CFPB proposal to exclude medical debt from credit draws comment

The National Consumer Law Center is leading a group of 107 national and local consumer groups in a joint comment supporting the Consumer Financial Protection Bureau's proposed rule to remove most medical bills from credit reports.

The comment period for the proposed regulation ends today, Aug. 12. Vice President and now-Democratic Party presidential nominee Kamala Harris announced the rule on June 11 at the White House.

Back in 2022, the three bureaus — Equifax, Experian and TransUnion — jointly announced they would remove medical collections up to $500 from credit reports, paid collection debt would no longer appear on those reports and the period of time before unpaid debt would be placed on reports would be extended to one full year. It was previously six months.

The latest credit scoring models from FICO and VantageScore also do not use medical debt in their calculations.

But FICO said in a statement it deliberately steers clear from terms such as medical debt or medical bills because it doesn't want to mislead people that any or all of these expenses are going into their credit file.

"The most common form of medical-related debt that does appear in the credit report is that debt associated with third party collection agencies," the statement said. "For this reason, FICO is very careful to refer to the term 'medical collections' or 'medical debt collections' when speaking of medical-related data that is most likely to show up in the credit report."

Its policy is similar to that of the bureaus. FICO did clarify that medical collections are included in the 10T, as well as prior models.

"That said, FICO has long recognized the need to treat low balance and unpaid third-party medical collections in a more sophisticated manner," changes it first made in FICO 8 and refined in the new models. Approximately 3% of FICO scoreable consumers have a medical collection in their file.

"The proposed removal of medical debt information from credit reports will mean that it would no longer be considered by any version of the FICO Score," the company statement said. "The exact impact of the proposed changes on a consumer's FICO Score will depend on their individual financial profile."

When the three bureaus initially removed this medical debt from their calculations, it was believed that the change would raise credit scores and allow more consumers to qualify for a home or get better rates.

But the NCLC press release pointed to a CFPB study that claimed 15 million people did not benefit from the industry initiated changes, likely due to them owing more than the $500 threshold.

"This proposal will make credit reporting fairer and more accurate for consumers, particularly lower-income individuals and people of color, who — due to decades of systemic racism, redlining, and occupational segregation has driven racial health inequities and undermined access to affordable, quality health care — are more likely to be left with large medical debts on their credit reports, limiting their ability to access affordable credit," said Christine Zinner, senior policy counsel at Americans for Financial Reform Education Fund, in the NCLC press release.

The CFPB's April press release on the subject also said $49 billion of outstanding medical bills were in collection status. This release also praised the steps the three bureaus took in 2022 but noted more needed to be done.

"Experian, Equifax and TransUnion took steps to remove many medical bills in part because of the recognition that they hold little predictive value," said CFPB Director Rohit Chopra in that release. "Findings from our latest research reveal the impact of these changes and the need for further reforms."

In addition to signing on to the group comment, NCLC sent an individual letter calling on the CFPB to extend the ban to companies like LexisNexis, whose RiskView product that is marketed primarily to mortgage lenders includes public record information such as court judgements.

That would likely include judgements related to medical debt, and so the ban should apply to "specialty" credit reporting agencies such as LexisNexis, the NCLC letter said.

A 2019 Zillow survey claimed over 35% of homebuyers said medical debt resulted in a denial for a mortgage loan.

This past January, the Community Home Lenders of America put out a white paper on the Federal Housing Finance Agency's changes to the credit models used by the government-sponsored enterprises in underwriting.

While the CHLA did not send in a comment on the proposal, in the white paper it noted, "If borrowers have paid their bills on time, managed their credit card debt wisely, and practiced good credit behavior, medical bill issues won't influence credit scores like before.

"Removing medical collections from the credit scoring calculation will allow lenders to approve more borrowers for loans," the CHLA paper said.

An Aug. 9 posting in the newsroom on the ACA International website claimed over 700 comments were made on the proposal. In July, the group released its own paper opposing the move, claiming if the CFPB were to move forward it would increase financing for unqualified borrowers, decrease it for worthy ones and create difficulties in repairing credit scores. It also conflicts with existing regulations like the Truth in Lending Act, the group representing the debt collection industry said.