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Medical debts mean credit woes

By Marcie Geffner ·
Thursday, August 23, 2012
Posted: 7 am ET

Should the federal Consumer Financial Protection Bureau, or CFPB, address the potentially harmful ways in which medical debt collections and reporting can affect a consumer's ability to obtain credit?

Four U.S. senators have requested just such action in a formal letter to CFPB Director Richard Cordray, according to a press statement issued by Sen. Robert Menendez, D-N.J., one of those who signed the letter. The other signatories were Sens. Jeff Merkley, D-Ore., Chuck Schumer, D-N.Y., and Sherrod Brown, D-Ohio.

According to the statement, the medical debt collection process is "riddled with informational and administrative problems" that inflict "serious damage on the credit reports of millions of creditworthy consumers."

Medical debt is often incurred unexpectedly, and medical providers frequently send bills to collections before patients know they're responsible for paying those costs. As a result, medical debts are less accurate predictors of a consumer’s creditworthiness, making their presence on credit reports unfair to consumers and unhelpful to lenders, the statement said.

Here's an excerpt from the letter:

The issue of consumer debt is usually discussed in relation to a consumer’s ability to pay, 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.

Separately, the National Foundation for Credit Counseling, or NFCC, has issued a statement emphasizing the importance of accurate credit reports and reminding consumers that they are responsible for reviewing their own reports.

A credit report creates a track record of a person's credit history, showing how he or she manages credit. It does not include a credit score or the person's race, income or medical history.

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