New Federal Rule Bans Medical Debt From Credit Reports

On Jan. 7, the Consumer Financial Protection Bureau (CFPB) finalized a rule that bans medical debt from consumer credit reports in an effort to strengthen consumer protection. While this change has been supported by consumer advocates, it has also sparked concern among credit reporting agencies and lenders.

The CFPB rule prohibits consumer reporting agencies from providing reports that include medical debt information for credit eligibility determinations, ending the use of medical debt information by creditors and medical providers as leverage to pressure payments. The rule also prohibits creditors from obtaining and using medical information — such as medical debts, expenses, assets, or collateral — when making lending decisions. However, lenders may still consider medical information for some purposes, such as verifying temporary loan payment relief granted for medical reasons (known as medical forbearance) or underwriting healthcare-related loans.

The rule builds on earlier reforms by major credit bureaus that limited reporting of certain types of medical debt, such as debts under $500.

Medical debt is a widespread issue in the United States. A 2022 CFPB report revealed that nearly 58% of all debts listed on credit reports are from medical bills. Many of these debts arise from unexpected health crises or billing practices such as charging uninsured patients higher prices than insured patients. By removing this type of debt from credit reports, the CFPB seeks to improve access to credit for individuals while addressing inequities that disproportionately impact low-income and minority communities, which are more likely to have medical debt.

The rule has faced criticism from trade groups and lawmakers who argue that excluding medical debt undermines the credit industry’s ability to accurately assess financial responsibility, potentially leading to less precise risk evaluations. Lenders warn that this change could result in higher interest rates for all borrowers as financial institutions adjust for increased uncertainty.

Two trade associations have already filed a lawsuit in federal court challenging the rule. They argue that the CFPB has exceeded its regulatory authority under the Fair Credit Reporting Act.

The CFPB’s rule is set to take effect on March 17. The future of the rule is uncertain with President-elect Donald Trump returning to office, as he is expected to unwind many Biden-era rules. The CFPB is expected to face heavy scrutiny, and rules related to medical debt may be revisited as they are subject to the Congressional Review Act (CRA), which requires federal agencies to submit a final rule to Congress before it takes effect.