The U.S. Consumer Financial Protection Bureau (CFPB) has finalized a rule aimed at removing approximately $49 billion in unpaid medical bills from the credit reports of around 15 million Americans. This action prohibits the inclusion of medical bills on credit reports and restricts lenders from using medical information when making lending decisions for home mortgages, car loans, or small business loans.
The new rule also enhances privacy protections and stops debt collectors from leveraging the credit reporting system to compel individuals to pay debts they do not owe. According to CFPB research, medical debts have minimal predictive value for lenders regarding borrowers' repayment abilities, and consumers often report receiving incorrect bills or being charged for expenses that should be covered by insurance or financial aid programs.
“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,” stated CFPB Director Rohit Chopra during the announcement of the final rule.
The CFPB anticipates that this rule will result in about 22,000 additional affordable mortgage approvals annually and could lead to an average increase of 20 points in credit scores for Americans with medical debt.
This move by the CFPB follows previous changes made in 2023 by major credit reporting agencies—Equifax, Experian, and TransUnion—that removed certain types of medical debt from credit reports, including collections under $500. Additionally, significant credit scoring companies like FICO and VantageScore have reduced the impact of medical debt on consumer scores. Despite these changes, according to the CFPB, there are still 15 million individuals in the U.S. with outstanding medical bills appearing on their credit reports.
Key provisions within this final rule include:
- Prohibiting lenders from considering medical information: The regulation ends a specific regulatory exemption that allowed creditors to use particular medical data when making lending decisions. Lenders are now barred from using information about medical devices as collateral for loan purposes.
- Banning medical bills on credit reports: Consumer reporting agencies are forbidden from including details about medical debts on credit reports sent to lenders. This aims to eliminate coercive practices related to bill payments irrespective of accuracy. However, lenders can still consider legitimate uses such as verifying medical-based forbearances or expenses necessary for a loan.
The rule is set to take effect on March 17, which is 60 days after its planned publication in the Federal Register.
