Medical debt excluded from credit scores under new federal rules: Shots

The federal Consumer Financial Protection Bureau issued new regulations Tuesday banning medical debt from U.S. credit reports, enacting a major new consumer protection just days before President Joe Biden leaves office.

The rules prohibit credit agencies from including medical debts in consumers’ credit reports and prohibit lenders from considering medical information when evaluating borrowers.

Those rules, which the federal watchdog agency proposed in June, could be rolled back after President-elect Donald Trump takes office on Jan. 20. But by finalizing the regulations now, the CFPB has effectively challenged the new Trump administration and its Republican allies in Congress to take undue action. rules that are widely popular and could help millions of people burdened by medical debt.

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

The regulations fulfill the Biden administration’s pledge to combat the scourge of health care debt, a problem that affects about 100 million Americans, forcing many to make sacrifices such as limiting food, clothing and other essentials.

Credit scoring, a threat used by medical providers and debt collectors to get patients to pay their bills, is the most common collection tactic used by hospitals, according to a KFF Health News analysis.

The impact can be devastating, especially for those with significant health care debt.

There is growing evidence, for example, that credit scores damaged by medical debt can threaten people’s access to housing and lead to homelessness. People with low credit scores may also have difficulty getting a loan or be forced to borrow at higher interest rates.

This has prompted states like Colorado, New York and California to pass legislation prohibiting medical debt from being included on residents’ credit reports or factored into their credit scores. Still, many patients and consumer advocates have pushed for a national ban.

The CFPB has estimated that the new credit reporting rule will increase the credit scores of people with medical debt on their credit reports by an average of 20 points.

But the agency’s efforts to restrict medical debt collections have met with stiff resistance from the collections industry. And the new rules will almost certainly be challenged in court.

Congressional Republicans have frequently criticized the surveillance agency. Last year, Patrick McHenry, R-N.C., then chairman of the House Financial Services Committee, called the CFPB’s medical debt proposal “regulatory overreach.”

More recently, billionaire Elon Musk, whom Trump chose to co-lead his initiative to shrink government, has called for the watchdog agency to be abolished. “Delete the CFPB,” Musk posted on the social platform X.

KFF Health News is a national newsroom that produces in-depth journalism on health issues and is one of the major operating programs of KFF.