CFPB Wants to Ban Medical Debt from Credit Reports
Last updated June 12, 2024
The Consumer Financial Protection Bureau (CFPB) wants to reduce the financial fallout from unpaid medical debt, a growing problem in the U.S. This week, the agency proposed a rule that would remove medical debt from most credit reports.
This would boost credit scores for millions of Americans—and prevent debt collectors from using the credit reporting system to pressure people into paying bills for debt they may not owe.
In announcing the proposed rule, the CFPB said the new rule would help increase credit scores and loan approvals, stop credit reporting companies from sharing medical debts with lenders, and prohibit lenders from making lending decisions based on medical information.
“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.”
Medical debt penalizes potential borrowers by making underwriting decisions less accurate and leading to thousands of denied applications for mortgages that consumers would repay, a CFPB analysis found.
The bureau estimated that the proposed rule would result in an additional 22,000 mortgages being approved each year and boost the credit scores of Americans with medical debt by 20 points, on average.
It would also prohibit lenders from using medical devices as collateral for loans and not allow them to repossess medical devices, such as wheelchairs or prosthetic limbs, if people cannot repay the loan.
As Checkbook reported in July 2022, the three largest U.S. credit bureaus—Equifax, Experian, and TransUnion—took steps to remove medical debts from credit reports if they are less than a year old, and delete medical collection debts below $500. Prior to this voluntary change, medical debt stayed in credit files for up to seven years.
Despite these voluntary industry changes, 15 million Americans still have $49 billion in outstanding medical bills in collections and appearing in their credit files, the CFPB said. “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,” it noted.
Consumer groups, including U.S. PIRG and the National Consumer Law Center (NCLC), which had been calling on the CFPB to take action, are delighted with the proposed rule.
“This proposal by the CFPB will improve the lives of Americans,” said Jenifer Bosco, senior attorney at NCLC. “The CFPB’s proposed rule will help tens of millions of Americans who have medical debt on their credit reports, providing immediate relief to people unfairly harmed simply because they got sick.”
Patricia Kelmar, director of U.S. PIRG’s healthcare campaigns, agrees.
“We have known for years that medical debt doesn’t predict credit defaults, nor does it accurately predict a person’s desire and willingness to pay off loans,” Kelmar said. “These newly proposed rules are an important step toward implementing a fair credit system that doesn’t penalize people for life events they can’t control, such as getting sick or injured.”
The Consumer Data Industry Association, the trade group representing the major credit bureaus, said it is reviewing the CFPB’s proposal. In a statement to Checkbook, it said: “The Nationwide Consumer Reporting Agencies understand the important role we play in the financial lives of Americans, and we remain committed to helping facilitate fair and affordable access to credit for all consumers.”
The CFPB is accepting comments until August 12, 2024. The final rule could be issued early next year.
You can file a complaint about medical billing or collections issues on the CFPB’s website.
More from Checkbook:
- Dealing with Unexpected Medical Bills
- How to Find the Best Doctors
- Consumerpedia, episode #9: To Your Credit: Understanding How Credit Scores Work
- Consumerpedia, episode #25: Dealing with Debt
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.