Bill would help consumers and the economy by ensuring that consumers’ credit scores aren’t haunted by paid-off debt taken on through no fault of their own
WASHINGTON, D.C. – Today, Oregon’s Senator Jeff Merkley and Senators Richard Blumenthal (D-CT), Dianne Feinstein (D-CA), Elizabeth Warren (D-MA), Dick Durbin (D-IL), Bob Menendez (D-NJ) and Maggie Hassan (D-NH) introduced the Medical Debt Relief Act. This legislation would prevent medical debt from continuing to damage consumers’ credit scores after it has been paid off or settled, ensuring that otherwise-creditworthy consumers are able to find affordable credit to buy a home or a car or take out a loan.
Medical debt is unlike other types of debt. As opposed to credit card debt or loans that consumers take on willingly, medical debt is often the result of unexpected accident or illness that is outside the consumer’s control. Additionally, due to complex medical billing systems and the potential for misunderstandings with health insurance companies, medical bills are often sent to collections before it is clear whether it is the consumer or the insurer who owes money to the health care provider.
“No one chooses to have a sudden illness or injury,” Merkley said. “Americans shouldn’t be punished financially because they had the bad luck to be hit by medical misfortune. Restoring credit opportunities for these Americans is good for working America and good for our economy.”
“Americans faced with a medical emergency, illness or injury should be focused on their recovery – not their credit score,” Blumenthal said. “Medical debt doesn’t fit in the same category as credit card debt or other consumer loans, and it shouldn’t permanently prevent anyone from buying a home or a car. Separating medical debt will ensure that an accident or illness do not limit anyone’s financial future.”
“Medical debt should not be allowed to ruin Americans’ credit scores,” Feinstein said. “Even the most financially responsible family could find their credit damaged through medical expenses incurred through no fault of their own. The long-term solution to this crisis is to ensure universal health care for all Americans, but in the short term we must take steps to prevent medical debt from hurting families’ ability to access credit.”
“Millions of working families are hit hard every year by the unexpected financial toll of a medical emergency or an unforeseen illness,” Warren said. “These consumers, who took on this debt through no fault of their own, should not have to endure the additional burden of years of bad credit. I’m glad to partner with my colleagues on a bill to help Americans who have paid off these debts get back on their feet and continue building a future.”
“The number one reason for personal bankruptcy in America is medical bills,” Durbin said. “In the wake of an unexpected medical emergency or sickness, expensive medical treatments and residual medical debt can be damaging to patients and their credit scores. This bill is about fairness. It gives people breathing room for recovery so that unexpected medical situations do not ruin their creditworthiness.”
“All the financial planning in the world can’t prepare any middle class family for a sudden medical emergency or unforeseen illnesses – and the bills that come with them,” Menendez said. “Hardworking families are punished for being sick even after their medical debt is paid or settled and the damage to their credit scores can follow them for years, whether it’s being denied a mortgage or getting saddled with a higher interest car loan. If we can’t predict when a medical accident happens, we shouldn’t penalize a consumer for having one. Now it’s my hope that Congress can do the sensible thing, pass our bill, and make a difference in the lives of millions of working families hit hard by medical debt.”
“Americans who become sick or get injured should not have to worry about how this unforeseen hardship will damage their credit scores and potentially impact their ability to buy a house or take out a loan,” Hassan said. “This commonsense legislation will help ease the burden for consumers whose medical debt has crippled their ability to invest, purchase consumer goods, and contribute to our economy. I will keep fighting to lower health care costs and to ensure that all hard-working Granite Staters and Americans have the support they need to get ahead and stay ahead.”
The Consumer Financial Protection Bureau has found that 43 million American consumers have overdue medical debt on their credit reports, and that 15 million have only medical debt on their credit reports. Many consumers mistakenly believe that unpaid medical bills have no influence over one’s credit score. However, once a debt is assigned to collections, even if the cause was an inefficient healthcare billing system, the account will be considered a derogatory account by credit scoring algorithms.
Due to the atypical nature of medical debt, the predictive value of medical accounts on credit reports is low. Credit reporting companies have testified before Congress that removing medical debt from consideration would not harm the predictive value of consumer credit reports.
The Medical Debt Relief Act would ensure that medical debt that is paid off or settled by a consumer is promptly removed from a credit report rather than haunting their credit score for years after.