House Subcommittee to Review Medical Debt's Impact on Credit Scores

A Wednesday hearing by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit will examine whether medical debt should be considered part of the credit scoring and reporting system.

"An Overview of the Credit Reporting System" is scheduled to begin at 2 p.m. EDT.

Witnesses scheduled to speak include: Howard Beales, with the Federal Trade Commission; Stuart Pratt, from the Consumer Data Information Association; Chi Chu Wu, from the National Consumer Law Center; and a Consumer Financial Protection Bureau representative. More witnesses may be invited to testify at the hearing.

Fair Isaac announced in August plans to refine its credit scoring model to offer options to differentiate medical from non-medical collection agency accounts. The Minneapolis-based company decided on the new approach after meeting with major lenders, large customers and regulators. The groups suggested medical debt is unfairly penalizing consumers' scores.

The revamped credit score model will not weigh medical debt as heavily as previous versions, a key change given that medical debt accounts for nearly half of all unpaid collections on consumers' credit reports. The new model also includes fresh methods for evaluating consumers with limited credit history.

Fair Isaac is providing the model to the credit bureaus, which will start their own testing and verification process, Anthony Sprauve, a Fair Isaac senior consumer credit specialist, said in August. Once that is done, the general scorecard will be made available to lenders.

The Consumer Financial Protection Bureau released the results of a study in May, using data from five million anonymous credit records, that found consumers may be unfairly penalized for medical debts that go to collections.

Consumers with medical bills in collection can see their credit scores hit by as much as 22 points, the CFPB study revealed, compared to those with other types of debt. The agency said credit scoring models were harming people with medical debt because they do not differentiate between medical versus non-medical debts nor paid versus unpaid medical bills when in collection.

FICO credit scores are based on the information from the credit reports generated by Equifax, Experian and TransUnion.