Rule would remove as much as $49 billion of medical debts that unjustly lowers credit scores for 15 million Americans

June 11, 2024 - WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) today proposed a rule that would remove medical bills from most credit reports, increase privacy protections, help to increase credit scores and loan approvals, and prevent debt collectors from using the credit reporting system to coerce people to pay. The proposal would stop credit reporting companies from sharing medical debts with lenders and prohibit lenders from making lending decisions based on medical information. The proposed rule is part of the CFPB’s efforts to address the burden of medical debt and coercive credit reporting practices.

"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,” said CFPB Director Rohit Chopra. "Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans."

In 2003, Congress restricted lenders from obtaining or using medical information, including information about debts, through the Fair and Accurate Credit Transactions Act. However, federal agencies subsequently issued a special regulatory exception to allow creditors to use medical debts in their credit decisions.

The CFPB is proposing to close the regulatory loophole that has kept vast amounts of medical debt information in the credit reporting system. The proposed rule would help ensure that medical information does not unjustly damage credit scores, and would help keep debt collectors from coercing payments for inaccurate or false medical bills.

The CFPB’s research reveals that a medical bill on a person’s credit report is not a good predicter of whether they will repay a loan. In fact, the CFPB’s analysis shows that medical debts penalize consumers by making underwriting decisions less accurate and leading to thousands of denied applications on mortgages that consumers would repay. Since these are loans people will repay, the CFPB expects lenders will also benefit from improved underwriting and increased volume of safe loan approvals. In terms of mortgages, the CFPB expects the proposed rule would lead to the approval of approximately 22,000 additional, safe mortgages every year.

In December 2014, the CFPB released a report  showing that medical debts provide less predictive value to lenders than other debts on credit reports. Then in March 2022, the CFPB released a report estimating that medical bills made up $88 billion of reported debts on credit reports. In that report, the CFPB announced that it would assess whether credit reports should include data on unpaid medical bills.

Since the March 2022 report, the three nationwide credit reporting conglomerates – Equifax, Experian, and TransUnion – announced that they would take many of those bills off credit reports, and FICO and VantageScore, the two major credit scoring companies, have decreased the degree to which medical bills impact a consumer’s score.

Despite these voluntary industry changes, 15 million Americans still have $49 billion in outstanding medical bills in collections appearing in the credit reporting system. The complex nature of medical billing, insurance coverage and reimbursement, and collections means that medical debts that continue to be reported are often inaccurate or inflated. Additionally, the changes by FICO and VantageScore have not eliminated the credit score difference between people with and without medical debt on their credit reports. We expect that Americans with medical debt on their credit reports will see their credit scores rise by 20 points, on average, if today’s proposed rule is finalized.

Under the current system, debt collectors improperly use the credit reporting system to coerce people to pay debts they may not owe. Many debt collectors engage in a practice known as “debt parking,” where they purchase medical debt then place it on credit reports, often without the consumer’s knowledge. When consumers apply for credit, they may discover that a medical bill is hindering their ability to get a loan. Consumers may then feel forced to pay the medical bill in order to improve their credit score and be approved for a loan, regardless of the debt’s validity.

Specifically, the proposed rule, if finalized would:

• Eliminate the special medical debt exception: The proposed rule would remove the exception that broadly permits lenders to obtain and use information about medical debt to make credit eligibility determinations. Lenders would continue to be able to consider medical information related to disability income and similar benefits, as well as medical information relevant to the purpose of the loan, so long as certain conditions are met.
• Establish guardrails for credit reporting companies: The proposed rule would prohibit credit reporting companies from including medical debt on credit reports sent to creditors when creditors are prohibited from considering it.
• Ban repossession of medical devices: The proposed rule would prohibit lenders from taking medical devices as collateral for a loan, and bans lenders from repossessing medical devices, like wheelchairs or prosthetic limbs, if people are unable to repay the loan.

The CFPB began today’s rulemaking in September 2023 with the goals of ending coercive debt collection practices and limiting the role of medical debt in the credit reporting system. The CFPB additionally published in 2022 a report describing the extensive and debilitating effects of medical debt along with a bulletin on the No Surprises Act to remind credit reporting companies and debt collectors of their legal responsibilities under that legislation.

Read today’s proposed rule, Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V).

Read the Unofficial Redline of the Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V) .

Comments must be received on or before August 12, 2024.

Learn more about Credit Reporting Requirements and the CFPB’s work on medical debt.

Consumers can submit credit reporting complaints, or complaints about financial products or services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.