CFPB Wants to Eliminate Medical Debts from Credit Reports
CUNA says proposal would result in inaccurate data.
The CFPB has begun exploring ways to eliminate medical debts from consumer credit reports—a decision that could spark yet another battle between the agency and financial services trade groups.
“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,” CFPB Director Rohit Chopra said last week.
Agency officials said that a report last year found that about 20% of Americans reported having medical debt. They added, however, that CFPB research has shown that medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations.
While Vice President Kamala Harris has endorsed the medical debt effort, in the past, CUNA officials have warned against such a move.
“While Congress considers the economic impact of medical debts, it’s vital to consider that lenders rely on accurate credit reports when underwriting loans,” CUNA President/CEO Jim Nussle wrote in advance of a Senate Banking Committee hearing last year.
Nussle added that restricting the reporting or consideration of certain debts would prevent lenders from having a complete picture of a borrower’s debts and would keep lenders from having a clear view of the borrower’s creditworthiness.
“An incomplete view of borrowers’ credit history reduces lender confidence in credit reports and scores, impacting pricing decisions and credit availability,” he wrote. “The borrowers most impacted by the consequences of opaque credit report data will be low- and moderate-income borrowers whose financial well-being could benefit the most from access to affordable credit from a credit union.”
If unpaid medical bills would no longer appear on consumers’ credit reports, debt collectors no longer would be able to use the credit reporting system as leverage to convince consumers into paying debts that might be questioned, according to the CFPB. Those debts might be questioned because billing errors in the medical billing system have been widespread, they added.
In the Fair Credit Reporting Act, Congress restricted a creditor’s power to obtain or use medical debts in credit decisions. However, Congress also gave federal banking regulators authority to create regulatory exemptions. The banking regulators, including the NCUA, have created such exemptions.
Consumer Group Support
Consumer groups said they support the decision by the agency to explore exempting medical debt from consumer credit reporting.
“Negative credit reporting is one of the biggest pain points for patients with medical debt,” Chi Chi Wu, senior attorney at the National Consumer Law Center said. “When we hear from consumers about medical debt, they often talk about the devastating consequences that bad credit from medical debts has had on their financial lives.”
The NCLC used the CFPB’s petition process in September 2022 to request that the agency ban the use of medical debts in credit reports.