CFPB Releases Notice of Proposed Rulemaking to Remove Medical Bills from Credit Reports  

Posted by Gracie Nelson on June 26, 2024

Last week, the CFPB released a Notice of Proposed Rulemaking that would significantly impact credit reporting and lending practices by amending Regulation V of the Fair Credit Reporting Act (FCRA) to remove medical debt from credit reports. This proposal is part of a broader examination of how medical debt is impacting the credit worthiness of individuals and families both at the federal and state levels. The GoWest teams have seen several of our state legislators looking at credit report alternatives, and we would expect Congress to look at alternatives as well. 

Concerns and Engagement Process 

The GoWest team has significant initial concerns regarding the CFPB’s proposal to implement this rule without a comprehensive discussion of its implications or credit report alternatives being outlined. There are significant ramifications this change could pose to credit risk assessment and the operational adjustments credit unions and other financial service providers may need to undertake to ensure safety and soundness in lending portfolios. The removal of medical debt from credit reports could also result in unintended consequences for consumers aiming to access credit. 

Considering these initial concerns, GoWest will work with credit unions, beginning with the Regulatory Advisory Subcommittee to gather information, define concerns and questions, and develop an advocacy strategy. We will continue to provide ongoing updates and resources throughout this process.   Please email John Trull, VP of Regulatory Affairs at [email protected] and Gracie Nelson, Manager of Regulatory Affairs at [email protected] with any feedback, insight or inquiries that you may [email protected] with any feedback, insight or inquiries that you may have. 

Background  

In 2022, The White House announced plans to focus on medical debt and credit reporting alongside congress and several federal agencies, including the CFPB. Supported by the Biden Administration, the CFPB’s research on medical debt found that Americans could see a 20-point increase in their credit scores resulting in an estimated 22,000 more mortgage approvals annually by removing medical debt from credit reports.  

There have been several pieces of legislation proposed in the last and current Congress that sought to make this change in statute, but proponents have been unsuccessful in their attempts to pass these bills. The CFPB is now taking steps to remove medical debt from the credit reports through administrative rules and procedures.   

The initial response to the CFPB’s proposal had mixed reviews across party lines on Capitol Hill, as there is a feeling that without having the full risk picture, it could impact the financial security and potential tightening of the credit market for financial institutions across the Country. Democratic leadership mostly responded positively to the news; however, there were a spattering of concerns outlined both publicly and privately by a bi-partisan group that is concerned that removing critical data from the risk portfolio, without an adequate alternative, could lead to safety and soundness issues for financial institutions, while at the same time negatively impacting consumers’ ability to access affordable credit. 

Notice of Proposed Rulemaking 

The CFPB is now seeking public comments to amend Regulation V in three key areas:  

• Removing the special medical debt exception: The proposed rule would remove the provision that allows lenders to use medical debt information to make credit eligibility determinations. However, lenders could still consider medical information related to disability income and similar benefits, as well as medical information relevant to the purpose of the loan under specific conditions.  
• Establishing guidelines for credit reporting companies: The proposed rule would stop credit reporting companies from including medical debt on credit reports sent to creditors when they are not allowed to consider it. 
• Banning repossession of medical devices: The proposed rule would prevent lenders from using medical devices as collateral for a loan, and would not allow lenders from repossessing medical devices, like wheelchairs or prosthetic limbs, if borrowers are unable to repay the loan. Read more about the rule here. 

Comments are due by August 2nd.  

Posted in Advocacy on the Move, Regulatory Advocacy.