Credit Score Change Could Help Millions of Buyers

Published on September 28,2023 by Chris Thompson

In a significant move aimed at improving the financial well-being of Americans facing medical debt, the Consumer Financial Protection Bureau (CFPB) has taken the initial steps towards eliminating medical bills from individuals’ credit reports and lending evaluations. The decision stems from the recognition that medical debt holds “little predictive value” in assessing creditworthiness.

CFPB Director Rohit Chopra emphasized the need for this action, stating, “Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports. When someone gets sick, they should be able to focus on getting better rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”

Vice President Kamala Harris, echoing the sentiment, asserted, “Access to health care should be a right and not a privilege. These measures will improve the credit scores of millions of Americans so that they will better be able to invest in their future.”

A 2022 CFPB report revealed that approximately 20% of Americans carry medical debt, but this type of debt has been found to be an inadequate indicator of their future ability to repay loans when compared to more traditional credit obligations.

However, it’s not merely the lack of predictive value that led to this decision. The CFPB also highlighted the high incidence of errors and inaccuracies associated with medical debt, compounded by disputes over insurance payments and complex billing practices.

The preliminary rule-making proposals put forth by the CFPB include:

  1. Removing Medical Bills from Credit Reports: Under these proposals, credit-reporting agencies would be prohibited from including medical debts and collection information when making underwriting decisions for loans and credit.

  2. Restricting the Use of Medical Bills in Underwriting: The CFPB seeks to narrow a 2005 exception, making it illegal for creditors to consider medical collection information when evaluating credit applications.

  3. Halting Coercive Collection Practices: Debt collectors would no longer be permitted to exploit the credit reporting system to pressure individuals into settling questionable debts.

Importantly, the proposal doesn’t prevent creditors from accessing medical bill information for other legitimate purposes, such as verifying medical forbearances or assessing loan applications for medical services.

This development follows the CFPB’s extensive public engagement efforts, including public hearings and the solicitation of comments, which commenced in July. The agency continues to receive complaints from the public regarding unlawful debt collection practices and credit reporting issues related to medical billing.

The CFPB’s commitment to improving financial fairness and protecting consumers remains at the forefront of this initiative, aimed at ensuring that individuals facing medical challenges can recover without the undue burden of medical debt affecting their financial future. For a comprehensive overview of the proposal, visit the CFPB’s website.

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