STATEMENT: CFPB proposes to erase medical debt from credit reports

WASHINGTON —  The Consumer Financial Protection Bureau announced Tuesday a proposed rule that would eliminate most medical debt from credit reports. This step is in response to U.S. PIRG and other advocates calling on the agency to protect patients from the negative impact that medical debt — which, as opposed to debt from purchasing a consumer product, is often unavoidable — has on consumer credit ratings. 

This proposed rulemaking follows a voluntary 2022 announcement by the three major credit bureaus (Equifax, Experian and TransUnion) about new ways of documenting medical debt on credit reports. Those changes included:

• Paid medical debt will be erased from consumer reports (it had stayed on reports for up to seven years)
• Any new medical debt won’t be included in credit reports until a year (rather than the current six months) after the bill is handed over to the collection agencies. 
• Owed medical debt of less than $500 will not be included in credit reports.

That voluntary industry action came after the Consumer Financial Protection Bureau (CFPB) released a report that expounded on the widespread problem of medical debt for American families. The report showed that as of the second quarter of 2021, medical bills made up 58% of bills in collections and on credit reports. 

In response to the CFPB issuing its proposed rule, Patricia Kelmar, U.S. PIRG’s health care campaigns director, made the following statement:

“We have known for years that medical debt doesn’t predict credit defaults, nor does it accurately predict a person’s desire and willingness to pay off loans. The CFPB agrees. These newly proposed rules are an important step toward implementing a fair credit system that doesn’t penalize people for life events they can’t control, such as getting sick or injured.”