CFPB Wants to Wipe Medical Bills From Credit Reports

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

This move is intended to provide financial relief to families dealing with medical crises, prevent debt collectors from pressuring individuals into paying potentially inaccurate bills, and ensure that creditors do not rely on flawed and unreliable data, the regulator said in a Thursday (Sept. 21) press release.

Approximately 20% of Americans currently have medical debt, the release said. However, previous research conducted by the CFPB has shown that including medical billing data on credit reports has less predictive value compared to traditional credit obligations. The complexity of medical billing practices, disputes over insurance payments and frequent mistakes contribute to the unreliability of this data.

The Fair Credit Reporting Act (FCRA) already restricts creditors from using medical information in credit decisions, but exceptions have been made to allow creditors to rely on medical data if it can be characterized as “financial information,” according to the press release.

The CFPB’s outline of proposals and alternatives for its medical debt rulemaking includes several key changes, the release said. If finalized, these changes would change the way medical bills are handled in credit reports and credit decisions. 

First, they would remove medical bills from credit reports. Consumer reporting companies would be prohibited from including medical debts and collection information on consumer reports used by creditors for underwriting decisions.

Second, they would restrict creditors from using medical bills for underwriting decisions. The proposal seeks to narrow the 2005 exception that allows creditors to rely on medical collections information when evaluating borrowers’ credit applications.

Third, they would prevent coercive collection practices. With the removal of unpaid medical bills from credit reports, debt collectors would no longer be able to leverage the credit reporting system to pressure consumers into paying questionable debts. 

The proposed changes would not prevent creditors from obtaining medical bill information for other purposes, such as verifying the need for medical forbearances or evaluating loan applications for medical services, according to the press release.

The release of these proposals comes about two months after the CFPB hosted a hearing on medical debt and various payment options. The hearing came against the backdrop where the agency had said in its regulatory agenda that credit reporting and collections would be on the list.

In April, three credit reporting agencies — Equifax, Experian and TransUnion — announced the latest in a series of steps they have taken to remove medical collection tradelines from credit reports. The companies said at the time that nearly 70% of the total medical collection debt tradelines reported to them had been removed from consumer files.