CFPB begins rulemaking process to remove medical bills from credit reports

On Monday, the Consumer Financial Protection Bureau (CFPB) announced it was beginning the process to remove medical bills from Americans’ credit reports.

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The proposal, the bureau said, would help American families recover from medical crises, clean up inaccurate credit data and improve credit score predictiveness.

“Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports,” CFPB Director Rohit Chopra. “When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”

The Fair Credit Reporting Act restricts creditors’ ability to use medical debt when it comes to making credit decisions. The FCRA also granted five financial regulators with the authority to create regulatory exemptions to that restriction. In 2005, those regulators created an exception that would allow creditors to rely on medical data if it could be characterized as “financial information.”

But, the CFPB said, research shows that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations. With an estimated one in every five Americans reporting medical debt, the CFPB’s proposal would remove medical bills from American’s credit reports but would not prevent creditors from using medical bill information to evaluate credit worthiness for other things, like verifying the need for medical forbearance or evaluation loan applications to pay for medical services.

The rulemaking will also work to stop debt collectors for using coercive practices to get bills patients may not even owe paid, and to ensure that creditors are not relying on inaccurate data.

Once approved, the new rulemaking would remove medical bills from consumers’ credit reports, stop creditors from relying on medical bills for underwriting decisions and stop coercive collection practices by narrowing the 2005 exceptions and prohibiting creditors from using medical collection information when evaluating a borrowers credit worthiness.