On June 11, the CFPB announced a proposed rule amending Regulation V, which implements the Fair Credit Reporting Act, to alter the treatment of medical debts in credit reporting. The rule proposes to remove medical bills from most credit reports, disallow the consideration of medical debts in credit decisions, enhance privacy protections, and curtail credit reporting practices that the Bureau deems coercive.
Medical debt has been a recent focus of the Chopra administration. In March 2022, the Bureau published a report estimating that medical bills accounted for $88 billion of reported debts on credit reports. The report further articulated the Bureau’s view that factoring medical debt into credit decisions creates debilitating harm to consumers, not outweighed by its predictive value.
Following the CFPB’s March 2022 report, several major credit reporting companies announced they intended to remove all paid medical debts from consumer credit reports and those delinquent debts less than a year old. They also took steps to remove all medical collections under $500.
Despite these voluntary changes by industry players, the Bureau announced proposed rulemaking with respect to medical debt.
Key Aspects of the Proposed Rule
- Eliminating the Medical Debt Exception. The rule would amend Regulation V and not permit lenders to consider medical debt in credit eligibility determinations (while retaining select elements of the exception related to income, benefits, and loan purpose). Creditors would also be barred from obtaining or using medical information related to debts, expenses, assets, or collateral, in connection with a credit eligibility determination, unless another specific exception applies.
- Restrictions for Consumer Credit Reporting Agencies. The rule would impose a general prohibition on reporting agencies from including medical debt information on credit reports used in credit decisions, unless (1) the reporting agency has reason to believe the creditor is not prohibited from obtaining or using the medical debt information under § 1022.30 of Regulation V; and (2) the reporting agency is not otherwise prohibited from furnishing the credit report, including by state laws governing the treatment of medical debt in credit reports.
- Ban repossession of medical devices. The proposed rule would prohibit lenders from taking medical devices as collateral for a loan, and bans lenders from repossessing medical devices, like wheelchairs, if people are unable to repay the loan.
Comments on the proposed rule are due August 12, 2024.
Putting It Into Practice: The CFPB’s proposed rulemaking on medical debt in credit reporting follows a near decade-long windup of publishing research findings and other regulatory guidance on the topic (previously covered here and here). We will continue to monitor the space for additional updates and guidance.