Medical debt impacting your credit reports?

On January 7^th, the Consumer Financial Protection Bureau (CFPB) voted to implement a rule which would impact what kinds of debt are allowed to be included in credit reports. Under a proposed rule, after March 17, 2025, medical debt will no longer be included in credit reports governed by the Fair Credit Reporting Act. The rule was first proposed to help combat inflation and rising interest rates stemming from the COVID-19 pandemic.

The CFPB was motivated to make this rule due to recent findings about the way that medical debt affects American credit reports. The CFPB reported that approximately 43 million Americans had medical bills on their credit reports. The total amount of medical debt reported? 88 billion dollars. According to further findings, medical bills comprised 58 percent of the bills that were reported to be in collections on people’s credit reports.

Research also showed that medical billing data that was reported is less predictive of future repayment than more traditional reporting like debt-to-income ratio or length of credit history. This is because medical debt is often disputed, causing disagreements with insurance, mistakes in billing, or confusion over complex billing practices. Taken together, this arguably makes medical debt less probative of creditworthiness than other traditional factors.

The rule will do three important things:

1. Ban the inclusion of medical debt on credit reports used by lenders,
2. Prohibit lenders from using medical information in their lending decisions, and
3. Restrict lenders from taking medical devices as collateral for a loan and prevent them from repossessing medical devices in the event the loan is not repaid.

The CFPB is hopeful that this new rule will lead to around 22,000 additional, more affordable mortgages every year and has predicted that some people with reported medical debt could see their credit scores rise by an average of up to 20 points.

As with the operations of the CFPB at-large, the fate of this rule is uncertain and will be decided in the coming weeks as legal challenges play out in the court system. If you have any questions regarding the impact of these new laws on you, reach out to one of our experienced attorneys at McNeelyLaw LLP by calling (317) 825-5110.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.