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Updated on Monday, March 9, 2015
Today, the New York Attorney General announced a settlement with the three credit reporting agencies that will have big implications for consumers across the entire country. TransUnion, Experian and Equifax, who together have information on more than 200 million Americans, have agreed to make big changes in the way that they report medical debt collection items. According to a recent Consumer Financial Protection Bureau (“CFPB”) study, over half of all collection items on credit reports are medical.
Medical billing is a complicated process. While at the doctor’s office or hospital, the amount of the insurance reimbursement and patient’s co-payment is often not clear. It can take time for an insurance company to make a payment to the doctor, and often both patients and doctors dispute the total billed and covered amount. All of this takes time. And there are no rules on how long a doctor’s office or collection agency has to wait before reporting your debt to the credit reporting agency. As a result, the time required for complete reimbursement can often lead to a negative collection items landing on your credit report, even if the bill is ultimately paid by the insurance company. Even worse, the FICO credit score currently used by most lenders does not reward repayment of a collection item. Once one lands on your report, the punishment can stay with you for years.
The Attorney General of New York has been waging a battle with the credit reporting agencies, and today was able to unveil a landmark agreement. The credit reporting agencies have agreed that:
- Medical debt can only be put on a credit report 180 days after after the bill from the doctor. This will give the insurance company time to pay, and people time to understand the cost. Historically, collection agencies could put a collection items on credit reports at their discretion, and they would.
- If a medical bill is ultimately paid by an insurance company, the credit reporting agency has to remove the item from the credit report. Too often, slow insurance companies ended up wreaking havoc on people’s credit reports.
- When a consumer disputes something on their report, the agencies will have a trained employee review all documents submitted by individuals when they submit a dispute.
These changes will be rolled out nationally. The credit reporting agencies expect that it will take between six and 39 months for the changes to take effect. However, consumers ultimately have the responsibility to ensure the accuracy of the information on their credit reports. All Americans are entitled under the law to a free annual copy of their credit reports from all three reporting agencies. All Americans should obtain a copy of their credit report every year and look for any negative items. The CFPB explains how to obtain your free score here. If you find a medical collection item that should not be there, you can dispute the transaction directly to the reporting agencies.
Too many people have taken big hits on their credit score because of the complexity of the medical billing process. With this settlement, everyone now has 180 days to agree who pays what with their insurance company. This should go a long way towards making sure that anything reported on a credit report is a true default, and not a simple mistake.
We applaud the attorney general for taking the lead in this settlement, which will benefit people across the country.