The Consumer Financial Protection Bureau (CFPB) has proposed a rule to “remove medical bills from most credit reports, 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 is meant to “stop credit reporting companies from sharing medical debts with lenders and prohibit lenders from making lending decisions based on medical information.”
Lenders were restricted from obtaining or using medical information by Congress in 2003, but a special regulatory exception was carved out by federal agencies to “allow creditors to use medical debts in their credit decisions.” This new proposal seeks to close that loophole.
Research by the CFPB reveals that “a medical bill on a person’s credit report is not a good predicter of whether they will repay a loan.” This can lead to making underwriting decisions less accurate and denied applications on mortgages that “consumers would repay.” In March 2022, a report estimated that medical bills made up $88 billion of reported debts on credit reports. This was followed by the three nationwide credit reporting conglomerates announcing that they would “take many of those bills off credit reports.”
Debt collectors currently often engage in a practice called “debt parking,” where they “purchase medical debt then place it on credit reports, often without the consumer’s knowledge. When consumers apply for credit, they may discover that a medical bill is hindering their ability to get a loan. Consumers may then feel forced to pay the medical bill in order to improve their credit score and be approved for a loan, regardless of the debt’s validity.”
The proposed rule would “eliminate the special medical debt exception” that “permits lenders to obtain and use information about medical debt to make credit eligibility determinations,” “establish guardrails for credit reporting companies,” and “ban repossession of medical devices.” Until now, lenders were able to take medical devices “as collateral for a loan,” and could repossess medical devices “like wheelchairs or prosthetic limbs” if people could not pay.
