Medical debt to be removed from credit reports
COLUMBIA, Mo. (KMIZ)
Unpaid medical bills will no longer affect credit scores after the Consumer Financial Protection Bureau on Tuesday finalized a rule to remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans.
According to a 2024 study from the Missouri Foundation of Health, in a survey of 2,047 Missourians, half reported having medical debt in the past five years. The report says 78% of people in the survey were insured.
"The biggest takeaway we found was that people are really having trouble affording everything with medical debt that is impacting so many folks across the state," MFFH's Health Policy Strategist Samantha Bunk said.
Three-in-10 adults reported that medical debt negatively affected their credit score, 22% of people said debt impacted their ability to apply for a car loan and 19% said debt affected their ability to apply for an apartment or mortgage.
"The majority of credit reports that I see have a significant amount of medical debt on there, so it prevents them from getting things like mortgages, car loans, taking out credit cards things like that,"
Dynamic Credit Repair credit specialist LaSaunta McQuary said.
The study also found that 76% of participants came into medical debt after a one-time or short-term medical expense.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
According to CFPB consumer reports, the bureau found that a medical bill on a person's credit report was a poor predictor for loan repayment. When the rule takes effect, Americans with credit card debt can see a credit score rise by an average of 20 points.
"That's huge," Credit Care Company owner John Boll said. "It [Medical debt] could drop scores anywhere from 30 all the way up to 70 points, and what's crazy is the lower your credit score, the less it's effective so if you had a 750 credit score, you could see your score drop 70-80 points."
Following a 2022 CFPB study, credit reporting agencies stopped reporting medical debts under $500 and began reporting debts over $500 only after a year, giving people more time to address them.
"Most Missourians would not be able to afford an unexpected medical bill of $500 or more which doesn't sound like a crazy amount of money, but if it's that dire of a situation, that can be incredibly stressful and impact other parts of your life," Bunk said.
Boll adds that these prior changes greatly reduced credit card debt in his clients and he expects this new rule to make a difference.
According to CNN, the ruling was proposed last June and was finalized by the Biden administration. However, Republican lawmakers in Congress can review or rescind rules during a transition of power.
Bunk told ABC 17 News in an interview that the MFFH expects the rule to take effect in March.
"I think that it's a good step in the right direction but the big step that needs to happen is really more transparency, reining in those costs for Missourians and also advocacy to make sure that people know when they are faced with the medical debt kind of what to do," Bunk said.
If not rescinded or delayed, the rule will be effective 60 days after being added to the Federal Register.
Both the CFPB and the National Consumer Law Center provide resources and updates on medical debt for those who need assistance.
