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New bill targets paid-off medical debt

Kelly Dilworth

Lingering medical bills may not haunt your credit reports for long if a bipartisan group of lawmakers get their way.

For the seventh year in a row, lawmakers in both the House of Representatives and the Senate are pushing legislation that would force credit bureaus to promptly erase medical-related collections from credit reports once the bills have been fully repaid.

“All the financial planning in the world can’t protect our middle-class families from sudden medical emergencies or unforeseen illness — and the bills that come with them. Yet, too many hard-working people find themselves unable to get the loan they need to buy a car or a house because their credit score has been dragged down over medical debt,” said Senator Bob Menendez in a statement. “If we can’t predict when a medical accident happens, we shouldn’t penalize a consumer for having one.”

On February 25, Democratic Senators Jeff Merkley, Bob Menendez, Dick Durbin, Richard Blumenthal and Chuck Schumer reintroduced the Medical Debt Relief Act — a bill that’s been floating around Congress in various iterations since 2009.

Another version of the bill, sponsored by Congressman John Carney and co-sponsored by both Democrats and Republicans, was also reintroduced to the House of Representatives last May.

The bill seeks to amend the Fair Credit Reporting Act by requiring credit reporting agencies to wait 180 days after a medical bill has been sent to collections before they can report it. That way, consumers have some time to resolve the unpaid medical bill before it dings their credit. Credit reporting agencies agreed to make this change in a 2015 settlement with the state of New York, but the bill would make that agreement permanent and give consumers the right to sue.

The bill would also require credit reporting agencies to remove delinquent medical debt from a consumer’s credit report once the debt’s been settled or paid off.

In addition, it would amend the Fair Debt Collection Practices Act by requiring debt collectors to let consumers know that they have 180 days to pay off a delinquent debt before the collection shows up on their reports.

“This bill will separate medical debt from consumer debt, ensuring that emergencies and illnesses do not permanently ruin anyone’s financial future,” said Senator Blumenthal in a statement. “Medical debt should not be lumped into the same category as credit card debt and purchases consumers willingly make. This practice has long legs, even after debts are paid, preventing consumers from buying a home or a vehicle and limiting financial opportunities.”

Like most bills, the newest version of the Medical Debt Relief Act may be more likely to die in committee than get taken up for a vote and passed — particularly since the current Congress is notoriously inactive. The website, for example, predicts that the House version of the bill has just a 6 percent chance of becoming law. (Surprisingly, those are actually better odds than most bills have. According to, just 3 percent of bills were signed into law between 2013 and 2015.)

However, consumers still have reason to hope. An earlier version of the Medical Debt Relief Act passed by a large margin in the House of Representatives in 2010 before dying from neglect in the Senate. Lawmakers from both sides of the partisan aisle have been pushing for years to get a version of the law passed and haven’t given up yet. Momentum against medical debt has also been building over the past year, thanks in part to the credit bureaus’ 2015 settlement with the state of New York that sharply limited their ability to report medical-related collections.

Battle against medical debt gains steam
Consumers fighting medical collections and other credit report issues won a big victory last March when New York Attorney General Eric Schneiderman announced that the state of New York had reached a broad settlement with the three largest credit bureaus, Experian, Equifax and TransUnion.

The credit bureaus not only agreed to wait 180 days before reporting an overdue medical bill, they also agreed to promptly remove any medical collection that’s been paid off by an insurance company. The Medical Debt Relief Act would go a step further by requiring credit bureaus to also remove medical-related collections that consumers paid off themselves, but it’s otherwise not all that different from the 2015 agreement that won widespread praise from consumer advocates.

Meanwhile, the two largest credit scoring companies, FICO and VantageScore, have helped take the sting out of overdue medical bills by limiting medical debt’s role in the companies’ latest credit score iterations.

Lenders tend to be slow to adopt new credit scores, so the changes to FICO and VantageScore’s algorithms might not affect a large number of consumers any time soon. (FICO’s algorithm change was announced in 2015, while VantageScore’s update was announced in 2013.)

However, the changes indicate that the credit industry is starting to put less weight on medical debt, which is good news for consumers. Instead of worrying about how a medical emergency will affect your credit, you can spend more time focusing on your health.

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