Medical bills may soon disappear from credit reports, thanks to a groundbreaking proposal from the Consumer Financial Protection Bureau (CFPB). Announced on Tuesday, the new rule seeks to prevent credit reporting companies from including medical debts in reports, effectively barring lenders from factoring these debts into their lending decisions.
While the Fair and Accurate Credit Transactions Act has restricted lenders from using medical information in credit decisions, exceptions in federal legislation have allowed medical debt to persist as a consideration. The CFPB’s proposal would close this loophole, offering relief to millions of Americans burdened by medical bills.
“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 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.”
The Weight of Medical Debt
Medical debt has been a heavy burden on U.S. consumers, with a 2022 CFPB report estimating the nation carries at least $88 billion in unpaid medical bills. This debt disproportionately impacts Black and Hispanic communities, adding to systemic financial disparities.
Even with over 90% of the U.S. population covered by health insurance, high out-of-pocket costs force many Americans to sacrifice basic needs, like food and clothing, to manage medical expenses, according to the Kaiser Family Foundation.
The Biden Administration has taken steps to address this issue, advocating for the removal of medical debt from credit reports. Studies show that medical debts are a poor predictor of a person’s ability to repay other types of loans, highlighting the need for reform.
Industry Response and Progress
The credit reporting industry has already started shifting practices. Since July 2022, TransUnion, Equifax, and Experian have removed paid medical debt from credit reports. FICO has reduced the impact of medical bills on credit scores, while VantageScore completely excluded medical debts in collections from scoring models as of January 2023.
The CFPB’s proposed rule also includes measures to protect Americans struggling to pay off loans on essential medical devices, such as wheelchairs and prosthetic limbs. If finalized, the rule would ban repossession of these items due to unpaid debt.
A Step Toward Relief
According to the CFPB, if the rule is implemented, individuals with medical debt on their credit reports could see an average credit score increase of 20 points.
The proposal is currently open for public comment until August 12. Should the rule move forward, it would mark a significant milestone in consumer protection, providing relief to millions grappling with the financial strain of medical debt.
Correction
A previous version of this story incorrectly stated VantageScore’s treatment of medical debt. VantageScore has already excluded medical debts in collections from credit scores, rather than reducing their weight over time.
This rule signals a promising shift toward greater equity and fairness in credit reporting, aligning financial systems with the realities faced by many Americans.
