When Cheryl Montgomery regained consciousness in the hospital after a medical crisis, her mind was far from the financial struggles that awaited her.

Despite having comprehensive health insurance, Montgomery found herself responsible for $25,000 in bills from various services including an ambulance, an out-of-network hospital, anesthesia, laboratory tests, and multiple doctors. She enlisted a consumer advocate to negotiate her debts down to a more manageable amount, which she managed to pay.

She thought she had resolved her medical financial issues. However, she was mistaken.

In January 2022, a year and a half after her hospitalization, she received a bill for $1,700 from a collection agency for a doctor she barely remembered visiting. The relentless calls and letters from the agency, coupled with a negative report to credit agencies, adversely impacted her credit score just as she was trying to lease a new car.

“I felt a wave of panic,” Montgomery, a Pennsylvania resident who was living near Salt Lake City at that time, shared. “I had already endured so much stress, and then this unexpected collection notice appeared.”

Montgomery’s situation is not unique; around 20% of adults in the U.S. are currently dealing with medical debt. Mischarged bills and disagreements over insurance payments can exacerbate challenges for consumers, leading to inaccurate credit reporting that can harm their financial futures. Such records can jeopardize one’s chances at securing loans for vehicles or homes and complicate job applications, rental agreements, or even utility services.

Medical bills are frequently cited in debt reported to major credit bureaus such as Equifax, Experian, and TransUnion.

A report from the Consumer Financial Protection Bureau (CFPB) in 2002 revealed that medical bills constituted 58% of the debts sent to collection that appeared on consumers’ credit records, with over 43 million reports affected.

After that 2022 CFPB report, the major credit bureaus agreed to remove specific types of medical debt from credit histories, including settled medical debts, unsettled debts younger than a year, and those below $500.

Currently, the CFPB is aiming to completely eliminate medical debt from credit records. The proposed rule was put forth last June and public feedback was gathered, which is now under review as the agency plans to finalize the rule for implementation in 2025, according to a spokesperson from CFPB.

This past year, Vice President Kamala Harris highlighted the CFPB’s initiative and encouraged local and state governments to take additional actions. She suggested that local authorities use public funds to pay off debts and protect consumers from aggressive debt collection methods, as detailed in a White House statement.

In light of former President Donald Trump’s recent election victory over Harris, the future of this proposal remains uncertain, as it’s unclear how his administration will proceed with consumer protection regarding medical debts. In a recent announcement, Trump revealed that allies Elon Musk and Vivek Ramaswamy would oversee the newly formed Department of Government Efficiency, which aims to reduce unnecessary regulations and streamline federal operations.

Advocates Call for Consumer Protection Against Credit Damage

Consumer advocates assert that the CFPB’s rule would offer vital safeguards for patients.

Removing medical debts from credit reports is a critical necessity for patients, according to Carrie Joy Grimes, founder and CEO of WorkMoney, a nonprofit consumer advocacy group.

“Anyone can face a medical emergency at any time, leading to serious debt, regardless of how well-insured or prepared they might be,” Grimes remarked. “Thus, medical debt should not influence credit reports, as it doesn’t accurately reflect an individual’s ability to manage finances.”

Navigating the consequences of a negative credit report can be challenging for consumers.

In Montgomery’s case, the collection agency’s actions resulted in her unpaid debt being reported to chief credit bureaus. She lodged a complaint with the CFPB showing that the doctor had never issued a bill to her or her insurance. The CFPB ruled in her favor, leading the collection agency to halt their collection efforts.

However, she was still affected adversely. She signed a lease for a Kia Sportage, only to find her monthly payments increased due to her diminished credit score.

“The decline in my credit score has had real financial implications,” Montgomery noted. “It wasn’t just anxiety, it was a tangible loss.”

Unexpected Medical Costs Can Hurt Credit Scores

Consumer advocates argue that medical debt is distinctly different from other consumer debts and that penalizing people for unexpected medical expenses is unjust. Patricia Kelmar, senior director of health care campaigns at U.S. PIRG Education Fund, elaborated on this perspective.

“These debts appear on reports whose purpose is to gauge a person’s financial reliability, which isn’t appropriate for medical expenses,” Kelmar stated. “Medical debt falls well outside the usual parameters for assessing an individual’s financial decision-making abilities.”

Unlike consumers who may rack up credit card debt for vacations or luxury items, those with medical debt often incur it unexpectedly during emergencies, according to Kelmar.

George Curlee, 50, recently underwent a toe amputation due to diabetes complications. After a two-week hospitalization following the operation, he was left with over $20,000 in medical bills.

Curlee, who resides in Garland, Texas, has returned to his job at Walgreens and is currently working to pay off the substantial bills incurred through his Affordable Care Act health plan.

His insurance plan failed to provide coverage for certain expenses.

He was working hard to restore his credit score to qualify for a credit card. With consistent shifts at a Walgreens in Dallas, he was making progress towards securing his financial future until a medical issue arose. Although he has since recovered from the health crisis, his credit score still suffered significantly.

“I do my best, but it remains stressful knowing you have thousands of dollars to repay,” Curlee expressed.

For individuals diagnosed with cancer, the financial burden can become extremely challenging.

A recent study indicated that cancer patients often grapple with severe financial stress. It revealed that 99,000 individuals in Massachusetts dealing with cancer are facing substantial debt. Researchers from Beth Israel Deaconess Medical Center and Harvard Medical School found that cancer patients are nearly five times more likely to declare bankruptcy compared to those without cancer. Additionally, the average credit scores of cancer patients were found to be nearly 80 points lower than those of their healthier counterparts.

Often, these negative impacts on credit scores can persist for years. Some individuals diagnosed with bladder, liver, lung, and colorectal cancers reported experiencing lower credit scores for almost a decade after their diagnosis.

Debt Collectors Describe ‘Economic Blow’

While patients facing medical debt and consumer advocates are in favor of more protections, the medical community and collection agencies have expressed concerns about additional regulations.

Many of the over 74,000 comments submitted regarding the CFPB’s proposed rules highlight how these changes could negatively impact hospitals, physicians, dentists, therapists, and collection agencies who depend on these payments.

Some doctors have stated that they may need to request upfront payments, which could limit access to healthcare for certain patients. Others worry this could financially destabilize medical practices, potentially leading to their closure in rural areas where care options are already scarce.

Brad Klein, who runs Paid in Full Inc., a small agency in Phoenix, Arizona that collects unpaid medical and dental bills as well as other debts not related to healthcare, expressed his concerns.

He noted that many small medical and dental practices have suffered financially due to a federal ban on credit reporting for bills under $500.

“Almost immediately following the introduction of the $500 rule, consumers would tell my collectors, ‘I don’t need to pay this. You’re not affecting my credit, so I’m not paying,'” Klein remarked.

These smaller bills often don’t justify the costs of hiring a lawyer to take legal action against them.

Klein commented that imposing the no-credit reporting rule on larger debts would be an “economic hit.”

“With such a rule in place, patients will have no incentive to pay since there would be no consequences,” Klein explained.

Scott Purcell, the CEO of ACA International—a trade association for collection agencies, law firms, asset buyers, and creditors—stated that if the rule is enacted, it will likely lead to more lawsuits against consumers and increased borrowing and medical care costs.

Purcell argued that the rule “does not address the fundamental issue as it focuses on the later stages of the complicated process that is delivering and paying for medical care.”

While collectors believe credit reporting is crucial for holding patients responsible, advocates for consumers argue that patients need safeguarding against unjust credit drops.

“Regardless of who holds the presidency, this issue demands attention,” Grimes emphasized. “This impacts many individuals, and anyone aspiring to maintain that position must recognize it.”