The lame duck Biden administration’s Consumer Financial Protection Bureau (CFPB) issued a new rule Tuesday that will hide an estimated $49 billion in medical debt from credit reports.
The rule, which is slated to affect 15 million Americans, prohibits the inclusion of medical bills on credit reports and bars creditors from using medical information in making lending decisions. The policy specifically targets national credit-reporting companies Equifax, Experian and Transunion, which provide detailed evaluations of consumer finances to banks, employers and landlords.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a press release announcing the finalized rule. “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.”
In the rule announcement, the CFPB cites its own research claiming medical debt is a poor predictor of a person’s likelihood to repay a loan. However, a 2019 study from the National Institutes of Health cited by Chopra in May 2023 found 66.5 percent of all personal bankruptcies were tied to medical bills.
Equifax requested the CFPB withdraw the rule in August after it was proposed in June, arguing the CFPB failed to prove medical debts are inaccurately reported, and thus that banning the use of medical history in lending decisions is “not permitted” under federal law: “This arbitrary and capricious finding … (I) fails to consider Congress’s intent to authorize the reporting of medical debt information; (II) does not include a meaningful cost-benefit analysis; (III) does not offer substantial evidence to support its assertion that medical debt information is less predictive; (IV) does not provide substantial evidence that medical debt information is inaccurate; and (V) improperly distinguishes between medical debt owed to healthcare providers (or their agents or assignees) and medical debt owed to credit card issuers.”
Debt collector lobby ACA International also panned the CFPB policy, saying it barred collectors from recovering “rightfully owed consumer debt,” that allows lenders “to survive.”
The CFPB was created in the wake of the 2008 Great Financial Crisis and is considered the brainchild of Democratic Massachusetts Sen. Elizabeth Warren. Chopra, the agency’s current director, worked closely with Warren to establish the agency in 2011.
The medical debt rule comes just weeks after the CFPB issued a rule in December to curb overdraft penalties by forcing banks to either cap overdraft fees at $5, far less than the $35 average, or to provide the overdraft as a form of credit rather than a penalty. Experts previously described the overdraft rule to the DCNF as “a classic case of government overreach” that courts will “likely conclude” is not legal following the Supreme Court’s 6-3 June vote overturning Chevron deference — a legal theory that provided unelected bureaucrats with significant leeway to interpret statutory ambiguities.
The CFPB did not immediately respond to a request for comment.
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