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The CFPB has finalized a landmark rule that removes $49 billion in medical debt from credit reports, the bureau said in a news release on Tuesday, Jan. 7. The regulation also prohibits lenders from using medical information in lending decisions when evaluating loan applications.
The rule is expected to raise credit scores by an average of 20 points and enable the approval of 22,000 additional mortgages annually.
"People who get sick shouldn’t have their financial future upended," CFPB Director Rohit Chopra said. "The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe."
Medical debt has long been a leading source of financial strain, often resulting from unavoidable health emergencies and frequent billing errors. The CFPB's research revealed that medical debt is a poor indicator of a borrower’s ability to repay loans and disproportionately prevents mortgage approvals.
The move follows earlier efforts by major credit reporting agencies, including Equifax, Experian, and TransUnion, to limit the reporting of certain types of medical debt. However, CFPB data shows $49 billion in outstanding medical bills remains on credit reports, affecting millions.
The rule also aligns with federal privacy laws designed to protect consumers from having sensitive medical information misused. It amends the regulation that implemented the Fair Credit Reporting Act, barring credit agencies from including medical bills in reports provided to lenders.
Vice President Kamala Harris underscored the significance of this reform, highlighting additional efforts to tackle medical debt at the state and local levels.
"No one should be denied economic opportunity because they got sick or experienced a medical emergency," said Vice President Harris. "Today’s unprecedented rule will make it so medical debt is no longer included in your credit score, helping millions of families save money, build wealth, and thrive."
The vice president also announced that federal, state, and local governments, leveraging American Rescue Plan funds, have already eliminated more than $1 billion in medical debt for more than 700,000 Americans. Efforts are underway to forgive up to $15 billion in medical debt for nearly 6 million people by 2026.
A good portion of that forgiven debt was in New Jersey, which has eliminated $220 million in medical debt for more than 120,000 residents. Connecticut has also eliminated $30 million in debt for about 23,000 residents.
The impact of medical debt extends beyond credit scores.
A 2022 CFPB report revealed that medical bills account for the largest share of debt in collections, surpassing credit cards and auto loans. By eliminating medical debt from credit reports, the CFPB said it aims to protect consumers from coercive debt collection practices and create new economic opportunities.
The rule will go into effect 60 days after it's published in the Federal Register.
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