CFPB finalizes rule to remove $49 billion in medical debt from credit reports

The Consumer Financial Protection Bureau on Tuesday announced it has finalized a rule to remove about $49 billion in medical debt from credit reports, a change that will affect an estimated 15 million Americans.

Individuals who have medical debt on their credit reports may see their credit scores increase by an average of 20 points following the rule, according to the CFPB. It said the change is also expected to result in the approval of about 22,000 additional affordable mortgages every year.

With the rule, consumer reporting agencies will be prohibited from including medical debt information with credit reports and credit scores sent to lenders. In addition, creditors will no longer be able to use certain medical information for lending decisions. The CFPB proposed the rule in June.

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More than 100 million Americans struggle with medical debt, which comprises the largest type of debt in collections ahead of auto loans, credit cards and utilities, according to the Biden-Harris administration.

Consumers are often asked to pay balances that should be covered by health insurance or financial assistance programs, and also frequently report receiving inaccurate medical bills, according to the CFPB.

The consumer finance watchdog agency’s move comes after its own research found medical bills on credit reports are not good predictors of whether someone will repay a loan.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

A 2022 report released by the agency found medical bills accounted for $88 billion of debts reported on credit reports as of June 2021. Following those findings, the three major credit reporting agencies — Equifax, Experian and TransUnion — took some types of medical debt off credit reports, such as debts under $500. Credit scoring companies FICO and VantageScore also moved to de-emphasize the impact of medical debt on credit scores.

Along with the finalization of the CFPB rule, Vice President Kamala Harris announced that more than $1 billion in medical debt has been eliminated for more than 750,000 Americans in certain states, counties and cities.

Residents have had medical debt eliminated in states including New Jersey and Connecticut; counties including Cook County, Illinois; Lucas County, Ohio; Wayne and Oakland counties, Michigan; and cities including Cleveland and Toledo, Ohio; New Orleans; St. Paul, Minnesota; and Washington, D.C.

Up to $7 billion in medical debt may be eliminated for almost 3 million Americans by the end of 2026 with the support of the American Rescue Plan Act, legislation that was enacted in 2021.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris said in a statement.