Opinion: The credit reporting system shouldn’t punish Americans for getting sick

Opinion by Rohit Chopra

(CNN) — Millions of Americans carry the burden of medical debt, which is a leading cause of bankruptcy. As Wall Street banks and private equity firms have expanded into the health care system, they’ve bought up physician practices, nursing homes and debt collection firms — raising prices and cutting corners.

Too often, patients receive bills filled with hard-to-interpret codes and outright errors — where a mistake can add thousands of dollars in costs but require weeks of persistence to unravel. People are charged for care they didn’t receive or that should have been covered by insurance. Eventually, bills that go to collections can end up on consumers’ credit reports, where lenders, landlords and employers presume their accuracy.

Credit reports serve as economic gatekeepers, and too often they shut out people who would easily repay their loans. Over the past decade, research from the Consumer Financial Protection Bureau (CFPB) and independent experts has demonstrated that medical bills should be treated differently than other kinds of debt. Facing a frightening medical diagnosis or emergency procedure, patients can hardly shop around for the best price from the back of an ambulance or their hospital bed. The full cost of treatment may only become clear weeks or months later when a mystifying bill appears in the mail. And the process is plagued by inaccuracies and mistakes, with nearly half of all adults reporting they have received erroneous medical bills, according to a 2022 KFF survey.

These errors are polluting the credit reporting system — led by the credit reporting conglomerates Equifax, Experian and TransUnion — and filling Americans’ credit reports with junk data that makes lenders’ underwriting decisions less accurate. This cuts against the actual purpose of credit reporting, and instead empowers bad actors, like debt collectors, who weaponize the credit reporting system to coerce people to pay debts they may not owe. They’re able to do this because they have people over a barrel — forced to choose between a lengthy fight to fix an inaccuracy or just paying a bill so they can move on with their lives.

The research is clear: Medical debt is a poor signal of whether someone will pay a debt. After the CFPB drew renewed attention to the issue two years ago, the credit reporting conglomerates also began to recognize its limited predictive value and removed some bills, like those below $500, from people’s reports. Despite these changes, a majority of medical collections balances remain on credit reports.

Last week, the CFPB took an important step forward in banning medical bills from credit reports. If the CFPB finalizes the rule as proposed, we estimate this action will remove $49 billion of medical debts that unfairly lower the credit scores of 15 million Americans. We expect that people affected by the change will see their credit scores rise by an average of 20 points and that lenders will be able to approve approximately 22,000 additional safe mortgages every year. Most importantly, the rule would alleviate a great deal of misery and unfair coercion that has tremendous financial implications for individuals and families.

The three major credit reporting conglomerates are legally obligated to ensure accurate credit reports, but in the absence of meaningful competition, they have fallen asleep at the wheel. The credit reporting market’s oligopoly gives them little incentive to treat consumers fairly. When people find errors on their credit report, they struggle to get them fixed. Over the past year, the CFPB received almost a million consumer complaints about junk data on credit reports.

States like Colorado and New York have reached similar conclusions and passed laws banning all medical debt from appearing on credit reports. Companies that produce credit scoring models, like VantageScore and FICO, which are financially incentivized to assess the predictive value of medical debt, have also reduced their reliance on this junk data.

Junk data no longer has a home on credit reports. When you get sick, the focus should be on getting better — not on fighting debt collectors trying to extort you into paying bills you may not even owe. It’s time to put an end to medical debt coercion and protect Americans’ financial health.

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