The nation’s consumer bureau took a first step to erase medical debt from credit reports and lending decisions because that type of debt “has little predictive value.”
WASHINGTON – The Consumer Financial Protection Bureau (CFPB) – the national agency focused on consumer issues – began a rulemaking process to remove medical bills from Americans’ credit reports.
The CFPB outlined proposals under consideration – moves that it says would help families recover from medical crises, stop debt collectors from coercing people into paying bills they may not owe, and ensure that creditors don’t rely on data that is often plagued with inaccuracies and mistakes.
“Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports,” says CFPB Director Rohit Chopra. “When someone gets sick, they should be able to focus on getting better rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”
“Access to health care should be a right and not a privilege,” Vice President Kamala Harris told reporters as she helped CFPB make the announcement. “These measures will improve the credit scores of millions of Americans so that they will better be able to invest in their future.”
A 2022 CFPB report found that roughly 20% of Americans have medical debt, but, based on previous research, that type of debt isn’t a fair reflection on their future ability to repay a loan, unlike other more traditional credit obligations.
It’s not just the fact that medical debt isn’t important to analyzing a person’s credit, though. CFPB also claims that it also has a lot more mistakes and inaccuracies, compounded by problems such as disputes over insurance payments or complex billing practices.
The initial rule-making document released by CFPB is an outline of proposals and alternatives under consideration. If finalized without changes, it would:
- Remove medical bills from consumers’ credit reports: Credit-score companies would be prohibited from including medical debts and collection information on credit reports used in underwriting decisions.
- Stop creditors from relying on medical bills for underwriting decisions: It would narrow a 2005 exception and prohibit creditors from using medical collection information when evaluating borrowers’ credit applications.
- Stop coercive collection practices: Debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.
The proposal would not stop creditors from obtaining medical bill information for other purposes, though, such as verifying medical forbearances or evaluating loan applications for medical services. A complete overview of the proposal is posted on CFPB’s website.
CFPB says it started the rule change in July when it held public hearings and took comments. It says it also continues to receive complaints from the public about illegal debt collection and credit reporting practices related to medical billing.
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