CFPB Proposes Ban of Medical Bills on Credit Reports

Banks and other lenders could be prohibited from making lending decisions based on medical information under the Consumer Financial Protection Bureau’s (CFPB’s) proposed rule.

The new regulation would remove medical bills from most credit reports and ban credit reporting companies from sharing medical debts with lenders.

The rule aims to enhance privacy protections, increase credit scores and loan approvals and ensure that medical information does not unjustly damage consumers’ credit scores.

It would also help prevent debt collectors from pressuring individuals to pay inaccurate or false medical bills as part of the CFPB’s efforts to address coercive credit reporting practices.

According to the CFPB, research has revealed that medical bills on a person’s credit report are not reliable indicators of their ability to repay a loan.

The regulator’s analysis also found medical debt creates inaccurate underwriting decisions, which leads to thousands of denied mortgage applications from consumers who are capable of repayment.

As a result, the CFPB expects that the proposed rule will enable lenders to improve underwriting practices and approve a higher volume of safe loans. In particular, it estimates that around 22,000 additional safe mortgages could be approved every year as a result.

Rohit Chopra, director of the CFPB, said:  "Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans."

The regulator first announced plans to assess whether credit reports should include data on unpaid medical bills after a report in March 2022 estimated that these bills account for $88 billion in reported debts on credit reports.

Since the March 2022 report, the three nationwide credit reporting agencies — Equifax, Experian, and TransUnion — announced plans to remove a significant number of medical bills from credit reports.

FICO and VantageScore, the two major credit scoring companies, have also since reduced the impact of medical bills on consumers’ credit scores.

The proposed rule is open to comments until August 12, 2024.