.”
The Medical Debt Responsibility Act was endorsed last Congress by the American Medical Association, Consumers Union, Mortgage Bankers of America, NAACP, and the National Home Builders Association.