Biden moving to help millions of Americans struggling with medical debt

The Consumer Financial Protection Bureau (CFPB) has put forth a new proposal aimed at alleviating the financial burdens caused by medical debt in the United States.

Under the proposed rule, medical bills would no longer impact individuals’ credit scores or be used by creditors to make lending decisions.

The proposal, part of the CFPB’s broader efforts to reform credit reporting practices, seeks to address longstanding concerns over the accuracy and fairness of including medical debts in credit reports.

According to CFPB Director Rohit Chopra, medical bills often find their way into credit reports inaccurately and fail to predict a consumer’s creditworthiness reliably.

“This rule is intended to end the practice of using credit reports to coerce patients into paying medical bills that may be inaccurate or inflated,” said Chopra.

The CFPB’s analysis indicates that the inclusion of medical debts in credit reports has led to thousands of denied applications for loans that consumers would otherwise have been able to repay.

The proposed rule seeks to close a regulatory loophole that has allowed creditors to use medical debt information despite previous restrictions set by Congress in the Fair and Accurate Credit Transactions Act of 2003.

If enacted, the rule would prevent credit reporting agencies from sharing medical debt information with lenders and would prohibit lenders from considering medical information in their credit eligibility decisions.

The CFPB estimates that approximately 15 million Americans currently have medical debts totaling up to $49 billion reported in credit collections.

Despite recent voluntary actions by major credit reporting agencies to exclude certain medical debts from credit reports, many individuals still face adverse credit consequences due to outstanding medical bills.

Under the proposed rule, not only would future medical bills be barred from appearing on credit reports, but current medical debts would also be removed.

This move is expected to potentially raise credit scores for affected individuals by an average of 20 points, offering them better access to affordable credit options.

In response to concerns raised by consumer advocates and the public, the CFPB’s proposal also includes provisions to prevent debt collectors from using the credit reporting system to coerce payment for disputed medical bills.

This practice, known as “debt parking,” involves placing medical debts on credit reports without consumers’ knowledge, potentially hindering their ability to obtain credit or secure favorable terms on loans.

While the proposed rule marks a significant step toward reforming credit reporting practices related to medical debts, it does not absolve consumers of their financial obligations.

Patients will still be responsible for paying their medical bills, and healthcare providers may pursue other collection methods outside of credit reporting.

The CFPB’s announcement has drawn support from various consumer advocacy groups, including the Consumer Federation of America, which has long criticized the use of medical debt in credit reporting as unfair and punitive.

“Too often, consumers get mired in medical debt involuntarily and, even worse, often due to incorrect billing,” said Adam Rust, of the Consumer Federation of America. “Using medical debt as a data point for assessing a person’s creditworthiness for a loan is completely unfair.”

“Nonetheless, millions of Americans have found themselves forced to pay the price, both in their financial reputations and actual dollars and cents, just to protect their credit scores,” said Rust. “The CFPB’s new rule will end this vicious cycle that supports the avarice of health insurance companies and debt collection agencies over the fair treatment of consumers they’ve saddled with this debt.”

As the proposal enters a public comment period scheduled to conclude on August 12, 2024, stakeholders are invited to provide feedback on its potential impact and implementation. The CFPB aims to finalize the rule in early 2025, pending review of public comments and further regulatory processes.

In summary, the CFPB’s proposed rule represents a significant effort to reform credit reporting practices and alleviate the financial hardships faced by millions of Americans burdened with medical debt. By removing medical bills from credit reports, the rule seeks to promote fairer lending practices and protect consumers from coercive debt collection tactics based on inaccurate or disputed debts.