CFPB Proposes to Ban Medical Bills from Credit Reports Rule would remove as much as $49 billion of medical debts that unjustly lowers credit scores for 15 million Americans

 

• CFPB Proposes to Ban Medical Bills from Credit Reports

  Rule would remove as much as $49 billion of medical debts that unjustly lowers credit scores for 15

  million Americans

  Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today proposed a rule that would

  remove medical bills from most credit reports, increase privacy protections, help to increase credit

  scores and loan approvals, and prevent debt collectors from using the credit reporting system to coerce

  people to pay. The proposal would stop credit reporting companies from sharing medical debts with

  lenders and prohibits lenders from making lending decisions based on medical information. The

  proposed rule is part of the CFPB’s efforts to address the burden of medical debt and coercive credit

  reporting practices.

  "The CFPB is seeking to end the senseless practice of weaponizing the credit reporting system to coerce

  patients into paying medical bills that they do not owe,” said CFPB Director Rohit Chopra. "Medical bills

  on credit reports too often are inaccurate and have little to no predictive value when it comes to

  repaying other loans."

  In 2003, Congress restricted lenders from obtaining or using medical information, including information

  about debts, through the Fair and Accurate Credit Transactions Act. However, federal agencies

  subsequently issued a special regulatory exception to allow creditors to use medical debts in their credit

  decisions.

  The CFPB is proposing to close the regulatory loophole that has kept vast amounts of medical debt

  information in the credit reporting system. The proposed rule would help ensure that medical

  information does not unjustly damage credit scores, and would help keep debt collectors from coercing

  payments for inaccurate or false medical bills.

  The CFPB’s research reveals that a medical bill on person’s credit report is not a good predicter of

  whether they will repay a loan. In fact, the CFPB’s analysis shows that medical debts penalize consumers

  by making underwriting decisions less accurate and leading to thousands of denied applications on

  mortgages that consumers would repay. Since these are loans people will repay, the CFPB expects

  lenders will also benefit from improved underwriting and increased volume of safe loan approvals. In
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  terms of mortgages, the CFPB expects the proposed rule would lead to the approval of approximately

  22,000 additional, safe mortgages every year.

  In December 2014, the CFPB released a report

  showing that medical debts provide less predictive value

  to lenders than other debts on credit reports. Then in March 2022, the CFPB released a report

  estimating that medical bills made up $88 billion of reported debts on credit reports. In that report, the

  CFPB announced that it would assess whether credit reports should include data on unpaid medical bills.

  Since the March 2022 report, the three nationwide credit reporting conglomerates – Equifax, Experian,

  and TransUnion – announced

  that they would take many of those bills off credit reports, and FICO and

  VantageScore, the two major credit scoring companies, have decreased the degree to which medical

  bills impact a consumer’s score.

  Despite these voluntary industry changes, 15 million Americans

  still have $49 billion in outstanding

  medical bills in collections appearing in the credit reporting system. The complex nature of medical

  billing, insurance coverage and reimbursement, and collections means that medical debts that continue

  to be reported are often inaccurate or inflated. Additionally, the changes by FICO and VantageScore

  have not eliminated the credit score difference between people with and without medical debt on their

  credit reports. We expect that Americans with medical debt on their credit reports will see their credit

  scores rise by 20 points, on average, if today’s proposed rule is finalized.

  Under the current system, debt collectors improperly use the credit reporting system to coerce people

  to pay debts they may not owe. Many debt collectors engage in a practice known as “debt parking,”

  where they purchase medical debt then place it on credit reports, often without the consumer’s

  knowledge. When consumers apply for credit, they may discover for the first time that a medical bill is

  hindering their ability to get a loan. Consumers may then feel forced to pay the medical bill in order to

  improve their credit score and be approved for a loan, regardless of the debt’s validity.

  Specifically, the proposed rule, if finalized would:

  • Eliminate the special medical debt exception: The proposed rule would remove the exception

  that broadly permits lenders to obtain and use information about medical debt to make credit

  eligibility determinations. Lenders would continue to be able to consider medical information

  related to disability income and similar benefits, as well as medical information relevant to the

  purpose of the loan, so long as certain conditions are met.

  • Establish guardrails for credit reporting companies: The proposed rule would prohibit credit

  reporting companies from including medical debt on credit reports sent to creditors when

  creditors are prohibited from considering it.

  • Ban repossession of medical devices: The proposed rule would prohibit lenders from taking

  medical devices as collateral for a loan, and bans lenders from repossessing medical devices, like

  wheelchairs or prosthetic limbs, if people are unable to repay the loan.
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  The CFPB began today’s rulemaking in September 2023 with the goals of ending coercive debt collection

  practices and limiting the role of medical debt in the credit reporting system. The CFPB additionally

  published in 2022 a

  report describing the extensive and debilitating effects of medical debt along with a

  bulletin on the No Surprises Act to remind credit reporting companies and debt collectors of their legal

  responsibilities under that legislation.

  Read today’s proposed rule, Prohibition on Creditors and Consumer Reporting Agencies Concerning

  Medical Information (Regulation V). [Link]

  Read the Unofficial Redline of the Prohibition on Creditors and Consumer Reporting Agencies Concerning

  Medical Information (Regulation V). [Link]