CFPB Proposes the Removal of Medical Bills From Credit Reports

The Consumer Financial Protection Bureau (CFPB) has begun a rulemaking process to remove medical bills from Americans’ credit reports.

The Bureau has outlined proposals that would help families financially recover from medical crises, stop debt collectors from coercing people into paying bills they may not even owe, and ensure that creditors are not relying 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,” said 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.”

A 2022 report found that roughly 20% of Americans report having medical debt, but previous research by the CFPB has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. Mistakes and inaccuracies in medical billing are common and can be compounded by problems such as disputes over insurance payments or complex billing practices.

The Fair Credit Reporting Act (FCRA) restricts creditors’ ability to use medical information in making credit decisions and places limits on the inclusion of medical information on credit reports. The FCRA also granted five financial regulators authority to create regulatory exemptions to the restriction on creditors’ use of medical information, and in 2005, those regulators created an exception to allow creditors to rely on medical data if it could be characterized as “financial information.”

The document released by the CFPB is an outline of proposals and alternatives under consideration for the CFPB’s medical debt rulemaking. If finalized, they would:

• Remove medical bills from consumers’ credit reports: Consumer reporting companies would be prohibited from including medical debts and collection information on consumer reports that creditors use in making underwriting decisions.
• Stop creditors from relying on medical bills for underwriting decisions: The proposal would narrow the 2005 exception and prohibit creditors from using medical collections information when evaluating borrowers’ credit applications.
• Stop coercive collection practices: As unpaid medical bills would no longer appear on consumers’ credit reports used by creditors in making underwriting decisions, 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, such as verifying the need for medical forbearances, or evaluating loan applications to pay for medical services.

In advance of beginning the rulemaking process, the CFPB has engaged with the public on this issue. In a public hearing in July 2023, the CFPB met with and listened to people from across the country on the impact poor medical billing practices and coercive credit reporting have on patients and families. The CFPB, in partnership with other agencies, is currently reviewing information submitted by the public on medical billing practices, including high-cost specialty financial products such as medical credit cards and installment loans. The CFPB continues to receive complaints from the public about illegal debt collection and credit reporting practices related to medical billing.

The CFPB is taking steps to empower consumers by having them take more control over their personal financial data and how it is being used by companies. In addition to this announcement, the CFPB previously launched an inquiry into the practices of data brokers, and how companies that track and collect information on people’s personal lives impact consumers. As announced on August 15, 2023, the CFPB is considering proposals relating to data brokers.

The document released is an outline of proposals and alternatives under consideration for the CFPB’s Fair Credit Reporting Act Rulemaking. The medical debt announcement, and the August announcement on data brokers, are part of that rulemaking.