New Federal Proposals Would Remove Medical Debt From Credit Reports

The Consumer Financial Protection Bureau says Americans with unpaid medical bills would no longer have those debts show up on credit reports under proposals it's considering issuing next year. It's estimated that about 100 million Americans have medical debt, which lowers credit scores and can prevent them from getting a home mortgage, renting an apartment, getting a car loan, or even securing work. 

If the change is enacted, consumer credit companies would be barred from including medical debt on reports that creditors use to make underwriting decisions or for weighing loan applications.   

CFPB Director Rohit Chopra says," 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."

A CFPB report published last year found that roughly 20% of Americans reported having medical debt. Chopra points out that many healthcare bills have mistakes. "Families are often barraged with a string of confusing and error-ridden bills, and too many of us have ended up in a doom loop of disputes between insurance companies and health care providers," he said. "These bills, even ones where the patient doesn't owe anything further, can end up being reported on the patient's credit report."

With rising inflation debt and higher cost of living increases, other federal agencies are also looking into medical billing practices, including medical credit cards with exorbitant fees and unfair installment loan payments.

The nation's three largest credit reporting companies, Equifax, Experian, and TransUnion have pledged to remove nearly 70% of medical debt from consumer credit reports. The grace period for unpaid medical collection debt appearing on credit reports has now been extended from six months to a full year, giving patients more time to work out bills with their insurers and providers. Debt under $500 is also no longer included on credit reports.

While consumer protection advocates applauded the move, hospital leaders and debt collectors argue making it more difficult for medical providers to collect unpaid bills may have unintended consequences. A report by the American Hospital Association cited financial challenges and low reimbursement among the causes that resulted in 136 rural hospital closures between 2010 and 2021 and a record 19 closures in 2020 alone. Another unintended consequence is that hospitals and medical providers may be forced to require larger upfront payments before providing care. 

The CFPB says it is gathering feedback from businesses impacted by the proposed change but expects to issue a proposed rule next year.