Photo by RDNE / Pexels
In a recent press release, the Consumer Financial Protection Bureau (CFPB) announced a significant regulatory change that will remove approximately $49 billion in medical debt from the credit reports of 15 million Americans. This new rule prohibits the use of medical debt in lending decisions and strengthens consumer protections.
What Does the New Rule Do?
- Removes Medical Debt from Credit Reports:
- Credit reporting agencies (Equifax, Experian, TransUnion) can no longer include medical bills in reports sent to lenders.
- Prevents medical debt to pressure consumers into paying disputed or inaccurate bills.
- Bans Lenders from Using Medical Information:
- Lenders can no longer consider medical debt or related information (e.g., prosthetic devices) in loan decisions.
- Prohibits requiring medical devices as collateral for loans.
- Strengthens Consumer Privacy:
- Aligns with federal privacy laws to safeguard sensitive medical information in financial decisions.
Why This Rule Matters
- Medical Debt is Unreliable for Lenders: Research shows medical debt is a poor indicator of whether someone can repay other debts.
- Impact on Credit Scores: Millions of consumers could see their credit scores rise by an average of 20 points.
- Expanded Mortgage Approvals: Because medical debt no longer blocks access, an estimated 22,000 additional affordable home loans will be approved annually.
Addressing Past Abuses
The CFPB found that debt collectors and credit reporting agencies often included inaccurate or legally invalid medical debts in reports. This practice harmed consumers by:
- They are denied loans they can afford, such as mortgages.
- Coercing payments for bills that should have been covered by insurance or financial aid.
This rule puts an end to these exploitative practices by:
- Prohibiting debt collectors from using credit reports as leverage to collect disputed medical bills.
- Ensuring that medical debts no longer affect credit scores or loan approvals.
How This Fits with Industry Changes
The CFPB’s action builds on previous reforms:
- In 2022, credit reporting agencies removed medical debts under $500 and older debts already paid.
- Credit scoring companies like FICO and VantageScore reduced the weight of medical debt in credit score calculations.
This rule takes the next step by eliminating medical debt from credit reports altogether.
Implementation Timeline
The rule will take effect 60 days after publication in the Federal Register.
Consumer Protections and Resources
- Debt Collection Guidance: The CFPB previously clarified that collecting inaccurate or legally invalid medical debts violates federal law.
- No Surprises Act Reminder: Credit reporting companies and debt collectors must comply with laws preventing surprise medical bills.
If you experience issues with financial products or services, file a complaint with the CFPB:
- Online: Visit the CFPB website.
- Phone: Call (855) 411-CFPB (2372).
