Medical debt can be removed from credit reports

Mmedical bills could soon be banned from credit reports under a proposed new rule Tuesday by the Consumer Financial Protection Bureau (CFPB).

Although creditors have been prevented from obtaining or using medical information in their credit decisions under the Fair and Accurate Credit Transactions Act, exceptions in federal law have allowed creditors to continue to do so. The proposed change would effectively close that loophole by preventing credit reporting companies from disclosing medical debt to creditors and preventing creditors from using that debt to make lending decisions.

“The CFPB is trying to end the foolish practice of weaponizing the credit reporting system to coerce patients into paying medical bills they don’t owe,” CFPB Director Rohit Chopra said Tuesday. Press release. “Medical bills on credit reports are often inaccurate and have little or no predictive value when it comes to paying off other loans.”

Medical debt is draining for many Americans. According to a 2022 CFPB report, the U.S. has $88 billion in medical debt, although the Bureau estimate this value could be much bigger. The Burden of Medical Debt disproportionately affects Black and Hispanic populations.

Although more than 90% of the US population has some form of health insurance, many are burdened by high levels of debt associated with medical costs, which often leads people to cut back on spending on food, clothing and other household items, according to the vote by the Kaiser Family Foundation.

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The Biden administration has been working on removing or eliminating consumers’ medical debt, as the CFPB found that medical debt “provides less predictive value to creditors than other debts on credit reports.”

TransUnion, Equifax, and Experian have removed settled medical debt from credit reports starting in July 2022 by removing red markers from their credit reports. FICO and VantageScore also announced that they have decreased the extent to which medical bills affect people’s credit scores.

Under the proposed rule, companies would also be prohibited from purchasing or repossessing medical devices, such as wheelchairs or prosthetics, if people cannot repay a loan.

The CFPB opened the rule for comment until August 12, according to the rulemaking process. If the rule is finalized, the CFPB estimates that Americans with medical debt on their credit report will see an average increase of 20 points.

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