Biden administration seeks to remove medical bills from credit reports

By Tami Luhby, CNN

(CNN) — Millions of Americans with unpaid medical bills would no longer have that debt show up on credit reports under proposals being considered by the Consumer Financial Protection Bureau.

The agency, which is soliciting feedback from small businesses that may be affected, expects to issue a proposed rule next year, the bureau said Thursday.

If the rule is finalized, consumer credit companies would be barred from including medical debt and collection information on reports that creditors use to make underwriting decisions.

Creditors would only be able consider non-medical information when evaluating borrowers’ loan applications. And debt collectors would no longer be able to use the listing of medical debt on credit reports as leverage to pressure consumers into paying questionable bills, the bureau said.

“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,” said 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.”

Roughly 20% of Americans reported having medical debt, according to a 2022 report from the bureau. But Chopra stressed that many health care bills contain mistakes.

“Families are often barraged with a string of confusing and error-ridden bills, and too many of us have ended up in a doom loop of disputes between insurance companies and health care providers,” he said. “These bills, even ones where the patient doesn’t owe anything further, can end up being reported on the patient’s credit report.”

The proposals under consideration are the latest step in the bureau’s efforts to curb the impact of medical debt on consumers. CFPB and other agencies are also looking into medical billing practices, including costly products such as medical credit cards and installment loans.

The White House has also sought to help lessen Americans’ medical debt burden as part of its effort to help people contend with inflation and higher costs of living. Last year, it laid out a four-point plan to help protect consumers, including having the bureau investigate credit reporting companies and debt collectors that violate patients’ and families’ rights.

Medical debt has lowered people’s credit scores, which affects their ability to buy a home, get a mortgage or own a small business, Vice President Kamala Harris said in a call with reporters on Thursday.

“We know credit scores determine whether a person can have economic health and well-being, much less the ability to grow their wealth,” she said. “Today, we are offering a solution to fix this problem … Together, these measures will improve the credit scores of millions of Americans so that they will better be able to invest in their future.”

Also last year, the three largest credit reporting agencies – Equifax, Experian and TransUnion – announced they would remove nearly 70% of medical debt from consumer credit reports.

The agencies no longer include medical debt that went to collections on consumer credit reports once it has been paid off. That eliminated billions of dollars of debt on consumer records.

In addition, unpaid medical collection debt no longer appears on credit reports for the first year, whereas the previous grace period was six months. That gives people more time to work with their health insurers or providers to address the bills. And medical collection debt of less than $500 is no longer included on credit reports.

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