Understanding the CFPB’s New Regulation on Medical Debt Reporting

The Consumer Financial Protection Bureau (CFPB) has recently proposed a significant new regulation aimed at removing almost all medical debt from most credit reports. In its statement the CFPB stated “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.“ This move is part of a broader effort to address the burden of medical debt and to protect consumers from coercive debt collection practices. In 2023, the three major credit reporting agencies, Trans Union, Experian and Equifax, voluntarily began a policy of not reporting medical debts under $500.  Nonetheless the CFPB found that roughly 15 million Americans have approximately $49 billion in medical debt on their credit reports. Further the CFPB found that older people, low-income families and people in rural areas were disproportionally impacted by medical debt.  Here’s what you need to know about this proposed new regulation and its potential impact.

What is the New Regulation?

The CFPB’s proposed rule would prohibit creditors from using information related to medical debt in making credit determinations and prohibit credit reporting companies from including medical debts on consumer credit reports. This means that unpaid medical bills would no longer negatively impact credit scores or influence lenders’ decisions when evaluating loan applications. The goal is to prevent debt collectors from using medical debt as leverage to coerce payments from consumers.

Why is this Regulation Important?

Medical debt is a significant issue in the United States, affecting millions of Americans. It often arises from complex billing practices, disputes over insurance payments, and unexpected medical expenses. The CFPB’s research shows that medical bills on credit reports have little predictive value in determining a person’s creditworthiness. By removing these debts from credit reports, the regulation aims to improve credit scores, increase loan approvals, and reduce the financial stress on consumers.

How Will this Regulation Impact Consumers?

The proposed rule is expected to have several positive effects for consumers:

• Improved Credit Scores: By removing medical debt from credit reports, consumers’ credit scores will likely improve, making it easier to qualify for loans and other financial products.
• Increased Loan Approvals: Lenders will no longer consider medical debt when making underwriting decisions, leading to more loan approvals.
• Reduced Coercive Practices: Debt collectors will no longer be able to use medical debt as a tool to pressure consumers into paying questionable debts.

What Should Consumers Do Now?

While the regulation is still in the proposal stage, it’s important for consumers to stay informed and take proactive steps to manage their medical debt:

• Review Credit Reports: Regularly check your credit reports for any inaccuracies or medical debts that should not be there.
• Dispute Errors: If you find any errors, dispute them with the credit reporting agencies and the CFPB.
• Seek Legal Assistance: If you’re facing aggressive debt collection practices, consider consulting with a consumer rights attorney to understand your rights and options.

The CFPB”s new proposed regulations on medical debt would create a powerful tool to assist consumers to have more accurate credit reports.  If you need assistance with medical debt inaccurately reporting on your credit report, you should contact a consumer protection attorney.