Tlaib Bill Would Prohibit Medical Debt From Appearing on Credit Reports

Rep. Rashida Tlaib on Tuesday introduced legislation that would prohibit the inclusion of medical debt—which impacts more than 100 million people across the U.S.—on credit or consumer reports.

"The use of credit reports—which frequently contain errors—is now more than ever a huge barrier to a thriving life for many of our residents," Tlaib (D-Mich.), who has argued that medical debt "should not exist," said in a statement Tuesday. "Americans should not be denied access to basic needs that improve their quality of life, like employment, housing, or transportation because of medical debt."

In addition to preventing companies from including medical debt on credit reports, Tlaib's Restoring Unfairly Impaired Credit and Protecting Consumers Act would reduce the amount of time that adverse information remains on a credit report from seven years to four and require reporting agencies to wipe out negative information stemming from "predatory loans and fraudulent activity."

The bill also states that agencies "may not furnish a consumer report containing any adverse item of information about a consumer that resulted from financial abuse if the consumer has provided documentation of financial abuse to the consumer reporting agency."

"Our neighbors should not have to go without necessities because they fell victim to fraudulent activity or predatory lenders," said Tlaib, who has long pushed for the credit reporting changes. "Survivors of domestic and financial abuse do not deserve to have debt resulting from that abuse on their credit report. This bill is about fairness, opportunity, and justice, and I urge my colleagues in Congress to finally get this bill signed into law."

A 2019 study estimated that a staggering 66.5% of all personal bankruptcies in the U.S. between 2013 and 2016 were primarily caused by the costs associated with medical issues.

According to a joint investigation published last year by KFF Health News and NPR, 41% of U.S. adults are saddled with medical debt—a product of the nation's high-cost, for-profit healthcare system. The growing prevalence of medical credit cards with sky-high interest rates is contributing to the debt crisis, a group of progressive senators warned in January.

In recent months, the Consumer Financial Protection Bureau (CFPB) and credit reporting agencies have taken steps to lessen the impact of medical debt on Americans' credit scores.

The CFPB, which estimates that $88 billion in medical debt in the U.S. is currently in collections, has instructed credit reporting agencies not to include any invalid medical debts or other inaccurate information on credit reports.

"Many debt collectors furnish information about unpaid medical debts to credit bureaus," the consumer agency said last year. "Furnishers must have reasonable written policies and procedures regarding the accuracy and integrity of consumer information provided to credit bureaus."

Tlaib's office pointed out Tuesday that around 20% of people in the U.S. have an error on one of their credit reports.

The new legislation notes that "credit scores may underestimate a person's creditworthiness by up to 10 points for those who owe medical debt, and may underestimate a person's creditworthiness by up to 22 points after the medical debt has been paid."

Tlaib's bill specifically bars from credit reports "any information related to a debt arising from a medical procedure."

"This bill will prevent millions of Americans from experiencing economic ruin because of destructive credit reporting."

Starting earlier this year, the three major U.S. credit reporting giants—Equifax, Experian, and TransUnion— began removing all medical collections under $500 from credit reports. The CFPB observed in a report last year that two-thirds of medical debts in the U.S. "are the result of a one-time or short-term medical expense arising from an acute medical need."

Candace Milner, racial equity policy associate with Public Citizen's Congress Watch division, applauded Tlaib's bill, saying in a statement that it would "help improve the credit ratings of those abused by financial scammers or beset with crushing medical debt and ideally restore their ability to access services impacted by credit and obtain affordable personal loans."

"The current credit reporting system creates unnecessary economic barriers that hinder millions of Americans from accessing basic needs," said Milner. "Rep. Tlaib's bill addresses the failure of credit agencies to ensure accuracy in their credit reporting while also providing tools for victims of predatory lending and financial abuse to repair their credit."

"If passed," Milner added, "this bill will prevent millions of Americans from experiencing economic ruin because of destructive credit reporting."