The Consumer Financial Protection Bureau this morning announced the release of its final rule prohibiting the inclusion of medical debt on consumer credit reports. This rule is expected to remove $49 billion in medical debt from credit reports, impacting approximately 15 million consumers. Additionally, it bars lenders from considering medical information in credit decisions, addressing concerns about the fairness and accuracy of medical debt in credit assessments.
Why it matters: Medical debt has long been a controversial factor in credit reporting. Unlike other debts, medical expenses are often unexpected and can involve disputes over billing errors or insurance coverage. The CFPB’s research found that medical debt is a poor predictor of loan repayment, leading to unnecessary denials for mortgages and other credit products. By eliminating medical debt from credit reports, the CFPB estimates an additional 22,000 affordable mortgages could be approved annually, with affected consumers seeing credit score increases of about 20 points.
- Critics argue that the CFPB is overstepping its regulatory authority, targeting practices that are not within its purview and have sounded off against it. Industry groups, including ACA International, have already challenged the CFPB in court over similar measures, citing concerns about overreach and potential harm to credit markets. Congressional Republicans have also expressed their displeasure.
What they’re saying:
- “People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra. “This rule will stop debt collectors from using the credit reporting system to coerce payments for inaccurate or disputed medical bills.”
- Vice President Kamala Harris hailed the decision as “life-changing for millions of families,” emphasizing the importance of economic opportunity regardless of medical emergencies.
The big picture: This rule builds on changes by major credit reporting agencies — Equifax, Experian, and TransUnion — which previously removed certain types of medical debt from reports. It also aligns with initiatives by credit scoring companies like FICO and VantageScore, which have reduced the impact of medical debt on scores.
What’s next: The rule, set to take effect in March 2025, faces opposition from some industry groups who argue it could discourage payment of legitimate debts. However, the CFPB remains firm that this measure is essential for protecting consumers from unfair credit practices.
What it does: Below are the key provisions of the rule:
- Removal of Medical Debt from Credit Reports:
- Consumer reporting agencies are prohibited from including medical debt information in consumer reports used for credit eligibility decisions.
- This restriction applies broadly to all types of medical debts, whether they are paid, unpaid, or low-balance debts.
- Prohibition on Lenders Considering Medical Information:
- The rule ends an existing regulatory exception that allowed creditors to use medical information, including debts, in their credit eligibility determinations.
- Exceptions remain for specific, legitimate uses such as verifying medical-based forbearances or evaluating medical expenses for loans explicitly sought to cover healthcare costs.
- Alignment with Privacy Goals:
- The rule reflects Congress’s intent to limit the use of sensitive medical information in financial decision-making, protecting consumer privacy.
- Creditors can no longer use medical information about devices (e.g., prosthetics) as collateral for loans.
- Consumer Protections Against Coercion:
- Debt collectors are barred from using the credit reporting system to coerce payments for medical debts, especially disputed or inaccurate ones.
