Bill Introduced in House, Senate to Amend FCRA, FDCPA Over Collection of Medical Debts
Virginia Bell Flynn, partner in Troutman Pepper's Consumer Financial Services Practice Group, was quoted in the Compliance Digest article, " Bill Introduced in House, Senate to Amend FCRA, FDCPA Over Collection of Medical Debts."
Legislators in both the House of Representatives and the Senate have introduced a bill, called the Medical Debt Relief Act, which seeks to amend the Fair Credit Reporting Act (FCRA) and Fair Debt Collection Practices Act (FDCPA) with respect to how medical debts are collected. The legislation would amend the FCRA to implement a one-year waiting period before medical debt will be reported on a consumer’s credit report, and would amend the FDCPA to provide a timetable for verification of medical debt, among other changes.
While the bill aims to prevent Americans from having to file for bankruptcy protection as it relates to medical debt, ultimately, the one year moratorium has the potential to significantly distort a borrower’s debt picture, leading to inaccurate underwriting models, potentially driving up the cost of credit, as creditors try to guess at the amount of one of the most common types of debt in America. Ultimately, this likely won't help consumers and the solution lies in the underlying causes of medical debt in the first place. Indeed, it would be curious to see the data that negative credit reporting causes individuals to file for bankruptcy.
Finally, how is the industry to implement this when medical debt is often incurred by credit cards as a matter of last resort lending for individuals. Would credit card companies or unsecured consumer lenders in general be required to determine the purpose of the debt incurred and then make a decision regarding reporting? While seemingly well-intentioned, the practical implications of the bill ultimately will lead to higher costs to consumers with very little material benefit.