Proposed changes regarding the removal and reporting of medical debt may lead you to change how you do business if you rely on credit reports when deciding whether to grant credit,
In June, the Consumer Financial Protection Bureau (CFPB) proposed some major changes related to the reporting of medical debt and consumer credit reports. More specifically CFPB Director Rohit Chopra proposed removing billions of dollars in medical debt from credit reports. This would change the way medical debt is reported on individual credit reports and how information gets reported to creditors.
The CFPB’s proposal would remove a regulatory exception (in Regulation V) from the limitation in the Fair Credit Reporting Act that allows creditors to obtain and use information on medical debts to determine credit eligibility.
According to the CFPB:
In 2003, Congress restricted lenders from obtaining or using medical information, including information about medical debts, through the Fair and Accurate Credit Transactions Act. However, federal agencies subsequently issued a special regulatory exception to allow creditors to use medical debts in their credit decisions.
The proposed rule would also prohibit consumer reporting agencies from providing creditors with consumer reports containing information related to medical debt.
If finalized, the proposed rule would:
- Eliminate the special medical debt exception: The proposed rule would remove the exception that broadly allows lenders to obtain and use information about medical debt to make credit eligibility determinations. Lenders would continue to be able to consider medical information related to disability income and similar benefits, as well as medical information relevant to the purpose of the loan, so long as certain conditions are met.
- Establish guardrails for credit reporting companies: The proposed rule would prohibit credit reporting companies from including medical debt on credit reports sent to creditors since creditors cannot factor in that information.
- Ban repossession of medical devices: The proposed rule would prohibit lenders from taking medical devices as collateral for a loan or repossessing medical devices, like wheelchairs or prosthetic limbs.
Rationale for Change
CFPB Director Rohit Chopra claimed that “Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans.”
Some 15 million Americans have tens of billions of dollars in outstanding medical debt appearing in credit reports, despite some changes to reporting practices. The complexity of medical billing and insurance coverage often results in errors or inaccuracies, and some credit agencies haven’t eliminated the score difference between those with and without medical debt. If the rule becomes finalized, the CFPB expects Americans with medical debt on their credit reports to see their credit score rise by some 20 points on average.
Your Credit Policy
If you rely on the reporting of medical debt, you most likely have already made some changes. However, more will be needed.
I would love to learn more about how you’re planning to change your criteria, please email me. All emails are kept confidential.
Jocelyn Nager, Esq.
