The Consumer Financial Protection Bureau today announced the next step in its plan to prohibit medical debts from being included on consumers’ credit reports, proposing a rule that would remove $49 billion of debts that are currently appearing on those reports.
The CFPB first announced its intentions to ban medical debts from appearing on consumer credit reports last September. When it announced the proposal, and in subsequent statements, the CFPB has said that including medical debts on consumer credit reports is a coercive debt collection practice. The CFPB claims that collectors “improperly” use the credit reporting system to coerce individuals into paying debts that they do not owe. The CFPB said that many companies engage in debt parking where they purchase medical debt and then furnish information about it to the credit reporting agencies and let consumers find out about the debts when they apply for credit. But the CFPB took steps to ban debt parking when it enacted Regulation F, requiring collectors to try and communicate information about a debt to consumers before furnishing information to the credit reporting agencies.
“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, in a statement. “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
If enacted, the rule 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.
Comments on the proposed rule will be accepted through August 12. After analyzing the comments, the CFPB will then issue a final rule.
A number of states have taken steps of their own to enact laws banning the furnishing of medical debts on credit reports — steps that the CFPB has endorsed.
