CFPB aims to remove medical bills from credit reports

The Consumer Financial Protection Bureau (CFPB) this week announced that it intends to remove medical bills from the credit reports of U.S. consumers.

The policy, announced simultaneously by the Bureau online as well as during a press call with reporters led by Vice President Kamala Harris, is designed to “help families financially recover from medical crises, stop debt collectors from coercing people into paying bills they may not even owe and ensure that creditors are not relying on data that is often plagued with inaccuracies and mistakes,” the CFPB said in its announcement.

According to the new rulemaking, if finalized, they would remove medical bills from consumers’ credit reports, stop creditors from relying on medical bills when making underwriting decisions and “stop coercive debt collection practices.”

The CFPB describes the latter practice by saying “debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.”

According to the vice president, the issue is important for the White House.

“The Consumer Financial Protection Bureau will propose a new rule to make clear that medical debt cannot impact the credit scores of the American people,” Harris said during the call with reporters.

She continued: “Once this rule is final, it will mean, one, that consumer credit reports will not include medical debt and, two, that creditors will not be able to use medical debt to determine a person’s eligibility for credit.”

Harris added her expectation that this rule will “improve the credit scores of millions of Americans,” allowing more people to qualify for mortgages and auto loans and increase their abilities to invest in themselves and their families, and enable more entrepreneurs to borrow money to start businesses.

CFPB Director Rohit Chopra added that CFPB research found medical debt had a disproportionate level of importance among debt collectors.

“CFPB research found that 58% of all third-party debt collection tradelines were for medical debt, making medical debt the most common debt collection tradeline on credit records in 2021,” Chopra said on the call.

He underscored that medical debt accounted for more collection tradelines than credit cards, student loans, utilities and other types of debt combined.

The Bureau has “broad concerns” related to the accuracy of such data due to consumer-reported billing errors being “widespread,” as well as the inability of debt collectors to cross-reference their information with the up-to-date billing information of medical providers themselves.

Major credit reporting agencies have already announced that they will remove reporting of medical bills, at least partially, from credit reports.

“This raises an obvious question,” Chopra said. “If credit bureaus are pulling off much of this information already because it isn’t a good predictor of risk, why should creditors see your medical bills at all? And if creditors don’t need to see your medical billing history, why are we continuing to allow debt collectors to use credit reports to pressure people into paying questionable bills at all?”

Alongside the announcement, the CFPB released an outline of proposals and alternatives under consideration. The CFPB has been seeking to assess the impact of medical debt on credit decisions since at least the spring of 2022.