Proposal to Remove Medical Debt from Credit Reports

The government's consumer watchdog, the Consumer Financial Protection Bureau (CFPB), is taking action to alleviate the impact of medical debt on consumers' financial well-being. In a recent proposal, the CFPB aims to build upon the efforts of regulators, Congress, and other stakeholders in order to mitigate the adverse effects of medical debt. While some types of medical collections activity are already excluded from credit reports (such as paid debt, debt less than one year old, and debt under $500), larger unpaid balances can still harm consumers' ability to secure loans, rent or buy homes, and achieve their financial goals.

According to a study conducted by the Peterson Center on Healthcare and the Kaiser Family Foundation, nearly one in 10 adults in the United States owe medical debt exceeding $250. Furthermore, as of the second quarter of 2021, 58% of bills in collections and appearing on credit records were medical bills, as reported by the Consumer Financial Protection Bureau. Medical bills are the most common form of debt that individuals are contacted about by debt collectors. This burden can deter individuals from seeking necessary additional medical care.

Director of the CFPB, Rohit Chopra, emphasized the devastating consequences individuals may face due to medical debt during a press conference held on Thursday.

However, research has revealed that the presence of medical debt is a less reliable indicator of an individual's overall creditworthiness compared to other forms of consumer debt. Additionally, medical bills frequently contain errors, making it challenging for patients to understand their financial responsibilities for medical procedures or devices, even under ideal circumstances.

If approved, the CFPB's initiative would entail the removal of medical bills from credit reports, prohibit creditors from considering medical bills when making underwriting decisions, and put an end to coercive collections practices.