CFPB Proposes Game-Changing Rule to Remove Medical Debt from Credit Reports: A Step Towards Fairness and Increased Credit Access
CFPB Proposes Rule to Exclude Medical Bills from Credit Reports
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) has announced a significant proposed rule aimed at removing medical bills from most credit reports in an effort to alleviate the financial burden many Americans face due to medical debt. The initiative is designed not only to enhance privacy protections but also to boost credit scores and ease access to loans for countless citizens.
A Step Forward for Consumer Protection
CFPB Director Rohit Chopra emphasized the importance of this proposal, stating, ‘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. Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.’
Currently, medical debts can negatively affect credit scores and impede individuals’ abilities to secure loans, with many consumers facing coercive tactics from debt collectors. The proposed rule aims to eliminate credit reporting companies’ ability to share medical debts with lenders, ensuring that medical information cannot be a basis for lending decisions.
Addressing Regulatory Gaps
This proposal seeks to close a regulatory loophole that has allowed creditors to utilize medical debt information despite previous restrictions placed by Congress in 2003 through the Fair and Accurate Credit Transactions Act. The CFPB’s research suggests that including medical debts in credit reports often leads to inaccurate underwriting decisions and can unjustly harm borrowers’ creditworthiness.
Since releasing a report in 2014 that highlighted the low predictive value of medical debts for lenders, the Bureau has witnessed a shift in industry practices. Notably, the three major credit reporting agencies—Equifax, Experian, and TransUnion—have begun removing many medical bills from credit reports. Additionally, credit scoring systems from FICO and VantageScore have reduced the weight of medical debt in scoring calculations. Nonetheless, millions of Americans still grapple with substantial amounts of medical debt reflected on their credit profiles.
Proposed Regulatory Changes
The proposed rule outlines several fundamental changes:
- Elimination of the Medical Debt Exception: Under the new rule, lenders would no longer be allowed to use medical debt information to influence credit eligibility decisions. However, they can still consider medical information pertinent to disabilities and benefits, given that specific conditions are satisfied.
- New Guidelines for Credit Reporting Companies: The rule aims to prevent credit reporting firms from including medical debt when lenders are barred from using such information in their decision-making processes.
- Protection of Medical Devices: The proposal would also prohibit lenders from using medical devices as collateral for loans and prevent them from repossessing essential medical equipment if individuals are unable to repay their loans.
Potential Benefits for Consumers
The CFPB projects that this reform could lead to an estimated 22,000 additional safe mortgage approvals each year, significantly improving access to home ownership for American families. For consumers burdened with medical debt currently on their credit reports, the CFPB anticipates an average credit score increase of around 20 points if the proposed rule is finalized.
Deadline for Public Comment
The CFPB will accept public comments concerning this proposed rule until August 12, 2024. Stakeholders and interested parties can provide feedback and learn more about the details of the proposal by visiting the CFPB’s website.
For consumers wishing to report issues regarding credit reporting or financial products, they are encouraged to reach out via the CFPB’s dedicated channels. The Consumer Financial Protection Bureau continues to advocate for a transparent, fair, and competitive financial market, ensuring consumers are empowered in their financial decisions.
For more information about the proposed rule and the CFPB’s ongoing work surrounding medical debt, please visit www.consumerfinance.gov.
