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A Meaningful Step: CFPB Proposes to Drop Medical Debt from Credit Reports

Eva Stahl

Millions of people fearful of medical debt can breathe a little easier — the Biden-Harris Administration announced plans to end adverse credit reporting for people with unpaid medical debt. In their press release, Consumer Financial Protection Bureau (CFPB) outlined a set of proposalsthat would remove medical bills from consumers’ credit reports, end reliance on medical bills for underwriting decisions and halt one of the major coercive collection practices, dinging someone’s credit. As highlightedby Director Chopra, research establishes that unpaid medical bills are not a good predictor of credit risk. Medical debt is not a debt of choice — it is often unpredictable and a debt of necessity, and just because someone cannot afford their medical bills does not mean they cannot meet their other financial obligations. We stand with all patients and celebrate this long-needed action that severs the connection between medical debt and credit access.

The CFPB’s action comes on the heels of voluntary steps by the national credit reporting agencies (TransUnion, Experian and Equifax) that removed medical debts under $500 and those paid over the last year, as well as a petition from advocates calling on the CFPB to make permanent changes to credit reporting. These initial, voluntary changes — while beneficial — had limited reach and the benefits were largely confined to people with higher incomes and more resources, potentially inadvertently reinforcing longstanding inequities. The proposal from CFPB and the Biden-Harris Administration widens the reach to everyone with medical debt and stands to make life easier for millions of people.

Research shows that Black and brown households located in states with less access to Medicaid carry a disproportionate amount of medical debt — meaning they also bear the burdens that come with adverse credit reporting. Medical debt is the primary debt in collections and the number one reason for bankruptcy. According to the Kaiser Family Foundation, 1 in 4 peoplecurrently have overdue medical or dental bills or bills that they are unable to pay. These debts weigh heavily on people, affecting their mental health, their financial security, and long-term economic opportunity.

At Undue Medical Debt, we work every day with people who are struggling with the repercussions of medical debt and a damaged credit score. Removing those debts has a meaningful, demonstrable impact on people’s lives. As shared by one of our beneficiaries after learning her medical debt was abolished, “Receiving this debt relief has been a blessing. Out of nowhere, I feel relieved of financial stress and can accept this help to build my credit back up so I can purchase my forever home for my children and grandchild.” Another beneficiary shared, “I am beyond blessed! My entire life has been dominated by medical debt. Since the day I turned 18, I have been completely overwhelmed with how I was going to pay, seeing that I can’t access credit. Thank you for the fresh start.” Accessing credit is critical to accessing life opportunities and good health. This monumental step by the CFPB cannot be overstated; it will change the trajectories of people’s lives and reduce collective stress.

The proposal from the CFPB moves us in the right direction, but more remains to be done to protect patients nationwide to ensure access to affordable, high-quality health care. Even if medical debt is stripped from credit reports, harms from unpaid medical debt will persist — including other extraordinary collection actions such as lawsuits, wage garnishment and liens. Additionally, the shame and stigma associated with medical debt may prevent patients from returning to their provider and undermine the patient-provider relationship that is so critical to good health.

In a survey of Undue beneficiaries, respondents indicated stress and anxiety surrounding medical debt collection drives them to avoid answering phone calls, including calls from their health providers (57%), or open snail mail (39%). Perhaps most concerning, 55% of respondents reported deferring further medical care over the past two years because of their medical debt. These credit reporting changes usher in a new era, removing the fear of credit reporting from the access equation. Our hope is that the CFPB proposal will become permanent and invite patients back into the health care system, where they can access the care they need to lead full, healthy lives.

Finally, it should be noted that medical debt research and monitoring efforts largely rely on collections data. The proposed changes mean collections data will no longer be a reliable source of information for understanding the broader medical debt landscape. This is not a reason to avoid these changes, instead it simply means we will need to make changes to how we gather and monitor data in order to keep shining a light on the harms of medical debt. We must think more broadly about how we capture medical debt data to monitor trends; counties like Los Angeles provide a helpful model for what this monitoring can look like. They use longitudinal surveys to track trends, while making sure to publicly report the data so the community understands the trends in their own backyard. As we celebrate progress, we must keep building on it.

By detaching medical debt from a person’s access to credit, the CFPB is formalizing what is widely known — medical debt is not about creditworthiness. Medical debt is about access to affordable health care. We applaud this step by the Administration and invite a broader discussion about what we can do — all of us — to end medical debt because no one should go into debt to get the health care they need. That is something we can all agree on.

Eva Stahl