CFPB finalizes rule removing medical debt from credit reports

The Consumer Financial Protection Bureau plans to issue a final rule on Tuesday that would remove roughly $49 billion in medical bills from credit reports, impacting 15 million consumers. 

The CFPB’s action would ban the inclusion of medical bills on credit reports and prohibit lenders from using medical information in lending decisions. The rule is designed to increase privacy protections and prevent debt collectors from using the credit reporting system “to coerce people to pay bills that they don’t owe.” 

The CFPB first proposed taking medical bills off credit reports in 2023. The CFPB was given the authority by Congress in the Fair Credit Reporting Act to create regulatory exemptions that limit the use of medical information by creditors. The bureau proposed the rule in June.

Banks and lenders have said removing medical debt or medical bills from credit reports would restrict lending, increase costs and result in more denials of credit to low- and moderate-income consumers. Experts claim the CFPB’s proposal would make credit reports less accurate, increase risks for lenders and result in lost income for doctors’ practices.   

The CFPB has claimed for several years that medical debt is a poor predictor of whether a borrower will repay a loan. The bureau claims that improper medical billing contributes to thousands of denied mortgage applications and that the rule will result in 22,000 additional mortgage loans originated every year, with credit scores rising by an average of 20 points.

The CFPB’s research, which has been challenged by industry groups, found that medical debts provide little predictive value to lenders about whether a borrower has the ability to repay other debts. Consumers frequently report receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a press release given under embargo to journalists. “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 CFPB’s action follows changes made by the three credit bureaus — Equifax, Experian, and TransUnion — who in 2022 agreed to take medical debt below $500 off of credit reports.  The two major credit scoring firms, FICO and VantageScore, also have reduced the impact of medical bills on scores, the CFPB said.

The bureau said the final rule aligns with congressional intent to safeguard consumers’ privacy by restricting lenders from obtaining or using medical information. The rule would amend Regulation V, which implements the Fair Credit Reporting Act, to end a carveout by prudential regulators that allowed credits to consider medical debts. 

In its press release announcing the final rule, the CFPB said the carveout “has enabled debt collectors to use the credit reporting system to coerce payments from patients for inaccurate or false medical bills.”

Lenders will continue to be able to consider medical information for what the CFPB called “legitimate uses,” including to verify medical-based forbearances, to verify medical expenses that a consumer needs a loan to pay, and to consider certain benefits as income in underwriting. 

The rule bars lenders from using information about medical devices, such as prosthetic limbs, that serve as collateral for some loans for the purposes of repossession.

The rule will go into effect 60 days after it is published in the Federal Register.