Four U.S. Senators recently asked the federal agency in charge of helping consumers protect their finances to look into a specific type of credit reporting that they say can be particularly damaging.
U.S. Senators Jeff Merkley of Oregon, Charles Schumer of New York, Robert Menendez of New Jersey and Sherrod Brown of Ohio recently wrote a letter to federal Consumer Financial Protection Bureau director Richard Cordray asking the agency to look into medical debt reporting, according to a report from Menendez's office. In it, the lawmakers, all of whom are Democrats, noted that the reporting and collections practices associated with medical debt are significantly unlike other types of credit, and should therefore be addressed differently.
In particular, they stated that in many cases, consumers don't have to go through the same sort of channels to rack up medical debt in the way they might when applying for mortgages, credit cards, and the like, and that the ways in which they have to deal with this type of balance are in no way the same, the report said. Often, because of complicated insurance processes, their medical bills might be sent to collections before they are even fully aware of what they're responsible for paying. As a consequence of the debts being sent to collections agencies, which pose myriad problems themselves, there will be a significant hit on the borrower's credit report for as long as seven years, which can lower their credit rating by as much as 100 points. This is true regardless of whether the bill is paid off or settled over time or immediately.
"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. Consumers frequently do not even know there is a debt that they are personally responsible for paying before it goes to collections. Often, by the time they find out, 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."
Meanwhile, the Senators are also co-sponsoring a bill that would fundamentally change the way in which medical debt is reported, the report said. The Medical Debt Responsibility Act, which would amend the current Fair Credit Reporting Act, would mandate that medical debts be wiped from consumers' files within 45 days of being settled or paid off. Already, the legislation has passed the U.S. House of Representatives with significant support and is being backed by a number of organizations, including the American Medical Association and the National Credit Reporting Association, among others.
Consumers with any kind of defaulted debt in their name will see their credit ratings take considerable falls, and that will have a negative impact on many aspects of their lives, particularly when they seek new lines of credit.