The Consumer Financial Protection Bureau (CFPB) has finalized a rule that will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans. The rule bans the inclusion of medical bills on credit reports used by lenders and prohibits 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. Medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts, the CFPB has found.
Consumers frequently report receiving inaccurate bills or, worse, being asked to pay bills that should have been covered by insurance or financial assistance programs.
“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.”
The CFPB’s research reveals that a medical bill on a person’s credit report is a poor predictor of whether they will repay a loan. Such credit reporting contributes to thousands of denied applications on mortgages that consumers would be able to repay. The CFPB expects approximately 22,000 additional, affordable mortgages to be approved every year because of the new rule. Americans with medical debt on their credit reports could see their credit scores rise by an average of 20 points.
The CFPB’s action follows changes made by the three nationwide credit reporting conglomerates. Equifax, Experian, and TransUnion announced that they would remove certain types of medical debt from 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 CFPB’s final rule 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. This carveout has enabled debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills.
The CFPB’s new rule amends Regulation V, which implements the Fair Credit Reporting Act (FCRA), to end this exception and establish guardrails for credit reporting companies. This will prohibit them from including medical bills on credit reports sent to lenders, who are banned from considering them.
The final rule:
- Prohibits lenders from considering medical information: The rule ends the special regulatory carveout that had allowed creditors to use certain medical information in making lending decisions. This means lenders will also be barred from using information about medical devices, such as prosthetic limbs, that could be used to require that the devices serve as collateral for a loan for the purposes of repossession.
- Bans medical bills on credit reports: The rule bans consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to coerce payment of bills regardless of their accuracy. Lenders will continue to be able to consider medical information to verify medical-based forbearances, verify medical expenses that a consumer needs a loan to pay, consider certain benefits as income when underwriting, and other legitimate uses.
The rule advances the CFPB’s work to protect consumers from harms from medical debt and coercive debt collection practices. In October, the CFPB issued guidance clarifying that debt collectors violate federal law when they collect on inaccurate or legally invalid medical debts. Previously, the CFPB 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.
The rule will be effective 60 days after publication in the Federal Register.
