The Consumer Financial Protection Bureau (CFPB) has proposed a rule that would remove medical debt from most credit reports.
The agency explained in a June press release that this proposition is part of a broader effort “to address the burden of medical debt and coercive credit reporting practices.”
This move would prevent credit reporting companies from sharing information about an individual’s medical debts with lenders, as well as block lenders themselves from basing their decisions on such medical insight.
Although Congress prohibited lenders from using such information in 2003 with the Fair and Accurate Credit Transactions Act, federal agencies went on to issue a “special regulatory exception” that allowed creditors to incorporate medical debts into their decision making.
In early 2022, the major credit reporting bureaus — Equifax, Experian, and TransUnion– announced that they would be removing all medical bills valued at less than $500 from individuals’ reports. At this same time, FICO and VantageScore — the primary credit scoring companies — said that they would be reducing the impact of medical debt on score calculations.
A CFPB study from April of this year found that despite these changes, 15 million people’s credit still reflects medical debt to some extent, collectively totaling $49 billion. Because smaller amounts were removed, the average unpaid medical bill included on credit reports was shown to have increased from $2,000 to $3,100.
CFPB estimated that with medical debt eliminated from credit reports altogether, individuals who currently have such outstanding bills can expect to see their scores increase by twenty points on average.
In addition to effectively blocking the consideration of any medical debt for the purposes of determining one’s credit eligibility, the proposed rule would also prevent medical devices from being used as collateral or repossessed should someone fail to repay a loan.
The agency also suggests in their press release that the proposed rule changes would prevent debt collectors from coercing payment of “inaccurate or false” medical bills through “debt parking.”
This term refers to the practice of debt collectors purchasing medical debt and placing it on an individual’s credit report without their knowledge, thus blindsiding them when they seek out a loan or credit line and pressuring them into paying it regardless of its validity.
“The CFPB is seeking to end the senseless practice of weaponizing the credit reporting system to coerce patients into paying medical bills that they do not owe,” said CFPB Director Rohit Chopra. “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
Click Here to Read the CFPB’s Full Press Release
The agency is accepting public comment on the proposed rule change through Monday, August 12, 2024.
Click Here to Submit Public Comment to the CFPB
In March of this year, Maine lawmakers considered a proposal that would have, among other things, insulated residents’ medical debt from being incorporated into their credit score.
Sponsored by Sen. Mike Tipping (D-Penobscot), this legislation also would have blocked debt collectors from imposing interest or fees on medical-related debt, as well as from pursuing any type of legal action against the person responsible for such debt.
This was later amended by the Health Coverage, Insurance and Financial Services (HCIFS) Committee to take a more restrained approach to this issue by, most notably, removing the provisions that would have stopped medical debt from being reported to the major credit bureaus.
While it still prevented interest from accruing on this category of debt, legal action was only barred against those whose household income is less than 300 percent of the federal poverty line.
This bill signed into law by Gov. Janet Mills (D) in April of this year.
<span class="dsq-postid" data-dsqidentifier="29853 https://www.themainewire.com/?p=29853">1 Comment
Good idea and as long as we’re at it lets say that any student loan that was paid by the tax payers is recorded as a default. Seems fair.