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CFPB Finalizes Rule to Remove Medical Bills from Credit Reports

CFPB Finalizes Rule to Remove Medical Bills from Credit Reports January 11, 2025

On January 7, 2025, the Consumer Financial Protection Bureau (“CFPB“) finalized a rule that could dramatically change how medical debt appears on consumer credit reports. The CFPB estimates this new regulation will eliminate roughly $49 billion in reported medical debt, impacting about 15 million people. According to CFPB Director Rohit Chopra, the rule is designed to protect consumers from the financial harm caused by inaccurate medical billing and coercive collection tactics. Medical bills often have little correlation to actual creditworthiness, yet they can significantly lower consumers’ scores, making it harder for them to obtain fairly priced credit

1.Key Provisions of the Final Rule

Under this rule, Regulation V—which implements the Fair Credit Reporting Act (“FCRA“)—is amended to prohibit lenders from using most medical debt information in credit decisions and to restrict the inclusion of medical debt on consumer credit reports. The rule removes a longstanding regulatory exception that previously allowed creditors to consider medical debts, meaning lenders are generally barred from factoring these debts into their underwriting processes. Limited exceptions remain for verifying medical-based forbearances, using certain medical expenses as income, or confirming a loan’s purpose is related to medical needs. Consumer reporting agencies (“CRAs“) also cannot include medical debt data in reports sent to lenders for underwriting if such information is prohibited from use in credit decisions. The CFPB’s goal is to prevent debt collectors from leveraging credit reporting as a tool to compel payment of potentially inaccurate or disputed medical bills.

2.Potential Impact on Borrowers and Lenders

Borrowers with medical debt often face significant challenges when seeking loans, even if those debts are the result of errors, insurance mishaps, or unaffordable costs. By removing these debts from most credit reports, the CFPB anticipates borrowers will see an average increase of about 20 points in their credit scores, leading to the approval of an estimated 22,000 additional mortgages annually. For lenders, the rule requires a recalibration of underwriting criteria, particularly if existing models rely on medical debt data to assess credit risk. Institutions may need to explore alternative data sources or refine existing models to ensure they comply with the rule while still accurately gauging a borrower’s ability to repay.

3.Pending Legal Challenges

Despite its publication, the final rule’s fate is uncertain. Multiple trade associations and at least one medical debt collector have filed lawsuits in federal courts in Texas, arguing that the CFPB exceeded its authority under the FCRA. They also claim the rule is arbitrary and capricious, reversing two decades of regulatory practice without sufficient justification or cost-benefit analysis. The rule is further subject to the Congressional Review Act, meaning the new Congress could nullify it through legislative action. These legal and political challenges create the possibility of delays, modifications, or even complete reversal of the rule before its scheduled effective date—60 days after publication in the Federal Register.

4.Next Steps for Compliance

In the face of this uncertainty, lenders and CRAs should keep a close watch on evolving legal and legislative developments. If the rule proceeds, credit models and underwriting practices must be updated to exclude or minimize reliance on medical debt. Contracts and service agreements with CRAs should be reviewed to ensure they align with the rule’s restrictions. Additionally, institutions may want to develop contingency plans that allow for quick changes or pauses if courts grant injunctions or if Congress takes action to overturn the regulation. By remaining informed and flexible, industry participants can better manage the operational and legal risks posed by this significant regulatory shift.

5.Conclusion

The CFPB’s final rule on medical debt marks a substantial effort to protect consumers from the financial repercussions of inaccurate or coerced medical billing. If implemented as written, it could lead to higher credit scores, more mortgage approvals, and greater consumer privacy. However, its path to enforcement is clouded by ongoing lawsuits and potential congressional intervention. Lenders, credit reporting agencies, and other stakeholders would do well to prepare for compliance while staying alert to any changes that may arise in this rapidly evolving regulatory landscape. If you have questions about implementing these requirements or strengthening your compliance strategies, consider reaching out to our team for guidance.

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