U.S. agency proposes rule to eliminate medical debt from most credit reports, saying it’s an unreliable predictor of payment

Published 9:46 am Monday, June 17, 2024

By Heather Close, Kentucky Health News

The federal Consumer Finance Protection Bureau is proposing to eliminate medical debt from most credit reports, stop companies from sharing debt information and bar lenders from making decisions based on medical data.

About 12 percent of Kentucky adults, more than 400,000 people, are estimated to have medical debt.

The proposed rule brought “immediate cheers from consumer advocacy groups that have long pushed for change,” Amy Lotven reports for Inside Health Policy. “CFPB believes the rule … would remove as much as $49 billion in debt from 15 million Americans and increase credit scores by an average 20 points.”

The agency’s research has found that medical debt “is not a good predictor of loan repayments,” so it thinks the regulation would “improve underwriting, stop denials of loans to consumers who would repay, and lead to about 22,000 additional safe mortgages a year,” Lotven writes.

CFPB Director Rohit Chopra said the credit-reporting system is often inaccurate, yet is used “to coerce patients into paying medical bills that they do not owe.”

In 2003, Congress restricted lenders from using medical information about debts, but “agencies created a regulatory loophole that let creditors use such information in their decisions,” Lotven reports. The proposed rule “would close the regulatory loophole from 2003 by establishing guardrails for credit-reporting companies and banning lenders from taking medical devices as collateral for a loan as well as from repossessing a device if the loan is not repaid.”

Vice President Kamala Harris and Lisa Lacasse, president of the American Cancer Society Cancer Action Network, said states should take similar action. David Kendall, senior fellow for health policy at Third Way, a centrist group that has produced several reports on debt, said the proposed regulation is the latest in a series of federal and state actions “to fight the scourge of medical debt. They have been preventing medical debt by expanding coverage, funding medical debt abolishment, and ending junk insurance that can lead to medical debt.”

“Tuesday’s announcement builds on a 2022 effort by the big credit bureaus TransUnion, Equifax and Experian to keep debt off consumers’ reports until it’s at least a year old,” Axios reports. “The two major credit scoring companies, FICO and VantageScore, have also reduced how much medical debts can factor into consumers’ scores at that time.”

Kentucky Health News is an independent news service of the Institute for Rural Journalism and Community Issues, based in the School of Journalism and Media at the University of Kentucky, with support from the Foundation for a Healthy Kentucky.