NerdWallet's Smart Money Podcast - Money News: CFPB Removes Medical Debt from Credit Reports

Episode Date: October 11, 2023

Learn how removing medical debt from credit reports will protect consumers. Plus: rising interest rates and falling stock prices. Before discussing news from the Consumer Financial Protection Bureau (CFPB) that could reshape the way medical debt impacts your credit score, hosts Sean Pyles and Anna Helhoski discuss the latest news around student loan forgiveness, rising auto and mortgage rates, and recent losses in the stock market. They then turn their attention to the benefits of omitting medical debts and collection information from credit reports. In their conversation, the Nerds discuss: medical debt, credit reports, consumer protection, Medicaid disenrollment, Consumer Financial Protection Bureau (CFPB), healthcare costs, collection agencies, mortgage interest rates, stock prices, student loans, debt forgiveness, loan relief, income-driven repayment (IDR), car payments, 401k balances, Dow Jones Industrials, S&P 500, credit reporting agencies, and Medicaid coverage. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly personal finance news roundup, where we take a look at recent developments in the world of money and then go in-depth on an issue that's important to your life and your bottom line. Today, we're going to the hospital. Uh-oh, hope we don't go into medical debt. Me too, but at least if we do, it won't be part of our credit scores anymore. The credit bureaus have already started changing that policy,

and the Consumer Financial Protection Bureau says it's going to make those policies stick. We'll have more on that in a moment. But first, a few money headlines from the last few days. So Sean, listeners who tuned in last week heard our long explainer of what's happening with student loans. Yeah, they're restarting after a three and a half year hiatus. So get budgeting. Right. And we've got more news on that front this week. President Biden announced that another 125,000 borrowers are going to have their loans forgiven to the tune of $9 billion. Now, this forgiveness is coming under already existing programs, so the administration didn't create anything new. It's just expanding existing debt relief options. Some of this will happen under the Public Service Loan Forgiveness Program.

Some of it is for borrowers who previously qualified for loan forgiveness but didn't end up getting it because of errors in the program itself. Errors the Department of Education says have now been fixed. This is the Income Driven Repayment Program, or IDR. Correct. And the final tranche of forgiveness is for borrowers with total or permanent disability who have been matched to the program through social security data. So if you are one of the 125,000 forgiven borrowers, you should have already received notification from the education department. Everyone else who thinks they qualify will need to sit tight. That's right, Sean. As far as future forgiveness, normally we'd say talk with

your student loan servicer, but they won't know when it might happen. The education department says it'll be identifying and notifying borrowers who qualify for forgiveness every two months until next year. At that point, all borrowers who aren't yet eligible for debt forgiveness will see their payment counts updated. That should give you a better idea of the timeline ahead. So Ana, we've been talking on Smart Money for more than a year about the skyrocketing costs of car ownership. Move to New York, no car needed. Although I am actually one of those people clogging up city streets with a car. Well, I like my car and I like driving around the Pacific Northwest. So those of us who want or need cars have watched as the costs have soared.

Everything from the cost of vehicles themselves to insurance rates to repairs. And Edmunds has a new proof point showing how car ownership just keeps getting more expensive. Well, let me guess. Interest rates? How did you know, Anna? Because pretty much everything seems more expensive because of interest rates, Sean. Yeah, it's true. Well, according to Edmunds, the average interest rate, or APR, for new vehicles jumped three percentage points to 7.4% last quarter, and the average for used vehicles rose to more than 11%. 11%, Anna. The last time cars and trucks saw APRs this high was in the wake of the Great Recession. So what does that translate to in terms of monthly payments?

For new vehicles, the average is $736 a month. Oh, ouch. Yeah. And the average down payment for a used vehicle is $4,111. Both of these are all-time highs. So basically just keep driving the car you have as long as possible until it falls apart. Yeah, that's my plan. At least until the Fed slows down and prices normalize a bit. While we're on the subject of interest rates, Sean, here's another sort of staggering figure.

The average rate for a 30-year fixed mortgage hit 7.49% last week. That's the highest they've seen since the year 2000, back in the millennium. This is why people who already own a home are staying put, because they locked in lower mortgage rates and the idea of going and buying a new home at 7.5% just sounds nuts. And finally, Anna, we don't talk about the markets a lot, but there are a couple of developments that deserve mention. Yeah, I've been avoiding looking at my 401k. Yeah, me too. And that is probably wise because last week, the Dow Jones industrials wiped out all gains for the year. All gains? Yes, all gains. Now, the saying goes that the stock market is not the economy, right? And the Dow Jones is not the entirety of the market. But still,

these are some of the biggest companies in the country and their stock values are just pooping out. And look over at the S&P 500. It's not any better with a drop of 8% just since the end of July. So then we look over the bond market and yields on the 10-year TINO are at the highest level since the housing bubble popped back in 2007. Last week, Treasuries hit 4.8%, which is great for your high-yield savings accounts. But there again, as we've already pointed out, it's not so great if you've got credit card debt, a variable mortgage, or you want to get a car loan. All right. Well, that's what we saw and heard about over the past week in Money News. Let us know what we missed and send us the headlines you've seen and want to hear more about.

Wait, Sean. Yes, Anna? Did you buy that ticket last week? You know, I decided the jackpot wasn't quite big enough to warrant making such an extravagant purchase. Well, maybe it's time to reconsider. That Powerball jackpot just keeps coming up with losers. And now it's at, wait for it, $1.73 billion. Second largest jackpot ever.

Nobody's won since July 19th. Oh, my lordy. I do not even know what I would do with that kind of money. Oh, you can just ask Elon for some tips. I'm sure. And now on to our in-depth look at changes to how medical debt factors into your credit score. We're going to do something different this episode of Money News. Instead of diving into a single topic, we'll focus on two news stories under a single umbrella topic. Two of a kind.

Today, let's talk about all things medical, because there are a lot of changes going on. Yes. First off, we have a new Consumer Financial Protection Bureau action that will remove all medical debt from credit reports. You might remember this started to get rolling last spring. The CFPB announced that all three of the credit reporting agencies would no longer include medical debt on credit reports and would remove the debt that was already existing on reports. The CFPB says there's $88 billion worth of outstanding medical bills and collections, and one in five Americans are affected. KFF, formerly known as Kaiser Family Foundation, is a health policy research organization. It found that one in 10 U.S. adults have significant medical debt. That's defined as debt over $250. And overall, U.S. adults owe at least $195 billion in medical debt.

This is rough because having medical issues sucks. Being in debt over it can just feel degrading. Then your debt goes to collections and your credit gets ruined? Completely. It's devastating. People end up cutting back on spending, gouging their savings, and might need to play musical chairs with other bill payments. So to combat this, the CFPB has started a rulemaking process gouging their savings, and might need to play musical chairs with other bill payments. So to combat this, the CFPB has started a rulemaking process that would remove medical bills from credit reports. This would solidify this provision, barring the three credit bureaus

from including medical debts and collection information on our credit reports. And Sean, as we know, those reports are used by creditors to make other underwriting decisions. So say you want to get a car loan, you might be denied because of medical debt. The interesting thing here is that the CFPB says unpaid medical bills on a credit report aren't a very good predictor of future repayment compared to more traditional credit obligations. There are a lot of mistakes on medical billing that also lead to negative reports to credit bureaus. So if you have inaccuracies and your bills are erroneously sent to collections and then are reported to credit bureaus, you could be completely up a creek. It's a battle to get those inaccuracies corrected as it

is. Right. So that's another provision of the proposal. Stop creditors from relying on medical bills in their underwriting decisions for other credit applications. And finally, it would stop debt collectors from being able to use the threat of the credit reporting system as a tactic to pressure consumers into paying debts. Again, which often happens even if there are errors in the reported debt. There are some limits, however. The proposal wouldn't stop creditors from obtaining medical bill information to be used for things like deciding whether someone can get a loan to pay for medical bills. These are just proposals, though, so in order to turn this into law, the CFPB needs to go through a rulemaking process. Basically, during that, the public has an opportunity to comment on any proposed rules,

but it takes a long time, usually two to three years. Again, the three credit reporting agencies have already agreed to stop using medical bills in credit reports. So that's the important thing right now. All right, well, let's move on to our second topic, Medicaid disenrollment. Just a reminder, Medicaid provides low-income adults and children with free health insurance. During the pandemic, there was a pause on states rechecking eligibility when people applied for Medicaid, which meant enrollment was continuous or automatic. But that pause expired at the end of March. And by April 1st, states were able to start taking people off Medicaid rolls for being ineligible, like if their income went up.

But people are also being disenrolled for procedural reasons, like incomplete applications. Millions are expected to lose their eligibility, according to KFF. Yeah, KFF is tracking the number of disenrollments, and Sean, it's getting higher every day. As of October 2nd, at least 7.87 million Medicaid enrollees have been cut from the program. That's among all states. It's pretty startling, but there are some important things to note here. A lot of those people who were disenrolled didn't complete the renewal process, about 73%, according to KFF. Among those who did complete the renewal process, about 37% were disenrolled.

Most people who completed the renewal process have had their coverage renewed. That's about 13.3 million enrollees. Wait, why did 73% of people who were disenrolled not complete the paperwork process? That's a pretty good question, Sean, and I actually don't have an answer. As KFF notes, it's concerning because many of them may still be eligible for Medicaid coverage. What some states are doing is pausing disenrollment due to paperwork issues until they figure out what's going on in the renewal process that causes so many people to fail. And it could be a state-by-state issue, right? Because KFF's data shows that the percentage of those who are disenrolled due to

procedural issues really differ from state to state. New Mexico has the highest percentage, 97%, followed by Nevada and Utah, both with 94%. In fact, all but seven states had more than 50% of their disenrollments due to paperwork problems. So it's clearly a widespread issue that needs to be addressed. Another thing to note is that children are getting hit hardest by Medicaid disenrollments. Over four in 10 amongst 17 states that report age breakouts. That's awful. Yeah. Well, we'll keep an eye on it.

If you're one of the people who need to re-enroll in Medicaid or you have questions about the enrollment process, contact your state Medicaid office. You can also go to Medicaid.gov. I'd also like to point out that Medicare open enrollment begins on October 15th. I know a lot of people mix up the two programs, but Medicare is health insurance for people ages 65 or older primarily. That open enrollment runs through December 7th. Learn more at medicare.gov. I'd also be remiss if

I didn't point out that NerdWallet has a bunch of content on both Medicare and Medicaid. And I'll take that cue as good timing for another plug. Smart Money is releasing a special series on open enrollment for all kinds of benefits, from public health insurance through state marketplaces and private company insurance, including health and life insurance, dental and vision coverage, and all that good stuff. It's coming up later this month, so make sure you don't miss those episodes. All right, before we wrap up listener, a reminder, help us celebrate your biggest financial wins of 2023. We're putting together a special end of year episode and I want to hear about the best thing that happened to you financially during 2023. Maybe you paid off your student loans, or had some good money conversations with your partner, or just learned a lot about personal finance by listening to your favorite podcast, NerdWallet's Smart Money Podcast.

Leave a voicemail or text me on the Nerd Hotline at 901-730-6373. That's 901-730-NERD or send us a voice memo at podcast at nerdwallet.com. Today's episode was produced by Tess Biglin and edited by Rick Vanderkneife. Kevin Tidmarsh makes our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not

apply to your specific circumstances. And with that said, until next time, turn to the nerds.