The Consumer Financial Protection Bureau (CFPB) is moving forward with a rulemaking proposal to change the process of reporting medical debt on consumer credit reports. Specifically, the rulemaking proposal the Bureau is considering had two main parts. First, it prohibits credit reporting companies from including medical debts and collection information on consumer reports. Second, it prohibits creditors from relying on medical bills for underwriting decisions. This further narrowed the 2005 exception that allowed medical bills onto consumer reports. According to the CFPB, this proposed prohibition will also help to stop coercive collection practices. Once debt collectors are no longer be able to use threats of impaired credit, they will lose their leverage to harass consumers into paying medical bills.
The CFPB’s proposal comes after approximately 50 consumer advocacy groups banded together to request governmental action concerning the use of medical debt collection. See Medical debt would disappear from credit scores under Biden plan, the Oregonian, Norman Levey, September 25, 2023, KFF News. Beyond just public pressure, a 2022 CFPB report found that 20% of Americans had some form of medical debt. The CFPB distinguished this debt, which was due to an illness, from a debt someone affirmatively decided to take on. Accordingly, the CFPB noted this is not the kind of debt that is predictive of future credit decisions. It is also often full of mistakes and therefore should not be part of underwriting decisions.
However, while industry participants will likely oppose the proposed rules, the rules do not prohibit the use of medical debt by all creditors. Specifically, they would not stop certain creditors from obtaining medical bill information for specific purposes, such as verifying the need for medical forbearances, or evaluating loan applications to pay for medical services. Accordingly, to the extent hospitals want to evaluate a patient’s ability to pay for treatment, they can still take prior medical debts into consideration.
Importantly, the CFPB’s Director, Rohit Chopra emphasized the proposed rules are focused on prohibiting the use of medical debt in connection with credit reports, because of the potential effect on people’s everyday lives, including obtaining loans, jobs and insurance. However, the CFPB has just released this proposal to the Small Business Advisory Review Panel this month. The Panel has 60 days to prepare a report, before other regulatory requirements must be met, and then the CFPB still has to draft a final Rule. In addition, there is the added complication that the CFPB’s future is in jeopardy with the Supreme Court hearing this fall, and so it is unclear how quickly these regulations will come to fruition, if at all.