On June 11, the Consumer Financial Protection Bureau (CFPB or Bureau) released a proposed rule amending Regulation V, which implements the Fair Credit Reporting Act (FCRA), concerning medical debt. The proposed rule would remove a regulatory exception that currently allows creditors to obtain and use information on medical debts for credit eligibility determinations. Additionally, the proposed rule would generally prohibit consumer reporting agencies (CRAs) from furnishing consumer reports containing medical debt information to creditors. Comments on the proposed rule are being accepted until August 12, 2024. The Bureau aims to finalize the rule by early 2025.

According to the CFPB, unlike voluntary consumer debt (mortgages, credit cards), medical debt often arises unexpectedly and can lead to financial hardships. The CFPB stated its belief that medical debt information is frequently inaccurate on consumer reports due to the complexity of medical billing, insurance, and other third-party reimbursement processes. These inaccuracies can adversely affect consumer’s ability to obtain credit, according to the CFPB.

The Bureau also remarked that its research indicates that medical debt has limited predictive value for credit underwriting purposes. Consequently, the CFPB believes that the current exception allowing creditors to use medical debt information is neither warranted nor consistent with the intent of the Fair and Accurate Credit Transactions Act of 2003 (FACTA).

According to the CFPB, the proposed rule aims to close the “regulatory loophole” that has kept medical debt information in the credit reporting system. The CFPB shared that its analysis shows that medical debts make underwriting decisions less accurate and lead to thousands of denied applications on mortgages that consumers would repay. The CFPB expects the proposed rule would lead to the approval of approximately 22,000 additional mortgages every year. The CFPB further estimates that Americans with medical debt on their credit reports will see their credit scores rise by 20 points, on average, if the proposed rule is finalized.

Key provisions of the proposed rule, include:

  • Removal of the Financial Information Exception: The proposed rule would eliminate the broad exception that permits creditors to obtain and use medical financial information, including medical and dental debt, for credit eligibility determinations. Lenders would still be able to consider medical information related to disability income and similar benefits and medical information relevant to the purpose of the loan, if certain conditions are met.

  • Restrictions on CRAs: The proposed rule would limit the circumstances under which CRAs can furnish medical debt information to creditors in connection with credit eligibility determinations.

  • Ban on Repossession of Medical Devices: The proposed rule would prohibit lenders from taking medical devices as collateral for a loan and from repossessing medical devices, like wheelchairs or prosthetic limbs, if people are unable to repay the loan.

Notably, the proposed rule does not address medical debt paid for with any third-party financing options, such as credit cards or installment loans. However, the Bureau is accepting comments and is considering action on that front as well.

Also, this proposed rule is only one prong of the CFPB’s proposed FCRA amendments. Another prong contemplates regulating information that data brokers can sell. As discussed here, the Bureau is considering limiting “data brokers” and “data aggregators” to only be able to sell data for permissible purposes allowed by the FCRA — principally for eligibility determinations for credit, insurance, or employment. Under such future rules, the use of data for product improvement and identity verification to access an online account, for example, would be prohibited absent the consumer’s written authorization. We expect a proposed rule in this area later this year.

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