RSSThe Consumer Financial Protection Bureau banned credit reporting companies from including medical bills on credit reports and credit scores used by lenders.
Announced Jan. 7, the ban includes lenders using medical information in their lending decisions. Lenders would be banned from using information about medical devices, such as prosthetic limbs, that could be used to mandate the devices’ use as collateral for a loan for the intention of repossession.
Under the rule, lenders will still be able to review medical information to verify medical-based forbearances, medical expenses that a consumer can only repay through a loan and consider some benefits as income when underwriting.
According to the CFPB, medical debt doesn’t accurately predict whether borrowers can repay other debt, and consumers often report receiving inaccurate bills, or are asked to pay bills that should have been covered by financial assistance programs or insurance.
“The rule will increase privacy protections and prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe,” according to the bureau.
The CFPB estimates the rule will remove $49 billion in medical bills from the credit reports of 15 million Americans and lead to the approval of 22,000 additional mortgages annually. Americans with medical debt on their credit reports could see their credit scores increase by an average of 20 points, according to the bureau.
Credit reporting companies Equifax, Experian and TransUnion have already committed to removing medical debt under $500 from credit reports. Credit scoring companies FICO and VantageScore have decreased the degree to which medical bills impact a consumer’s score.
“People who get sick shouldn’t have their financial future upended,” said CFPB Director Rohit Chopra. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
