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From Banking and Finance Law Daily, October 21, 2013

Lawmakers seek CFPB investigation into medical debt in credit reports

By Katalina M. Bianco, J.D.

Senators Mark Kirk (R-Ill) and Jeff Merkley (D-Ore) have asked the Consumer Financial Protection Bureau to assess the issues surrounding the reporting of medical debt in credit reports. In a letter to CFPB Director Richard Cordray, the lawmakers say that the reporting of medical debt has led to costly errors and delinquencies.

Negative effects on consumers. The senators believe that the nature of medical debt can result in negative effects on consumers when reported in credit reports. “The inclusion of medical debt in credit scoring practices can have severe negative effects on consumers,” the senators said in their letter to Cordray. “What begins as an unpredictable medical hardship or even an error that is not the fault of the consumer, can lead to long-lasting damage to a consumer’s ability to buy a home, obtain a credit card, and fully participate in our economy.”

Nearly 73 million adults had problems paying their medical bills in 2010, according to the Commonwealth Fund, the lawmakers told the CFPB. Also, a study on credit report accuracy published in the Federal Reserve Bulletin found that approximately 80 percent of those with medical collection data on their credit reports would have experienced an increase in scores if the medical debt was not factored in to the scoring.

The senators stressed that lower credit scores resulting from medical debt often are reported in error. They referred the bureau to a February 2013 report by the Federal Trade Commission detailing the FTC’s study of credit reporting errors. The commission found that 21 percent of U.S. consumers had an error on a credit report from at least one of the three major credit reporting companies, and 13 percent of consumers had errors serious enough to change their credit scores.

“Unlike with other industries, when an error is made on a consumer’s credit report the consumer does not have the ability to switch companies, as all consumers are beholden to the major credit reporting agencies,” the lawmakers wrote.

Legislation. Kirk and Merkley wrote that “medical debt is such a poor predictor of creditworthiness that credit bureaus and lenders have testified to Congress that removing medical debt from consideration would not harm the predictive value of consumer credit reports.”

The Medical Debt Responsibility Act of 2013 (H.R.1767) was introduced in April 2013, by House Financial Services Committee Ranking Member Rep. Maxine Waters (D-Calif). The bill is intended to help improve consumers’ access to credit by removing fully settled or paid medical debt information from a credit report within 45 days rather than the current period of seven years. The legislation recognizes that medical debt is unique and, therefore, does not impose an arbitrary dollar cap on the amount of medical debt that can be removed from a credit report.

Merkley introduced substantially similar legislation (S. 160) on Jan. 28, 2013. That measure has been referred to the Senate Banking Committee.

The Waters bill also is substantially similar to legislation—The Medical Debt Relief Act of 2010 (H.R. 3421)—that was introduced by former Rep. Mary Jo Kilroy (D-Ohio) during the 111th Congress. H.R. 3421 passed the House of Representatives under suspension by a recorded vote of 336 to 82 on Sept. 20, 2010.

MainStory: TopStory CFPB ConsumerCredit FairCreditReporting

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