The Consumer Financial Protection Bureau (CFPB) released a new report that shows that the number of Americans with medical debt on their credit reports fell by 8.2 million from the first quarter of 2020 to the first quarter of 2022. This report is consistent with a recent report from the Centers for Disease Control and Prevention (CDC) that found that the number of Americans who are part of families having trouble paying their medical bills declined by 5.5 million between 2020 and 2021. One driver of these declines is the significant increase in the number of insured Americans over this period, a result of the President’s strategy of protecting and strengthening the Affordable Care Act (ACA) and lowering health care costs. The decline also reflects continued actions by the CFPB to highlight problems with inaccurate reporting of debt in collections and put the industry on notice to correct their behavior.
The new data also underscore the importance of the Biden-Harris Administration’s government-wide initiative to reduce the burden of medical debt. Following the Vice President’s April 2022 announcement, medical debt was directly relieved for many low-income Americans. And, informed by research showing that medical debt is not a reliable predictor of financial health, federal agencies are working to eliminate the use of medical debt to assess creditworthiness for participation in government lending programs. Specifically:
· The Department of Veterans Affairs (VA) implemented a streamlined process to make it easier and faster for lower-income veterans to get their VA medical debt forgiven. The new process – establishing simple criteria to qualify for debt relief and launching a new online debt relief portal – has already provided relief to over 10,000 veterans and saved them more than $10 million in copay debt.
· Communities across the country – from Cook County, Illinois, to Toledo, Ohio, to New Orleans, Louisiana, to Pittsburgh, Pennsylvania – are using or have passed legislation to use about $16 million American Rescue Plan (ARP) funding to purchase medical debt from hospitals and other sources and forgive it, wiping out nearly $1.5 billion in medical debt, a ratio of nearly 100-to-1. Other localities and states have proposed to make similar purchases using ARP funding.
· The Federal Housing Finance Agency (FHFA) validated and approved the use of VantageScore 4.0, along with FICO 10T, for the underwriting of mortgages by Fannie Mae and Freddie Mac. The addition of VantageScore 4.0, which excludes medical debt entirely, marks the first time that a credit score that excludes medical debt has been approved for mortgage underwriting of Enterprise loans.
· The Small Business Administration (SBA) will take a number of steps to reduce the role of medical debt in the underwriting of loans for its 7(a) guaranteed loan program, including revising its lender Standard Operating Procedures to discourage consideration of medical debt and making technology investments in Lender Match to help borrowers find lenders that exclude medical debt in their credit decisions.
These reductions in medical debt will provide real benefits to many Americans. Reducing medical debt directly impacts household finances by improving credit scores and access to credit. And research shows that households that have their medical debt relieved see improvements in access to medical care, and in physical and mental health outcomes. Since medical debt is disproportionally held among low-income communities, reductions in the burden of medical debt helps advance financial and health equity.
The CFPB report also shows that medical debt still accounts for more than 50% of debt in collections tradelines, exceeding the number of debt in collections tradelines from all other sources combined, including credit cards, personal loans, utilities, and phone bills. Getting sick or taking care of loved ones should not mean financial hardship for American families. That is why the Administration has—and will continue—to take action to ease the burden of medical debt and protect consumers from predatory collection practices.
