The CFPB’s announcement that they are beginning the rulemaking process “to address the problem of unreliable or unnecessary medical collection tradelines appearing on consumer reports” is a great big deal.

So we jumped at the chance to sponsor an AccountsRecovery.net webinar on the topic: Breaking Down the CFPB’s Plan to Remove Medical Debt from Credit Reports.
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The webinar’s panel included John Bedard of Bedard Law Group, Leslie Bender, of Eversheds Sutherland, and Joann Needleman of Clark Hill.

The proposal

The CFPB’s argument for considering a rule to remove an exemption that allows medical debt to appear on consumer credit reports is that medical debt is “unpredictable.” (You can read the study they cited here.)

In other words, as Leslie explained it, the idea is that medical debt “has been assumed to be not predictive of future repayment behavior,” and therefore bureaus should not include the information on consumer reports.

CFPB Director Rohit Chopra said, “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. When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe.”

There have already been significant changes around medical debt reporting, as the CFPB laid out here: “The three nationwide credit reporting companies – Equifax, Experian, and TransUnion – also removed all paid medical debts from consumer credit reports and those less than a year old. They have also taken steps to remove all medical collections under $500. This last step went into effect on April 11, 2023, and with this change, it’s estimated that roughly half of those with medical debt on their reports will have it removed from their credit history.”

The full picture

Mike Gibb at AccountsRecovery.net, who hosted the webinar, laid out the full scope of the proposals this way:

• “Remove medical bills from consumers’ credit reports: Consumer reporting companies would be prohibited from including medical debts and collection information on consumer reports that creditors use in making underwriting decisions.
  

• Stop creditors from relying on medical bills for underwriting decisions: The proposal would narrow the 2005 exception and prohibit creditors from using medical collections information when evaluating borrowers’ credit applications.
  
  
• Stop coercive collection practices: As unpaid medical bills would no longer appear on consumers’ credit reports used by creditors in making underwriting decisions, debt collectors would no longer be able to use the credit reporting system as leverage to pressure consumers into paying questionable debts.”

The process

Joann referred back to previous rulemaking processes, including the one around Reg F, to remind us of procedures. 

1. The CFPB has submitted its outline of proposals, so the next step is the Small Business Review Panel, where small business representatives will be invited to discuss benefits and drawbacks around the proposals, including the one around medical debt.

2. Then, John explained, the CFPB will take that input and create a Notice of Proposed Rulemaking, which will be open for public comment.
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3. After the public discussion is over, the CFPB will draft and publish a final rule, though John pointed out we don't know how long it will take the rule to go into effect - “it could be as quick as 60 days, it could be a year like it was for reg F,” he said.

The concerns

The panel had a number of questions and concerns about the proposal around medical debt reporting.

Joann questioned the underlying assumption of the rule itself: “I don't think we have conclusory, absolute conclusive data, that medical debt is not predictive,” she said.

A related concern is the question of how omitting medical debt would affect the underwriting process, specifically as it relates to debt-to-income ratio. 

“Medical debt, like any debt…is [on a credit report] to give the creditor and lender an idea of what debt and income is of a prospective borrower,” Joann said.

And it’s not just about a creditor’s risk, she continued. “[As] a bank, who's regulated by other financial services regulators, I have a safety and soundness obligation. And I'm not getting a true picture of what this borrower owes.”

John agreed, questioning the fact that the study the CFPB cited as evidence of medical debt’s unlikeliness to predict repayment, was almost ten years old and came from the CFPB itself.

The bigger issues

We’ll just cover the medical debt questions in this post, but the CFPB’s proposals included a number of other pieces, which the panel was equally concerned about.

The overall proposals, Joann said, are “attempting to rewrite the Fair Credit Reporting Act [FCRA[ without going to Congress.”

The medical debt portion in particular is a problem because of how it connects to the FCRA. “The reason we have the FCRA is because we wanted to have a true and accurate picture of a consumer’s economic life. They should get credit for bills they pay, and you should understand the bills they're burdened with, that they're servicing.”

What’s next

The panel reminded us that this is a slow process, but that we have the chance to get involved. They specifically encouraged anyone in the collections, medical payments, and repayments industries to get stay tuned and be part of the public comment process.