CFPB to remove medical debt from credit reports

Photo: Jose Luis Pelaez/Getty Images

Under a new rule finalized this week by the Consumer Financial Protection Bureau, medical bills will no longer be included on credit reports, a move the CFPB expects will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans.

The rule will ban the inclusion of medical bills on credit reports used by lenders and prohibit lenders from using medical information in their lending decisions. It will also increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don't owe, the agency said.

Medical debts provide little predictive value to lenders about borrowers' ability to repay other debts, and consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs, according to the CFPB.

"People who get sick shouldn't have their financial future upended," said CFPB Director Rohit Chopra. "The CFPB's final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe."

WHAT'S THE IMPACT?

CFPB research shows that a medical bill on a person's credit report is a poor predictor of whether they will repay a loan, and contributes to thousands of denied applications on mortgages that consumers would be able to repay. 

The CFPB expects the rule will lead to the approval of approximately 22,000 additional, affordable mortgages every year and that Americans with medical debt on their credit reports could see their credit scores rise by an average of 20 points.

These actions follow changes made by the three nationwide credit reporting conglomerates – Equifax, Experian and TransUnion – which announced they would take certain types of medical debt off of credit reports, including collections under $500, after the CFPB raised concerns about medical debt credit reporting in early 2022. Additionally, FICO and VantageScore, the two major credit scoring companies, announced they have decreased the degree to which medical bills impact a consumer's score.

The final rule, CFPB said, brings regulations in line with Congress's decision to safeguard consumers' privacy by restricting lenders from obtaining or using medical information, including information about medical debts.

"Federal financial regulators later created an exception to this restriction, allowing creditors to consider medical debts," the agency wrote. "This carveout has enabled debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills."

THE LARGER TREND

In October, the CFPB issued guidance clarifying that debt collectors violate federal law when they collect on inaccurate or legally invalid medical debts. 

In 2022, the CFPB published 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.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.