A petition has been filed by a health advocacy organization asking the Consumer Financial Protection Bureau to begin a rulemaking under the Fair Credit Reporting Act that would prohibit the reporting of medical debt on credit reports if the debt was incurred for medically necessary services. Medical debt, accounting for over $88 billion, is the most common type of consumer debt in collection and disproportionately affects low-income individuals and people of color. It causes financial strains such as damaged credit, barriers to employment and housing, reduced savings capacity, and health effects like stress-related illness and diminished access to health care.
A copy of the petition can be accessed by clicking here.
However, medical debt is unlike other debt, as it “does not signal profligate spending habits or accurately predict general creditworthiness,” according to the petition, submitted by Community Catalyst. It is primarily incurred to pay for essential medical services. Despite recent efforts by the CFPB and changes in the credit reporting agencies’ practices, some medical debt will remain on consumer credit reports, particularly affecting economically disadvantaged consumers and people of color. And even though the major credit reporting agencies have taken steps to limit the impact that medical debt has on consumers’ credit scores, “there is no guarantee that the three national CRAs and VantageScore will not someday reverse their decisions concerning medical debt nor that other credit reporting agencies and credit modelers will similarly restrict the used of medical debt information,” the group wrote in its petition.
The petition emphasizes that medical debt has been demonstrated as unnecessary for predictive credit scoring, and therefore, consumers should not be subjected to downgraded credit based on this metric. The CFPB has the authority to prescribe regulations to ensure credit reporting is fair and equitable for consumers. As such, the petition urges the CFPB to promptly initiate a rulemaking process that prohibits the inclusion of all medical debt in consumer credit reports.