On Sept. 21, 2023, the CFPB outlined new proposals aimed at medical bills and the broader credit reporting landscape, which could have far-reaching implications for creditors, consumers, and the industry at large.

In a joint statement, Vice President Kamala Harris and CFPB Director Rohit Chopra released an outline of the proposed rule from the White House. Vice President Harris stated that, when finalized, the proposed rule would ensure “consumer credit reports will not include medical debt, and that creditors will not be able to use medical debt to determine a person’s eligibility for credit.” Director Chopra added that the proposals “would ensure that credit decisions are based on someone’s ability to repay a debt, not their ability to file disputes and navigate red tape.”

The Fair Credit Reporting Act (FCRA) restricts creditors’[1] ability to use medical information in making credit decisions and limits the inclusion of medical information on credit reports. The FCRA also grants five financial regulators authority to create regulatory exemptions to the restriction on creditors’ use of medical information. In 2005, those regulators created an exception allowing creditors to rely on medical data if it could be characterized as “financial information.”[2]

The rulemaking proposal sets forth two primary considerations. First, it prohibits credit reporting companies from including medical debts and collection information on consumer reports. Second, it prohibits creditors from relying on medical bills for underwriting decisions.

This initiative builds upon a 2022 CFPB report indicating that approximately 20% of Americans have medical debt. The Bureau’s proposals come as part of a broader rulemaking outline that includes:

• Prohibition on Medical Debts in Credit Reports: The CFPB proposes that consumer reporting agencies be restricted from including medical debts and related collections in consumer reports utilized for underwriting purposes.
• Restrictions on Creditors: The CFPB aims to narrow the 2005 exception that allowed creditors to rely on medical debt as “financial information.” In the future, creditors would be prohibited from using medical collections data when assessing credit applications.
• Ceasing Coercive Collection Practices: With medical debts removed from credit reports, debt collectors would lose their ability to leverage such data to force payments on potentially disputed or inaccurate debts.

Like its previous stances on AI and credit denials, the CFPB is emphasizing the need for accurate and specific data in credit-related decisions. This series of proposals reveals a continued effort to purge certain data from the consumer credit ecosystem.

In the context of AI and adverse action notices, the CFPB’s new proposals underscore the agency’s continued focus on accuracy, relevance, and ethical considerations in consumer credit reporting decision-making.

Takeaways

Creditors and businesses involved in consumer credit reporting and underwriting should continue to closely monitor the CFPB’s rulemaking process and prepare for possible changes to how medical debt is treated. As the rulemaking process advances, creditors and other stakeholders should consider participating in public comment periods and assessing the need for internal policy changes.

Before beginning the rulemaking process, the CFPB is required to consult with certain entities likely to be subject to the regulation.[3] As part of the consultation process, the CFPB must convene a Small Business Review Panel[4] to collect advice and recommendations from these small entities or their representatives. The CFPB is currently considering the following small entities likely to be affected by the FCRA proposals:

• Entities that meet (or would meet, if the proposals were adopted) the definition of “consumer reporting agency” in FCRA section 603(f);
• Entities that furnish information to consumer reporting agencies;
• Creditors that use medical debt collection information in making credit eligibility determinations.

Stakeholders, including small stakeholders who are not small entity representatives, are encouraged to provide written feedback on the proposals under consideration by emailing the Bureau at CFPB_consumerreporting_rulemaking@cfpb.gov no later than Oct. 30, 2023.

[1] 15 U.S.C. § 1681

[2]See 70 FR 33958 (creating exceptions to FCRA’s general prohibition on creditors obtaining or using medical information pertaining to a consumer in connection with any determination of the consumer’s eligibility, or continued eligibility, for credit for all creditors).

[3]See Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), Public Law 104-121, tit.II, 110 Stat. 857 (1996) (codified at 5 U.S.C. 609) (amended by Dodd-Frank Act section 1100G); the Regulatory Flexibility Act, 5 U.S.C. 601 et seq.

[4]See 5 U.S.C. 609(b). The Panel consists of representatives from the CFPB, the Small Business Administration’s Chief Counsel for Advocacy, and the Office of Information and Regulatory Affairs in the Office of Management and Budget. The Office of Advocacy is an independent office within the Small Business Administration, so its views do not necessarily reflect the views of the Small Business Administration or the Administration.