Podcast - The CFPB's Effort to Remove Medical Debt from Credit Reports

Anthony DiResta: Welcome to another podcast of "Clearly Conspicuous." As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this governmental environment that's very aggressive and progressive, make you aware of what's going on with the consumer protection agencies, and give you practical tips for success. It's a privilege to be with you today.

CFPB Proposes Rule to Remove Medical Bills from Credit Reports

Today we discussed the CFPB proposed rule to remove medical bills from credit reports. Specifically, the CFPB is proposing a rule that would remove medical bills from most credit reports, with the goals to increase privacy protections, help to increase credit scores and loan approvals, and prevent debt collectors from using the credit reporting system to coerce people to pay. The proposal would stop credit reporting companies from sharing medical debts with lenders, and prohibit lenders from making lending decisions based on medical information. The proposed rule was part of the CFPB's efforts to address the burden of medical debt and coercive credit reporting practices. As Director Chopra states, "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. Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans."

CFPB Research and Industry Changes

In 2003, Congress restricted lenders from obtaining or using medical information, including information about debts, through the Fair and Accurate Credit Transactions Act. However, federal agencies subsequently issued a special regulatory exception to allow creditors to use medical debts in their credit decisions. The CFPB is proposing to close that regulatory loophole that has kept vast amounts of medical debt information in the credit reporting system. The proposed rule seeks to help ensure that medical information does not unjustly damage credit scores, and would help keep debt collectors from coercing payments for inaccurate or false medical bills. CFPB's research reveals that a medical bill on the person's credit report is not a good predictor of whether they will repay the loan. In fact, the CFPB's analysis shows that medical debts penalize consumers by making underwriting decisions less accurate and leading to thousands of denied applications on mortgages that consumers would repay. Since these are loans people will repay, the CFPB expects lenders will also benefit from improved underwriting and increased volume of safely approvals. In terms of mortgages, the CFPB expects the proposed rule would lead to the approval of approximately 22,000 additional safe mortgages every year.

In December of 2014, the CFPB released a report showing that medical debts provide less predictive value to lenders than other debts on credit reports. Then in March 2022, the CFPB released a report estimating that medical bills made up $88 billion of reported debts on credit reports. In that report, the CFPB announced that it would assess whether credit reports should include data on unpaid medical bills. Since the March 2022 report, three national credit reporting conglomerates, Equifax, Experian and Trade Union, announced that they would take many of those bills off a part of reports, and FICO and VantageScore, the two major credit scoring companies, have decreased the degree to which medical bills impact consumers' scores. Despite these voluntary industry changes, 15 million Americans still have $49 billion in outstanding medical bills and collections appearing in the credit reporting system. The complex nature of medical billing, insurance coverage, and reimbursement and collections means that medical debts that continue to be reported are often inadequate or inflated. Additionally, the changes by FICO and VantageScore have not eliminated the credit score difference between people with and without medical debt and their credit reports.

The CFPB began this rulemaking in September of 2023, with the goals of ending coercive debt collection practices and limiting the role of medical debt in the credit reporting system. The CFPB additionally published in 2022 a report describing the extensive and debilitating effect of medical debt, along with the Bulletin and the No Surprises Act, to remind credit reporting companies and debt collectors of the legal responsibilities under that legislation. Comments must be received on or before August 12, 2024.

Concluding Thoughts

So here's the key takeaway: The CFPB is very active with rulemaking initiatives, and this effort to remove medical bills from credit reports demonstrates their philosophy that regulation is needed and warranted. So please stay tuned to further programs as we identify and address the key issues and developments, and provide strategies for success. I wish you a meaningful day and continued success. Thank you.