For fifteen million people, medical bills totaling as much as $49 billion are unfairly dragging down their credit ratings. This rule would rectify the situation.
The nation’s capital – Among the many suggested changes announced by the Consumer Financial Protection Bureau (CFPB) regulation is the removal of medical bills from most credit reports; more privacy safeguards; improved access to credit and loans; and an end to debt collectors’ use of credit reports as a weapon to force individuals to pay. Under the new plan, lenders would not be able to use medical records as a basis for loan decisions, and credit reporting agencies would no longer be able to share medical debts with them. As part of its mission to combat medical debt and unfair credit reporting practices, the Consumer Financial Protection Bureau (CFPB) has put forth a rule proposal.
“The Consumer Financial Protection Bureau is seeking to end the senseless practice of weaponizing the credit reporting system to coerce patients into paying medical bills that they do not owe,” said Rohit Chopra, director of the regulator. “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
The Fair and Accurate Credit Transactions Act, passed by Congress in 2003, made it illegal for lenders to collect or use some types of personal health information, such as debt records. But later on, government authorities made an exemption to the rule so that creditors might consider medical bills when deciding whether or not to provide credit.
The Consumer Financial Protection Bureau has proposed legislation to seal the regulatory gap that has allowed large quantities of medical debt data to remain in the credit reporting database. There should be no unfair impact on credit ratings from medical records, and debt collectors shouldn’t be able to force people to pay for fake or erroneous medical bills, according to the proposed regulation.
According to the Consumer Financial Protection Bureau’s studies, a medical bill is not a reliable indicator of a borrower’s ability to repay a loan. Medical bills hurt consumers because inaccurate underwriting results in thousands of rejected mortgage applications even when borrowers would be able to pay them back, according to the Consumer Financial Protection Bureau’s research. The Consumer Financial Protection Bureau (CFPB) anticipates that lenders will also gain from enhanced underwriting and a higher number of safe loan approvals since these are loans that consumers will repay. The Consumer Financial Protection Bureau (CFPB) projects that the new regulation would result in the annual approval of around 22,000 more safe mortgages.
The Consumer Financial Protection Bureau published a study in December 2014 demonstrating that lenders place less predictive value on medical debts compared to other types of loans on credit reports. The Consumer Financial Protection Bureau (CFPB) later published a study in March 2022 stating that $88 billion of the listed debts on credit reports were medical expenditures. Unpaid medical bills should be included in credit reports? The Consumer Financial Protection Bureau (CFPB) said as much in that study.
Major credit scoring companies FICO and VantageScore have reduced the amount that medical bills affect a consumer’s score, and the three nationwide credit reporting conglomerates – Equifax, Experian, and TransUnion – have announced that they would remove many of those bills from credit reports since the March 2022 report.
The credit reporting system still shows that fifteen million Americans owe $49 billion in medical bills that are in collections, even though this business has voluntarily changed its practices. Due to the intricate nature of medical billing, insurance reimbursement and coverage, and collections, reported medical debts are often exaggerated or incorrect. Even after making adjustments, FICO and VantageScore still show a disparity in credit scores for those who have medical debt and those who do not. Finalizing today’s proposed regulation is expected to result in an average 20-point increase in credit scores for Americans with medical debt on their reports.
Debt collectors are able to pressure individuals into paying for debts they may not even have under the existing system. “Debt parking” refers to the practice of many debt collectors who secretly buy medical bills and add it on their clients’ credit records. A customer’s capacity to receive a loan could be impacted when they find out that a medical bill is on their credit report. The consumer may feel pressured to pay the medical bill, regardless of its veracity, so that they may enhance their credit score and get a loan.
In particular, the regulation that has been suggested would:
Eliminate the special medical debt exemption: Lenders are now able to access and utilize information regarding medical debt to determine credit eligibility, but the new regulation would eliminate this exception. Under some circumstances, lenders may still look at medical records that pertain to disability income or comparable benefits, in addition to records that are pertinent to the loan’s purpose.
In order to prevent creditors from taking medical debt into account, the proposed regulation would make it illegal for credit reporting organizations to include it on credit reports.
The proposed regulation outlaws the practice of using medical equipment, such as wheelchairs or prosthetic limbs, as security for loans and forcibly seizes these items from borrowers who default on their payments.
In September 2023, the Consumer Financial Protection Bureau (CFPB) started the regulation process that we see today with the intention of reducing the impact of medical debt on credit reports and putting a stop to abusive debt collection methods. Along with a bulletin on the No Surprises Act to educate debt collectors and credit reporting agencies of their legal obligations under that law, the Consumer Financial Protection Bureau issued a study in 2022 detailing the far-reaching and crippling consequences of medical debt.
Take a look at the new regulation, Regulation V, which prohibits medical information from being shared between creditor and consumer reporting agencies, that was introduced today.
Take a look at the Non-Official Guideline for the Ban on Creditors and Consumer Reporting Agencies Handling Health Records Regulation V.
By August 12, 2024, all comments must be submitted.
Find out more about the CFPB’s efforts to address medical debt and the Credit Reporting Requirements.
Complaints about financial goods or services, as well as credit reporting, may be sent to the Consumer Financial Protection Bureau (CFPB) at their website or by dialing (855) 411-CFPB (2372).
Send information about what you know to [email protected] if you think your employer has broken federal laws meant to safeguard consumers’ financial information.
