Editorial: Keep medical debt off credit score reporting

By The Herald Editorial Board

Medical bills are crushing enough without their adding to the financial burden of families struggling to recover from — or even grieving after — disease and medical emergencies. And a new state law passed earlier this year promised to lift some of the related financial burden, even if it didn’t ease the debt itself.

Senate Bill 5480, signed into law by the governor in April, prohibited the reporting of medical debt by health care providers and collection agencies to consumer credit reporting agencies, who use personal financial data and records to calculate credit scores. Those scores are key to establishing fair and affordable rates and terms for mortgages, vehicle loans, credit cards and other loans. The lower the score, the higher the interest rate for many loans and the more likely the denial of credit itself.

But a move by the Trump administration now threatens the state law, reports the Washington State Standard’s Jake Goldstein-Street.

The federal Consumer Financial Protection Bureau — currently being turned by the Trump administration into a Bizarro World version of itself before it is ultimately dismantled — acting on behalf of industry groups, moved to preempt state laws, such as Washington state’s, that address credit reporting, “consistent with Congress’s intent to create national standards for the credit reporting system.”

The CFPB’s interpretive rule, effective Oct. 28, reverses a Biden-era rule established in 2022 that allowed states to exempt medical debts from credit reporting.

The CFPB’s move doesn’t invalidate Washington state’s law and others like it in more than a dozen other states, but those laws could now be more susceptible to court challenges. State Attorney General Nick Brown told the Standard that his office was tracking the issue.

The Trump administration’s stated reasoning — preferring a nationwide standard over a patchwork of state-level regulations — might have carried more weight if the White House hadn’t moved to scuttle such a national standard earlier this year.

In the final days of the Biden administration, the CFPB finalized a rule that would have removed medical debt from credit scores, but the Trump-era CFPB, when the rule was challenged in court, refused to defend it and asked the court to vacate the rule, which a federal judge in Texas did in July.

As far as pending congressional legislation, a bill in the Senate, sponsored by Sen. Tim Scott, R-S.C., with four Republican cosponsors, would amend the existing Fair Credit Reporting Act, but contains no language addressing medical debt.

Had the Biden-era rule stood, its CFPB estimated that some $49 billion in outstanding medical debt would have been removed from consideration of the credit scores of some 15 million Americans, who owe $1,000 or more. Surveys and reporting by KFF Health News and NPR put the number of those effected far higher; with more than 100 million in the U.S. saddled with medical bills they cannot pay.

The only existing relief granted is by the three main credit reporting agencies — Equifax, Experian and TransUnion — which say that medical debt sent to collection for less than $500 won’t affect credit scores.

Medical bills and debt can hit families as unexpectedly as disease and accidents themselves.

Nearly half — 49 percent — of cancer patients and survivors report being burdened by medical debt with another 13 percent expecting to incur debt as the result of treatment plans, a survey by the American Cancer Society found in May. As well 49 percent said they owed more than $5,000 in debt, while 69 percent said they had carried their debt for longer than a year.

In Washington state, a survey by Northwest Health Law Advocates found that 31 percent of state residents said they lived in a household with medical debt, while 63 percent said they would struggle to pay an unexpected medical bill of $500 or more.

Those figures are now likely to grow with expiration of federal tax credits for the Affordable Care Act at the end of the year. The expiration of those credits was the focus for the recent federal government shutdown, with Democrats in Congress seeking an extension of the ACA subsidies that help some 42 million Americans afford health care coverage.

The shutdown ended when enough Senate Democrats accepted a deal to end the standoff if Senate Republicans agreed to a vote on the issue before the end of the year. But if those subsidies expire as scheduled, millions of Americans are expected to drop their coverage as the cost for ACA plans doubles or even triples for some. Others may purchase less expensive plans, but might still be susceptible to debt because of higher deductibles and coverage exemptions.

The state law, like the original CFPB rule that was overturned, sought to recognize that not all debt is the same.

The Biden-era CFPB concluded that medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts, and consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

Nor should medical debt be seen as a reflection of the personal responsibility of the individual.

“This is not debt that they acquired because they were out on a shopping spree,” Audrey Miller García, the government relations director for the American Cancer Society’s Washington chapter told the Standard. “They were sick. This is not their fault.”

For a Trump administration dragged back into discussions of affordability by recent polling, this is not a persuasive move.