The Consumer Financial Protection Bureau is taking steps toward removing all medical debt information from Americans’ credit reports, a move meant to help the millions of Americans whose credit scores drop after bills for expenses like unexpected hospital visits go unpaid.

While the information surrounding most unpaid medical debts has already been removed from credit reports by the three major reporting agencies — Equifax, Experian and TransUnion — the CFPB on Thursday announced plans for a rule- making process that would ultimately keep all of these bills off credit reports.

Removing all unpaid medical debt information from credit reports would stop debt collectors from using the credit reporting system to press people for payment on medical debts, which are often inaccurately described on the reports, the CFPB said.

A credit score dragged down by medical debt from unplanned health events is not a good predictor of a person’s ability to repay debts, CFPB Director Rohit Chopra said Thursday.

The agency’s proposal “would ensure that credit decisions are based on someone’s ability to repay a debt, not their ability to file disputes and navigate red tape,” he said.

In April, Equifax
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TransUnion
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and Experian
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said they followed through on a pledge to remove medical collection debt information for sums under $500 from consumers’ credit reports. That wiped away approximately 70% of all the medical collection debt on consumer files.

“If credit bureaus are pulling off much of this information already because it isn’t a good predictor of risk, why should creditors see your medical bills at all?” Chopra said. “And if creditors don’t need to see your medical billing history, why are we continuing to allow debt collectors to use credit reports to pressure people into paying questionable bills at all?”

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Americans had $88 billion in medical debt on their credit files as of March 2022, the CFPB estimated.

The CFPB announcement is a big deal for the medical debt that’s still appearing on reports, said Krutika Amin, associate director for the program on the Affordable Care Act at KFF, a nonpartisan nonprofit that researches health policy. “Most people who have medical debt, their debt can accrue quickly,” she said.

An estimated 16 million adults had medical debts over $1,000, according to research last year from Amin and others at KFF and the Peterson Center on Healthcare.

The agency’s proposal would also curtail existing exceptions that allow creditors to use medical information as long as its deemed to be “financial information.”

Even if it’s out of the view of would-be lenders, medical debt is a major burden for the people who have it.

An estimated 15% of American adults live in families with past-due medical debt and most of these people are in low-income households, according to researchers at the Urban Institute.

To be clear, the CFPB did not unveil a new rule Thursday. It initiated a process that would culminate in proposed rule next year, according to senior administration officials.

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Before then, the consumer watchdog agency faces a serious test. Next month, the U.S. Supreme Court is scheduled to hear arguments on the constitutionality of how the CFPB is funded.

A trade group representing various credit reporting and background check companies voiced caution after the agency’s announcement. “We look forward to working with the CFPB to protect consumers’ information, enable economic activity, and minimize friction for financial transactions. We have concerns that some of the proposals may push the limits of the Bureau’s authority under federal law,” said Dan Smith, president and CEO of the Consumer Data Industry Association.

Consumer data reporting  companies help make financial transaction “safe and seamless” while guarding against identity fraud, Smith said. “Any future rulemaking ought to support the important tools that consumer reporting companies use to protect consumers.”

The three major credit reporting companies could not be immediately reached for comment Thursday afternoon.

Back in April, the CEOs of the companies put out a statement in conjunction with their announcement confirming the removal of most medical debt from reports.

“We understand that medical debt is generally not taken on voluntarily and we are committed to continuously evolving credit reporting to support greater and responsible access to credit and mainstream financial services,” Equifax CEO Mark Begor, Experian CEO Brian Cassin and and TransUnion CEO Chris Cartwright said.


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