A rule that will remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans was finalized Tuesday by the Consumer Financial Protection Bureau.
The CFPB’s action will ban the inclusion of medical bills on credit reports used by lenders and prohibit them from using medical information in their lending decisions. The rule will increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe.
The CFPB has found that medical debts provide little predictive value to lenders about borrowers’ ability to repay other debts, and consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
The CFPB’s research shows that a medical bill on a person’s credit report contributes to thousands of denied applications on mortgages that consumers would be able to repay. The CFPB expects the rule will lead to the approval of about 22,000 additional, affordable mortgages every year and that Americans with medical debt on their credit reports could see their credit scores rise by an average of 20 points.
The CFPB’s action follows changes made by the three nationwide credit reporting companies – Equifax, Experian, and TransUnion – who announced that they would take certain types of medical debt off of credit reports, including collections under $500, after the CFPB raised concerns about medical debt credit reporting in early 2022.
In addition, FICO and VantageScore, the two major credit scoring companies, announced they’ve decreased how much medical bills impact a consumer’s score.
The rule will go into effective in March.
