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John Oliver takes a $14M bite out of medical debt

John Oliver
Lloyd Bishop | NBC | NBCU Photo Bank | Getty Images
John Oliver

Medical debt just got less painful for nearly 9,000 consumers, courtesy of late-night TV host John Oliver.

For nearly 43 million other Americans, it's still a big problem.

During Sunday's "Last Week Tonight," broadcast, Oliver canceled $14,922,261.76 worth of medical debt as part of a segment digging into the billion-dollar debt-buying industry.

Debt buyers purchase delinquent debts from creditors for pennies on the dollar, then make their own attempts to collect.

The pages and pages of consumer complaints about debt collectors in the Consumer Financial Protection Bureau's database detail problems consumers have faced, including threatening calls, not to mention the so-called zombie collections — bills that were believed to have been settled but resurface for collection.

"In some states, there is a shockingly low barrier of entry into this industry," Oliver said in the segment, noting that some states don't require a license to purchase or collect on debts.

"Essentially that means there are places in this country where you need to fill out less paperwork to start collecting money from people's pockets than you do to collect fish from a [expletive] lake."

As proof, the "Last Week Tonight" team spent $50 to incorporate in Mississippi, setting up the Central Asset Recovery Professionals — CARP, he said, "after the bottom-feeding fish." They were able to purchase the almost $15 million in debt for less than $60,000.

Instead of collecting on the money, CARP donated it to RIP Medical Debt, a nonprofit that specializes in wiping out medical debt with no tax consequences for the debtor.

Oliver's gesture, though, is only a drop in the bucket. Nearly 43 million Americans — 1 in 5 of those with a credit report — have a medical debt that's hurting their credit, according to a 2014 CFPB report. For 15 million of those consumers, medical debt is the only collection item on their report.

"Clearly this is only going to help the 9,000 people whose medical debt we bought," Oliver said in the segment. "The larger issue is, we need much clearer rules and tougher oversight to protect consumers from potentially predatory companies like the one we set up."

The average reported medical debt sent to collections is just $579, according to the CFPB.

Worse, many of those debts may be over money the consumer legitimately doesn't owe. By billing advocates' estimates, up to 80 percent of medical bills contain errors.

At least when it comes to your credit, medical debts are slowly becoming less of a black mark.

Such debts have less influence in the latest FICO and VantageScore credit-scoring models, and settled medical debts are ignored completely, credit expert John Ulzheimer told CNBC earlier this year. The difficulty: Many lenders haven't updated to the new formula.

"None of the changes are going to be meaningful for anyone applying for a mortgage," said Ulzheimer, who has worked with FICO, Equifax and Credit.com. But consumers applying for a new credit card or auto loan could see better rates as a result.

Come this fall, consumers will have more protections. As part of a 2015 settlement, medical debts sent to collections will have a grace period of six months before showing up on a consumer's credit report, allowing you more time to take action over say, a disputed bill. Currently, there is no grace period.

The three credit reporting firms will also be required to remove a medical debt once it is reported as paid or settled by the insurance company. If it's not on your report, it can't influence your score. (Those paid or settled by you will remain on the report.) Currently, settled medical debts can remain on your credit report for seven years.