Medical Debt May Be Removed From Credit Reports

Medical bills may soon be banned from credit reports under a new rule proposed Tuesday by the Consumer Financial Protection Bureau (CFPB). 

While lenders have been restricted from obtaining or using medical information in their credit decisions under the Fair and Accurate Credit Transactions Act, exceptions in federal legislation allowed lenders to continue doing so. The proposed change would effectively close that loophole by barring credit reporting companies from disclosing medical debts to lenders, and prevent lenders from using that debt to make lending decisions. 

"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,” said CFPB Director Rohit Chopra in a Tuesday press release. "Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans."

Medical debt is strenuous on many Americans. Per a 2022 CFPB report, the U.S. has $88 billion in medical debt, though the Bureau estimates that amount could be much higher. The burden of medical debt disproportionately affects Black and Hispanic populations. 

Even though more than 90% of the U.S. population has some form of health insurance, many are overburdened by high levels of debt associated with medical costs, which often leads people to cut spending on food, clothing, and other household items, according to polling by the Kaiser Family Foundation.

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The Biden Administration has been working on removing or eliminating medical debt for consumers, as the CFPB found that medical debts “provide less predictive value to lenders than other debts on credit reports.” 

TransUnion, Equifax and Experian removed cleared medical debt from credit reports starting in July 2022, removing red markers on their credit reports. FICO announced that they decreased the extent to which medical bills affect people’s credit scores, while VantageScore stopped factoring medical debts that are in collections into scores as of January 2023.

Under the proposed rule, companies would also be banned from taking or repossessing medical devices, like wheelchairs or prosthetic limbs, if people cannot pay off a loan. 

The CFPB has opened the rule for comment through August 12, as per the rulemaking process. If the rule is finalized, the CFPB estimates that Americans with medical debt on their credit report will see an increase of 20 points on average.

Correction, June 18

The original version of this story misstated how VantageScore factors medical debt into their scores. They have already removed medical debt collections from scores; they are not currently decreasing the extent to which medical debt is factored in.

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