The Consumer Financial Protection Bureau has proposed a rule that will remove medical bills from credit reports. This ban would prevent lenders from considering these debts of their lending decisions.
The proposed Rule The change announced on Tuesday would also increase data protection, help improve credit scores and forestall debt collectors from using the credit reporting system to force people to pay.
“The CFPB wants to put an end to the senseless practice of weaponizing the credit reporting system,” said Rohit Chopra, director of the Consumer Financial Protection Bureau, in a press release. “Medical bills on credit reports are too often inaccurate and have little to no predictive value when it comes to repaying other loans.”
If the rule is finally passed, it could eliminate as much as $49 billion in medical bills that currently damage the credit scores of 15 million Americans, the bureau said.
How did we get here?
In 2003, Congress passed the Fair and Accurate Credit Transactions Act, prohibiting lenders from obtaining or using medical information, including medical debt. But federal agencies later issued a special regulatory exception that permits lenders to contemplate medical debt of their lending decisions.
The office is now proposing to shut this regulatory gap. It began with the Rulemaking Trial in September.
Hasn't medical debt already been faraway from many credit reports?
Yes. In March 2022, the CFPB published a report The company estimated that medical bills accounted for $88 billion of the debt reported on credit reports and announced it might review whether credit reports must also include data on unpaid medical bills.
The three national credit bureaus – Equifax, Experian and TransUnion – announced that they might voluntarily withdraw lots of these bills.
If so, why is the proposed regulation mandatory?
Despite the voluntary industry changes, Americans still have billions of dollars in unpaid medical bills showing up within the credit reporting system, the bureau said. The complexity of medical bills, insurance coverage and reimbursement, and collections mean that medical bills that proceed to be reported are sometimes inaccurate or inflated, it added.
How much would the credit standing improve?
According to an estimate by the bureau, Americans who’ve medical debt on their credit report would see a median 20-point increase of their credit rating if the proposed rule goes into effect.
How would this help homeowners?
If the rule is finally passed, about 22,000 additional mortgages could be approved every year, the CFPB said.
An internal evaluation has shown that medical debt puts consumers at a drawback since it results in less accurate credit decisions, leading to 1000’s of mortgage applications being rejected that buyers would otherwise have repaid.
What happens next?
The proposed regulation is open to public comment until August 12, with the office working on a final rule that might take effect next 12 months.
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