On January 7, 2025, the Consumer Financial Protection Bureau (CFPB) finalized a ruling to remove all medical debt from credit reports. This change means that both paid and unpaid medical collections will no longer be reported to credit bureaus.
In 2023, it was announced that paid medical collections and outstanding medical debts under $500 would be removed from credit reports, benefiting millions of consumers. The new directive aims to extend this by eliminating the reporting of medical debts over $500 as well. Additionally, it will prevent lenders from factoring in medical information when making lending decisions. Following the initial announcement in 2023, VantageScore took the initiative to remove all medical debt from its scoring algorithms. According to the CFPB, this updated directive is expected to help an additional fifteen million individuals.
The appropriateness of using medical debt as a factor in evaluating a consumer’s creditworthiness has been a subject of ongoing debate. Medical events can occur unexpectedly, and many consumers may be unaware of specific medical collections on their credit reports, often believing their insurance had covered the related costs.
The new changes are currently set to take effect in March, but they are facing significant opposition and are likely to be challenged in court before that date. This week, two industry associations, the Association of Credit and Collection Professionals (ACA) and the Consumer Data Industry Association (CDIA), have initiated legal actions to block the ruling. Additionally, Equifax has publicly criticized the ruling, calling it “arbitrary and capricious.” The company argues that the rule violates the Fair Credit Reporting Act (FCRA) and claims that the CFPB lacks the authority to enforce such a ban.
The opposing viewpoint argues that removing this information could lead to inaccuracies in credit reports, potentially allowing consumers who might default to secure loans.
They have also raised concerns that this could ultimately lead to higher costs for consumers. In an 88-page document sent to the CFPB by the ACA in August, they stated, “When medical debt is removed from consumer reports, many consumers may believe it no longer exists. Even those who recognize their outstanding debts may lack any incentive to pay them. As a result, medical providers are likely to see a significant decrease in their collection efforts. While many healthcare providers currently offer financing options for services, they may be forced to eliminate these in favor of requiring pre-payment. If doctors and other healthcare professionals are unable to collect payments after services are rendered, they will likely stop providing services upfront.” Similar letters were sent to the CFPB by the CDIA, Equifax, and Patrick McHenry, the Chair of the House Financial Services Committee, with support from twenty-three other committee members. The incoming administration has indicated plans to review and potentially reduce the authority of the CFPB, which could present an opportunity to reconsider the proposed ban.
Another concern is that this situation could adversely affect smaller collection agencies. They may face unnecessary expenses due to rising costs in their debt collection processes. Moreover, these agencies could see a decline in revenue, as the lack of consequences for non-payment may reduce the effectiveness of their collection efforts.
This new directive is anticipated to benefit millions of consumer credit reports, potentially improving their chances of purchasing a home, a car, or securing rental agreements. However, it’s important to recognize that there are some drawbacks. Despite this, many—especially consumers—believe the advantages outweigh the disadvantages, viewing the directive as a chance to help those struggling to qualify for certain purchases due to unpaid medical expenses.