New CFPB Rule Bans Medical Debt on Credit Reports
As the Biden Administration’s days continue to wane, the Consumer Financial Protection Bureau (CFPB) recently finalized a rule that will remove roughly $49 billion in medical debt from the credit reports of nearly 15 million Americans. While a trade group almost immediately filed a lawsuit challenging the rule, if it remains in place, lenders will no longer be able to take medical debt into consideration when deciding whether to issue a loan, such as mortgages, car loans, or small business loans.
“People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.” The Bureau found that medical bills provide little information about borrowers’ repayment capabilities.
The Associated Press noted that the rule is estimated to raise credit scores by an average of 20 points, and could lead to 22,000 more mortgages getting approved each year. The rule aligns regulations with Congress’s decision to protect consumers’ privacy, as lenders will not be able to obtain or use consumers’ medical information.
A CFPB report from 2022 estimated that medical bills accounted for $88 billion in debt on consumer credit reports, according to PYMNTS. Upon those findings, Equifax, Experian, and TransUnion announced they would stop including paid medical debts, unpaid medical debt less than one year old, and medical debt below $500 on credit reports.
This change could be monumental for consumers living paycheck to paycheck, as unexpected medical bills were among the most common unplanned expenses for consumers, and cost them an average of $6,200.
“Our study found that credit-marginalized consumers — those who have been rejected for at least one credit product in the past year — are 47% more likely than the average consumer to face unexpected expenses,” PYMNTS wrote last spring. “And, because of their credit-challenged status, they are more than twice as likely to turn to high-interest credit products to cover emergency costs.
