How the CFPB’s new medical bills rule will—and won’t—affect consumers
On January 7, 2025, the CFPB finalized a rule prohibiting data furnishers and credit bureaus from reporting on medical bills and debt. The change will remove some $49 billion from the credit reports of about 15 million people, boosting their FICO scores by an average of 20 points.
Coverage and commentary on the rule has been divisive. Proponents welcome the changes as a major financial boon to consumers affected by medical payments, including those who have the ability to pay but get stuck in a broken communication loop between medical providers, insurance companies, and debt collectors. Critics have largely argued that the rule, though well-intentioned, may bring with it significant unintended consequences, affecting repayment behavior and medical financing.
Amid all the debate, there has also been a good deal of confusion over what the rule actually does.
To shine some light on the subject, we reviewed both the rule itself as well as the CFPB’s prior research on how medical bills and debt affect credit scores.
The context around medical debt and credit reporting
The rule is an amendment to Regulation V, which implements the Fair Credit Reporting Act (FCRA). It prohibits credit reporting agencies from providing information on medical debt to creditors.
Furnishing that medical data was already prohibited in most cases, but an exception from 2005 allowed credit bureaus to use that information for “legitimate operational, transactional, risk, consumer, and other needs” consistent with FCRA.
Under that exception (and per the CFPB’s own example), if an applicant owed $20,000 debts to a hospital and a retailer, and both debts were over 90 days past due, the credit provider could essentially treat the two debts identically in their decisioning formula. If those two debts disqualified the applicant under the creditor’s established underwriting criteria, they could deny the application through the exception, treating medical debt no less favorably than they do other debts.
The CFPB’s new rule closes out that exception, giving three primary reasons for the change:
- The exception lacked solid evidence.
- Medical billing and debt information is less predictive of future repayment than other types of payments (e.g. utilities, credit cards, etc.).
- Some credit bureaus and other companies have already reduced their reliance on medical debt information, either weighting it lower in formulating credit scores or removing it altogether.
A little more on that last point: Between 2022 and 2023, the three major credit bureaus—Experian, TransUnion, and Equifax—removed from credit reports all medical debts that are paid, had a starting balance less than $500, or are less than a year old. The credit score providers FICO and VantageScore, meanwhile, have updated their formulas to weigh medical debt lower than other items.
What the bill does
The rule applies to virtually all credit providers. (It does have one exception for auto dealers that aren’t involved in any other form of financing, since the CFPB lacks rulemaking authority over them—see CFPA §1029.)
Rule changes
- For the vast majority of lenders who do fall under the CFPB’s scope, the rule does two things:
- Prohibits lenders from considering medical information: The 2005 exception is no more. Lenders cannot use information about medical bills or debt when underwriting an account. That includes both the financial information about how much is owed, as well as information about their health, medical devices, or other details.
- Bans medical bills on credit reports: Credit bureaus and credit score providers are prohibited from factoring medical bills and debt into credit scores. Previously, a year-old unpaid medical bill of more than $500 would impact your score (albeit at a lesser weight than an unpaid non-medical debt of the same amount), but no more. Lenders can still request medical information directly from borrowers to verify medical-based forebearances or ability to repay requirements.
Immediate effects
According to the CFPB’s estimates, this will boost affected consumers’ credit scores by an average of 20 points. Almost one in five credit reports (19.5%) currently contain one or more medical bills.(For context, 24.5% contain non-medical bills and debts, and 69% of reports don’t contain any collections items.)
The CFPB estimates that the change will lead to 22,000 new and affordable mortgages each year, a 5% increase over the 386,000 new mortgage originations annually, contributing 0.04% to the over 50 million existing mortgages.
Despite being the most common item on credit reports, medical collections are typically for smaller amounts than other bills and debts. According to the CFPB’s research, the median unpaid medical bill on credit reports is $207, contrasted with the amounts due on credit cards, auto loans, or student loans, which all have a median amount in the thousands.
How do the new medical payments rules apply to FDCPA and other regulations?
As an amendment to the Fair Credit Reporting Act (FCRA), the rule does not directly change any other regulations. Medical providers and their agents can no longer report credit, but they can still make collections calls or repossess collateral, as long as they follow existing regulations like the Fair Debt Collection Practices Act (FDCPA) and Fair Credit Billing Act (FCBA).
Part of the CFPB’s research showed that complaints concerning medical were more likely to involve clerical errors, like debts being paid (20.1% for medical, compared to 8.4% for nonmedical) or not receiving enough information to verify that debt was legitimate (14.5% for medical, and only 9.0%of non-medical).
While the rule doesn’t overtly require any changes in how medical providers and debt collectors operate, providers who can no longer leverage credit reporting as a collections tool may turn to more aggressive collection practices. If they don’t already have strong compliance guardrails in place, that move could inadvertently lead them into risky or illegal territory.
What it won’t do
Now that we’ve explored what the rule does, it might be helpful to spell out what it doesn’t do as well. People arguing for and against the rule have overstated what it will do, whether making it out to be a panacea that will heal all the problems of medical financing, or painting it as an enormous overreach of bureaucratic authority that will throw a wrench in the credit industry.
- Let’s clear up some misconceptions we’ve heard from commentators. First, the misconceptions dealing with lending specifically:
- The rule won’t keep people off the streets. Critics and proponents agree that no one should lose the roof over their heads because of unexpected medical expenses, but that’s not the problem this rule is addressing. Improving applicants’ credit scores will make it easier to apply for mortgages and other credit, but it won’t do anything for someone who’s already got a mortgage.
- The rule won’t absolve medical debt. Some (including the Biden Administration) have argued for medical debt forgiveness, but those who are owed the debts understandably disagree. Regardless, borrowers’ medical debts still exist, but now the medical providers and debt collectors have one fewer tool to get their payments.
- The rule doesn't actually stop lenders from reposessing medical devices, such as prosethetic limbs. After the CFPB included a line about repossessing prosthetic limbs in their press release, several commentators applauded the end of the practice. But the rule doesn’t outright prohibit lenders from securing loans with medical devices. It makes it more difficult for them to do so, since that information can’t be used in credit reports, but if the consumer volunteers their prosthetic as collateral, that’s outside the scope of this rule.
- There have also been misconceptions overstating the effect the rule will have on the medical system as a whole:
- The rule won’t change the underlying cost of medical care. Large and unexpected medical expenses can, of course, cause considerable financial distress. The rule addresses the downstream effects of a sudden large bill, but doesn’t take any action to bring down medical costs themselves.
- The rule doesn’t close the doom loop between insurance and medical providers. As CFPB Director Rohit Chopra said back in 2022, “When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company.” The doom loop will no longer ding your credit score, but consumers shouldn’t expect negotiations between insurers and medical providers to get much easier.
- The rule won't reduce medical billing erorrs. According to the CFPB’s research, 6% of medical bills have been disputed (about three times more than the rate for credit cards). These errors will no longer affect people’s scores, but the underlying problem of billing errors remains.
Weighing the facts
This subject deserves clarity on the actual policies in question, rather than championing or decrying changes that the CFPB isn’t even attempting. All in all, it seems like the rule is pushing the industry in a direction it was already headed, considering adjustments that the major bureaus and credit score providers had already made to limit the effect of medical debt on credit scores.
Still, that push may go too far, impacting creditors’ ability to predict repayment and pair borrowers with credit products that match their level of risk. Borrowers are impacted if they’re not able to access credit products that they would be able to afford—but they’re also impacted if unpredictive models let them get too deep into debt that they’re unable to repay. That outcome benefits no one.
Whether the CFPB’s rule will meet its intended goal remains to be seen. (And like all of the changes in their recent string of final rules, it remains to be seen if they’ll remain on the books or be stricken down by Congress or the courts.)