CFPB finalizes rule barring medical debt from credit reports

The Consumer Financial Protection Bureau (CFPB) on Tuesday finalized its rule barring medical debt from being included on credit reports, potentially freeing up billions in credit.

The finalized rule will prevent medical bills from being included on credit reports used by lenders and will prohibit lenders from using medical information in their decision-making.

The CFPB estimated this rule will remove $49 billion in medical bills from the credit reports for roughly 15 million Americans.

The Biden administration advanced this rule with the aim of helping people with medical debt obtain better credit scores and have an easier time applying for new loans. The CFPB cited its own research that found medical debt to be a poor predictor of whether someone will repay a loan.

Vice President Harris is set to announce the final rule on Tuesday, as well as announce that states and localities have leveraged funds from President Biden’s American Rescue Plan to support the elimination of over $1 billion in medical debt for more than 700,000 Americans.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency. That is why President Biden and I cancelled over $1 billion in medical debt – part of our overall plan to forgive $7 billion by 2026 – with support from our American Rescue Plan, legislation that I advanced with my tie-breaking vote in the Senate. We also reduced the burden of medical debt by increasing pathways to forgiveness and cracking down on predatory debt collection tactics,” Harris said in a statement.

Medical debt experts have concurred with this assessment, noting that medical debt differs from others. Unlike car loans or mortgages, medical debt is often incurred suddenly and without prior planning.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “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 finalized rule essentially restores a provision of the Fair Credit Reporting Act of 1970, which restricted the sharing of medical information with consumer reporting agencies. Exemptions were passed in the early 2000s permitting creditors to obtain medical information in connection with credit eligibility determinations.

The rule does not get rid of the debt itself, but stops it from having an impact on a consumer's credit worthiness. Medical debt is the most common collection type found on credit reports, showing up disproportionately more when compared to other forms of debt.

More than 1 in 3 U.S. adults struggles with medical debt. People of color, middle-aged individuals, people with disabilities and low-income earners are disproportionately impacted by medical debt.

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