Prepared Remarks of CFPB Director Rohit Chopra on the Proposed Ban of Medical Bills on Credit Reports

Thank you, Vice President Harris, for joining and for highlighting all of the work to address the burden of medical bills.

The credit reporting system is intended to help lenders accurately assess whether someone is likely to repay a loan. Most information on a credit report represents debts that a consumer voluntarily signed up for, like a mortgage, an auto loan, or a credit card. In recent years, however, medical bills became the most common collection item on credit reports. Research from the Consumer Financial Protection Bureau in 2022 showed that medical collections tradelines appeared on 43 million credit reports, and that 58 percent of bills that were in collections and on people’s credit records were medical bills.

But medical debt on a consumer credit report is a very different type of debt than a mortgage, an auto loan, or a credit card. Sometimes, as is the case with a visit to the emergency room, the debt is taken on unexpectedly and in a time of crisis. Medical bills are also frequently subject to coding errors, charity care mistakes, or complexities with insurance. A decade ago, the CFPB found that medical debts were overly penalizing consumer credit scores, and we have consistently found that medical billing data on a credit report is less predictive of future repayment than other debts.

Nevertheless, some have seized on medical debts as a major moneymaking enterprise. These entities purchase medical debt, sometimes for pennies on the dollar, and they can cash out big by getting consumers to pay up on those debts. And one of the easiest ways they can do so is by threatening to park that medical debt on the credit report, where it might impede a consumer’s ability to get approved for a loan. In this way, the credit reporting system more closely resembles a weapon for debt collectors rather than a tool for lenders to assess someone’s likelihood to repay a loan.

Today, the CFPB is proposing a rule that would ban medical bills from most credit reports. This rule would stop debt collectors from using the credit report as a cudgel to coerce consumers into paying bills they may not even owe, and make sure the credit reporting system doesn’t unjustly punish people for getting sick.

For consumers, today’s proposed rule would have practical and positive real-world consequences. Medical bills on credit reports would no longer thwart big life milestones and aspirations like obtaining a home mortgage or small business loan.

In 2022, shortly after the CFPB highlighted the systemic problem of inaccurate and inflated medical bills, the three nationwide credit reporting companies—Equifax, Experian, and TransUnion—announced, collectively, that they would remove some medical debt from credit reports. But even after their incremental changes, 15 million Americans still have $49 billion worth of medical debts, that collectors claim they owe, on their credit reports. These Americans disproportionately reside in the South and in low-income communities.

CFPB research has found broad concerns about the accuracy of medical bills. First of all, billing errors are widespread, whether that’s patients being charged for care they didn’t receive, for care that should have been covered by insurance, or even for care provided to someone else entirely. Unpaid balances are often altered by insurance adjustments or financial assistance but don’t get adjusted in the underlying bills sent to debt collectors. Making matters worse, most debt collectors collecting on unpaid medical bills have no way of comparing the bills they are collecting on with the healthcare providers’ billing records, so they cannot easily verify the underlying accuracy of a bill, even though they are required to ensure the validity of the debt.

The CFPB’s market research has identified predatory actors that know how important a clean credit report can be for accessing credit, and use that leverage to unjustly coerce payments from consumers. Many of us have been ensnared in the “doom loop” between insurance companies and healthcare providers when it comes to an incorrect medical bill, and oftentimes, people just give up and pay a bill they don’t actually owe just to get some peace of mind and to move on with their lives.

The CFPB has found many legal violations when it comes to medical bills and debt collectors, including harassment of individuals with allegedly unpaid medical bills and debt collectors telling consumers that they were responsible for debts that were incurred due to identity theft. The CFPB even shut down one medical debt collector for ignoring complaints about unverified debts.

The action we are announcing today would remove a loophole that allowed lenders to obtain and use medical debt information in connection with credit eligibility determinations. This would bring our regulations in line with congressional intent, which more than 20 years ago restricted lenders from obtaining or using medical information, including information about debts.

With the loophole closed, the rule would establish guardrails for credit reporting companies—prohibiting credit reporting companies from including medical bills on credit reports sent to lenders, who are banned from considering it.

The proposed rule also includes additional protections that would prohibit lenders from taking medical devices as collateral for a loan, and ban lenders from repossessing medical devices—like wheelchairs or prosthetic limbs—if people are unable to repay the loan.

The 15 million Americans who would benefit from this change would see their credit scores rise by an average of 20 points. And for the lenders, when they pull a credit report to see whether someone can qualify for an auto loan, home mortgage, or credit card, they would see more predictive and accurate information, leading to improved underwriting. For mortgages alone, we estimate this would lead to approximately 22,000 additional home loans every year.

American families should not have their financial lives upended because of an unexpected medical emergency. Nor should an expensive surgery or procedure put them at risk of coercion and harassment. Our action today is an important step toward reducing some of the unnecessary costs of getting sick in America. The CFPB will be pursuing additional work when it comes to the emerging ecosystem of medical financial products to ensure they do not cause widespread harm in our country.

Thank you.