CFPB Bans Medical Debt From Consumer Credit Reports

Medical debt will no longer appear on consumers’ credit reports under a new government rule.

The Consumer Financial Protection Bureau (CFPB)’s newly-finalized regulation, announced by the White House Tuesday (Jan. 7), will remove $49 billion in medical debt from more than 15 million Americans’ credit reports.

That means lenders will no longer be able to factor medical debt into decisions about mortgages or car loans.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Vice President Kamala Harris said in the White House announcement, adding that the rule would be “lifechanging” for millions of households.

The CFPB says the rule change will raise affected consumers’ credit scores by 20 points on average and could lead to 22,000 additional mortgage approvals each year. The White House also notes that several state and local governments have eliminated roughly $1 billion in medical debt for their residents, with that figure on track to reach $7 billion by the end of 2026.

Research from the CFPB finds that medical bills are “poor predictors” of someone’s ability to repay loans, and that medical bills “are often confusing and erroneous,” the announcement said.

A report by the regulator from 2022 estimated that medical bills accounted for $88 billion in debt on consumers’ credit reports. In the wake of the CFPB’s findings, the three main credit reporting agencies announced they would stop including paid medical debts, unpaid medical debts less than a year old, and medical debt under $500 from credit reporting.

“Despite these voluntary changes, 15 million Americans still have $49 billion in outstanding medical bills in collections appearing in the credit reporting system,” the announcement noted.

The change could be good news for the millions of Americans who live paycheck to paycheck and struggle to pay their bills. As PYMNTS wrote last month, a little more than half of this group had no readily available savings.

Meanwhile, research last year from PYMNTS Intelligence found that unexpected medical bills were among the most common unplanned expenses for consumers, costing them an average of about $6,200.

“Our study found that credit-marginalized consumers — those who have been rejected for at least one credit product in the past year — are 47% more likely than the average consumer to face unexpected expenses,” PYMNTS wrote last spring. “And, because of their credit-challenged status, they are more than twice as likely to turn to high-interest credit products to cover emergency costs.”