CTPB proposes rule to remove medical bills from credit reports

The Consumer Financial Protection Bureau (CFPB) proposed a new rule that would remove medical bills from most credit reports.

Specifically, the proposed rule would:

• Remove the exception that broadly permits lenders to obtain and use information about medical debt to make credit eligibility determinations;
• Prohibit credit reporting companies from including medical debt on credit reports sent to creditors when creditors are prohibited from considering it; and
• 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.

CFPB officials said this new rule would help to increase credit scores and loan approvals. In terms of mortgages alone, the CFPB expects the proposed rule would lead to the approval of approximately 22,000 additional, safe mortgages every year.

“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. “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, since then, federal agencies issued a special regulatory exception to allow creditors to use medical debts in their credit decisions. The CFPB rule would effectively close the regulatory loophole.

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.

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

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