In June 2024, the Consumer Financial Protection Board (CFPB) proposed a new rule that would remove medical debt from credit reports if adopted.
The new rule would also limit debt collectors’ ability to report failure to pay medical debt to credit bureaus. It would also privacy protections for people who owe medical-related debt.
The proposed rule aims to close a regulatory loophole that previously allowed creditors to consider medical debt when making lending decisions. The CFPB cited inaccurate or false medical bills found in credit reports as cause for considering its exclusion in determining credit scores.
Causes for Concern
A CFPB study revealed that medical debt is an unreliable predictor of a borrower’s ability to repay loans. In 2022, the agency reported that approximately 100 million Americans collectively carried $88 billion in medical debt.
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Major credit reporting companies Equifax, Experian, and TransUnion reported the removal of some medical debt from credit reports, primarily debt that has already been paid or is under $500. FICO and VantageScore reduced the weight they assign to medical debt in credit scores. However, $49 billion in medical debt still went to collections and showed up in credit reports in April 2024.
The CFPB expressed concern that some reported medical debt might not exist at all, while adversely impacting consumers’ credit scores. It alleges that debt creditors can leverage credit scores against consumers to convince them to pay a debt that might not actually exist.
The FTC seconds this with a recommendation that consumers dispute any debt they may not recall owing if contacted by a debt collector.
State-Level Actions
Some states are already taking action on this issue. In September, California Governor Gavin Newsom signed a bill disallowing credit agencies from using medical debt as a rating factor in credit scores.
Likewise, Colorado, Illinois, Maryland, and New Mexico also recently passed laws involving medical liabilities’ influence on consumers. However, Urban Institute reported reports that healthcare consumers often face challenges accessing their rights under these laws. Common obstacles include a lack of awareness, issues with health insurance, and language barriers.
Where Things Stand
A bill, the Reporting Medical Debt Payments as Positive Consumer Credit Information Act of 2024, was introduced and referred to the House Committee on Financial Services on October 1, 2024. The bill’s objective is to “[t]o amend the Fair Credit Reporting Act to require reporting certain positive consumer credit information.”
NCLC senior attorney Chi Chi Wu referred to this bill as a “Trojan horse” that could harm the CFPB’s efforts to address this issue. Comments on the CFPB’s proposed rule include criticism from health professional organizations like APMA, who say the new rule could harm the healthcare industry by removing consequences for patients defaulting on medical bills.
The Consumer Financial Protection Board’s new proposal still has to go through an approval process. The comment closed on Aug. 12 of this year. However, the agency invites the public to direct queries to the Office of Regulations if they want to weigh in.
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This article is for informational purposes only and does not constitute financial advice. The views and opinions expressed are those of the author and do not represent recommendations for any specific financial actions. Neither author nor publication receives a commission through recommended links in this content.
