The


Consumer
Financial
Protection
Bureau
(CFPB)
announced
Tuesday
that
it
was
proposing
a
rule
to
remove
medical
bills
from
most

credit
reports.
In
doing
so,
this
would
prevent
credit-reporting
companies
from
sharing
medical
debts
with
mortgage
lenders
while
prohibiting
lenders
from
making

lending
decisions
based
on
such
information.

Additionally,
the
CFPB
said
the
proposed
rule
would
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.

According
to
the
bureau,
the
proposed
rule
is
part
of
its
efforts
to
address
issues
with
coercive
credit-reporting
practices
and
the
burdens
of
medical
debt.

“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,”
CFPB
Director
Rohit
Chopra
said
in
a
statement.
“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,
the
Fair
and
Accurate
Credit
Transaction
Act
began
to
restrict
lenders
from
obtaining
or
using
consumer
medical
information,
including
information
about
health
care
debts.
Since
then,
however,
some
federal
agencies
have
issued
special
regulatory
exceptions
to
allow
creditors
to
use
medical
debts
in
their
credit
decisions.

According
to
the
CFPB,
the
proposed
rule
would
close
this
loophole
and
“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.”

In
explaining
its
rationale
for
the
proposal,
which
began
its
rulemaking
process
in
September
2023,
the
CFPB
said

its
research
shows
that
a
medical
bill
on
a
person’s
credit
report
is
not
a
good
predictor
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,”
a
statement
from
the
bureau
reads.

The
CFPB
also
said
it
expects
lenders
to
benefit
from
the
improved
underwriting
and
the
increased
volume
of
loan
approvals
through
this
proposed
rule.
It
anticipates
the
rule
would
lead
to
the
approval
of
roughly
22,000
additional
“safe
mortgages“
each
year.
Additionally,
the
CFPB
said
it
expects
the
credit
scores
of
Americans
with
medical
debt
on
their
credit
reports
to
rise
by
an
average
of
20
points
if
the
rule
is
finalized.

In
March
2022,
a
report
from
the
CFPB
found
that
medical
bills
accounted
for
an
estimated

$88
billion
of
reported
debts
on
credit
reports.
Since
then,


Equifax,


Experian
and


TransUnion
announced
that
they
would
take
many
of
these
bills
off
credit
reports,
while


FICO
and


VantageScore
announced
that
they
would
decrease
the
degree
to
which
medical
bills
impact
a
consumer’s
score.

But
the
CFPB
recently
reported
that
despite
these
changes,

15
million
Americans
still
have
a
total
of
$49
billion
in
outstanding
medical
bills
in
the
credit-reporting
system.
The
bureau
also
noted
that
the
changes
made
by
FICO
and
VantageScore
have
not
succeeded
in
getting
rid
of
the
credit-score
difference
between
people
with
and
without
medical
debt.

The
CFPB
is
seeking
comments
on
the
proposed
rule,
which
must
be
submitted
on
or
before
Aug.
12,
2024.

If
approved,
the
CPFB
said
the
rule
would
eliminate
the
special
medical-debt
exemption
for
lenders,
establish
guardrails
for
credit-reporting
companies
and
ban
the
repossession
of
medical
devices.

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