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New rules would limit medical debt on credit reports

Millions of Americans could be impacted by a decision to limit medical debt from appearing on credit reports.
New rules would limit medical debt on credit reports
Posted at 10:20 AM, Sep 22, 2023

The Biden administration is beginning the process that would wipe medical debt from millions of Americans' credit reports. Under the proposal, creditors could still obtain medical billing information for other purposes, such as verifying the need for medical forbearances or evaluating loan applications to pay for medical services, the Consumer Financial Protection Bureau said. 

The CFPB said debt reporting agencies would no longer be allowed to include medical debt on consumer reports that are used on credit checks. Debt collectors would also be prohibited from using the credit reporting system as leverage to pressure consumers into paying questionable debts.

A KFF survey found that 41% of adults had outstanding medical or dental debt. The survey also found that about 1 in 4 adults were past due on some type of medical debt. 

"When Americans end up in the hospital, there’s often little or no choice of provider, it’s extremely difficult to know prices in advance, and the full cost of treatment may only become clear weeks or months after the fact," CFPB Director Rohit Chopra said. "Families are often barraged with a stream of confusing and error-ridden bills from facilities and providers. Too many of us have ended up in a doom loop of disputes between insurance companies and health care providers."

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"Our planned rulemaking would not stop creditors from getting the legitimate information they need to make credit decisions — for instance, when it is necessary to process a medical forbearance," Chopra added. "If anything, it would increase the validity of the data creditors are accessing, and stop them from using information that says more about someone’s unexpected medical emergencies than their risk of late payments."

The CFPB said earlier this year that medical debt still accounts for more than 50% of all consumer debt in collection, more than all other sources of debt collection combined.

In April 2023, Experian, TransUnion and Equifax announced that they would remove medical debts lower than $500 from credit reports. With the decision, about 70% of those with medical debt had it removed from their credit reports, the companies said.

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