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The CFPB Proposes a New Medical Rule

Patrick Austin, J.D. | September 27, 2024

Patrick Austin
Attorney from George Mason
Patrick Austin, JD

Patrick Austin is a licensed attorney with a background in data privacy and information security law. Patrick received his law degree at George Mason University's Antonin Scalia Law School, where he served as the Editor-in-Chief for the National Security Law Journal.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: The Consumer Financial Protection Bureau’s proposed rule would effectively stop credit reporting companies from sharing medical debts with lenders and prohibit lenders from making lending decisions based on information about a consumer’s medical debt. The proposed rule is part of a larger effort by the CFPB to address the burden of medical debt and coercive credit reporting practices.

SoloSuit Explanation CFPB Rule Medical Debt

Consumers struggling with significant medical debt may get some assistance from the Consumer Financial Protection Bureau (CFPB). The federal agency published a proposed rule that would effectively remove medical bills from the majority of U.S. consumer credit reports. The CFPB’s proposed rule would also focus on helping increase credit scores and loan approvals for consumers, and restrict debt collectors from using the credit reporting system to try and convince people to pay outstanding balances.

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Overview of the CFPB’s Proposed Medical Rule

The proposed rule would amend Regulation V, which implements the Fair Credit Reporting Act (FCRA) and generally restricts consumer reporting agencies from furnishing to a “creditor” a consumer report that contains information about a consumer’s medical debt. For context, the FCRA governs the collection, assembly, furnishing, and use of “consumer report” information. Through the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), Congress amended the FCRA to limit the ability of creditors to obtain medical information in connection with credit eligibility decisions.

The CFPB’s proposed rule would amend Regulation V to define “medical debt information” as “medical information that pertains to a debt owed by a consumer to a person whose primary business is providing medical services, products, or devices, or to such person’s agent or assignee, for the provision of such medical services, products, or services.” This newly proposed definition would effectively clarify that medical debt information “includes, but is not limited to, medical bills that are not past due or that have been paid.”

However, the proposed rule excludes debt owed to a third-party creditor from the above-described definition of “medical debt information.” This means that the use of information about medical debts charged to a credit card, or credit cards, could still be accessed by credit reporting companies and debt collectors.

Why did the CFPB issue a proposed rule on medical debt?

The CFPB was motivated to develop and publish the proposed medical debt rule after determining that medical debt information is not necessary and appropriate for credit eligibility determinations.

The agency highlights a “significant body of research” substantiating that medical bills on someone’s credit report is not a good predictor of whether that individual will repay a loan. In fact, the CFPB’s analysis indicates that medical debts penalize consumers by making underwriting decisions less accurate and leading to denied applications on mortgages that consumers are actually able to repay. If the proposed rule is finalized, the CFPB estimates that approximately 22,000 additional, safe mortgages would be approved each year.

The CFPB highlights research suggesting that, unlike other types of debt, medical debt often results from circumstances over which “consumers have no control,” such as accidents or sudden illnesses, preventing a consumer’s ability to “shop around” for medical services. In effect, medical debt should not be viewed as a red flag or indicator that someone is being irresponsible with their access to credit.

Another reason the CFPB issued the proposed rule is because medical debt, according to the agency, is prone to mistakes and errors. The CFPB asserts that “medical bills commonly contain errors and are frequently disputed by consumers.” In addition to glaring errors in medical bills, the CFPB highlighted the inconsistent and problematic nature of medical debt collection practices.

The CFPB also pointed to steps taken by large credit bureaus to voluntarily move away from relying on medical debt information. For example, major credit bureaus have agreed to stop reporting medical collections that are under $500, less than a year old, or paid in full. According to the CFPB, this is a strong signal from the market that there is no actual need to continue including medical debt information on consumer credit reports.

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The CFPB’s proposed rule on medical debt has received criticism

The CFPB’s rollout of the proposed rule has been met with some skepticism and concern. For example, Dr. Andrew Rodrigo Nigrinis, an economist at Legal Economics LLC, published an economic analysis report criticizing the lack of comprehensive cost-benefit analysis on the proposed rule. Dr. Nigrinis’ report discusses the potential impact of the CFPB rule on the $4.5 trillion health care industry, including small and rural physician practices. For example, the economic analysis report indicates that the provider community will get hit with $24 billion in reductions to their existing cash-flow, in just the first year, as a result of the CFPB’s rule.

The rule is also expected to impact the $4.9 trillion consumer finance industry. The impacts are expected to include increased financing for unqualified borrowers, decreased access for credit-qualified borrowers, difficulties in repairing credit scores, and conflicts with existing regulations.

The proposed rule is subject to modification and revision

It is important to remember that the CFPB rule is currently in proposal form. This means specific aspects of the rule could be modified and/or revised during the rulemaking process. So make sure to keep your #cfpb alerts active.

Key takeaways

The CFPB is making waves when it comes to medical debt and its impact on consumer credit reports. The agency’s proposed rule, if finalized, would:

  • Eliminate the special medical debt exception: The proposed rule would remove the exception that enables lenders to obtain and use information about medical debt to make credit eligibility determinations.
  • Establish guardrails for credit reporting companies: The CFPB’s proposed rule would restrict credit reporting companies from including medical debt on credit reports that are sent to creditors.
  • Ban repossession of medical devices: The proposed rule would prohibit lenders from taking medical devices as collateral for a loan, and bans lenders from repossessing medical devices (e.g., wheelchairs, prosthetic limbs, etc.) if people are unable to repay a loan.

Nevertheless, the rule is in proposal form and may change as it progresses through the formal rulemaking process.

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