The Consumer Financial Protection Bureau (CFPB) has introduced a proposed rule that aims to eliminate medical bills from credit reports.
The proposed rule seeks to prevent credit reporting companies from sharing medical debts with lenders and prohibit lenders from using medical information in their lending decisions, according to a press release from the agency on Tuesday, June 11.
“Medical bills on credit reports are often inaccurate and offer little to no predictive value regarding the repayment of other loans,” said CFPB Director Rohit Chopra in the release.
This proposed rule intends to close a “regulatory loophole” that has allowed “vast amounts” of medical information to remain within the credit reporting system, as noted by the CFPB.
Although Congress restricted lenders from accessing or using medical information, including debt information, back in 2003, federal agencies later introduced a regulatory exemption permitting creditors to use medical debts in their credit decisions, the release explained.
The CFPB’s findings indicate that medical debts are less predictive for lenders compared to other debts on credit reports. Furthermore, medical bills accounted for $88 billion of reported debts on credit reports, the release stated.
In response to CFPB reports, the three nationwide credit reporting agencies — Equifax, Experian, and TransUnion — announced plans to remove many medical bills from credit reports. Additionally, major credit scoring companies, FICO and VantageScore, reduced the impact of these bills on consumers’ scores.
Despite these voluntary changes, the credit reporting system still contains $49 billion in outstanding medical bills in collections, affecting 15 million Americans, according to the release.
“The complexity of medical billing, insurance coverage, reimbursement, and collections often results in medical debts being inaccurately or inflatedly reported,” the CFPB mentioned in the release.
The CFPB’s proposed rule would eliminate the special exemption for medical debts, establish new standards for credit reporting companies, and ban the repossession of medical devices, according to the release.
This rulemaking process began in September, with the CFPB stating that removing medical bills from credit reports would provide financial relief to families facing medical crises, prevent debt collectors from pressuring individuals into paying potentially erroneous bills, and ensure creditors do not rely on flawed and unreliable data.
