Senate Democrats pressured the heads of the three major credit ratings agencies on April 27 to disregard the debt incurred by borrowers for medical expenses.
“People are busy enough with their children and their jobs and their lives,” said Sen. Sherrod Brown (D-Ohio), the chair of the Senate Committee on Banking, Housing, and Urban Affairs. “They shouldn’t have to spend that kind of time because some company they’ve never heard of screwed up.”
According to a study by the Consumer Financial Protection Bureau, medical debt is the most common type of debt in collections, with nearly half of all debt collection items on credit reports. This is a major concern for borrowers, as having medical debt on their credit reports can negatively affect their credit score and make it more difficult for them to obtain credit in the future.
“No one should have her financial future destroyed because of an emergency or a sick family member. It’s why I’m asking your companies to stop putting medical debt—period—on your reports,” said Brown.
In response to pressure from Senate Democrats, credit agencies have announced some medical debt-related reforms. While this is a step in the right direction, Democrats argue that it is not enough. They are pushing for a total removal of medical debt from credit reports.
“One of the major reforms announced is the removal of all medical debts of $500 or below on reports,” Brown said. “This is a good step. Thank you, but it’s also not enough.
“It’s vital that the reports that your companies issue be accurate, not include medical debt, and that errors be fewer and correctable.”
Inaccurate credit reports can have serious consequences for borrowers, including higher interest rates on loans, difficulty getting approved for credit, and even potential job loss. Removing medical debt from credit reports would give borrowers a fairer chance at obtaining credit and improving their financial standing, Brown and fellow Democrats argued.
While not advocating specifically for the medical debt proposal, Sen. Tim Scott (R-S.C.) espoused the importance of credit reform. He said uniformity—that criteria be applied to all loan applicants equally—is crucial to a robust lending system.
Sen. Tim Scott, R-S.C., speaks during a Senate hearing on Capitol Hill in Washington, on May 7, 2020. AP Photo/Andrew Harnik, Pool
“Accessing credit accessing the American Dream through homeownership is more realistic based on your credit worthiness,” Scott said. “When we have an objective standard that is applied to everyone fairly and consistently the nation is a better place.”
While credit agencies have made strides in reforming their practices, Senate Democrats are continuing to push for more changes to ensure that borrowers are not unfairly penalized for medical debt.
“No one should have to choose between their health and their credit score,” Brown said.
