In a notable move to ease the pressures of medical debt and protect consumers’ financial well-being, the Consumer Financial Protection Bureau (CFPB) has introduced a proposal. This proposal aims to update credit reporting practices by removing medical bills from most credit reports, enhancing privacy protections, improving credit scores and loan approvals, and curbing coercive debt collection tactics.
The Need for Change
Medical bills have long been a challenge in the credit reporting system, often inaccurately reflecting individuals’ financial situations and causing undue stress. CFPB Director Rohit Chopra emphasizes the unfairness of using credit reports to pressure patients into paying medical bills, particularly considering their limited impact on loan repayments.
Despite regulatory efforts such as the Fair and Accurate Credit Transactions Act (FACTA) of 2003, which restricted lenders from obtaining or using medical information, a regulatory exception has allowed the inclusion of medical debts in credit decisions. This exception has continued the cycle of medical debt affecting consumers’ credit scores and loan prospects.
Proposed Reforms
The CFPB’s proposed rule seeks to address this by closing the regulatory exception, ensuring that medical information does not unfairly affect individuals’ credit profiles. By preventing credit reporting companies from sharing medical debts with lenders and prohibiting lenders from using medical information in lending decisions, the rule aims to promote accuracy and fairness in credit assessments.
Moreover, the proposed reforms extend beyond credit reporting to address coercive debt collection practices. Debt collectors often exploit the credit reporting system to pressure individuals into paying disputed medical bills through tactics like “debt parking.” Debt parking is when a debt collector or creditor reports a debt to a credit reporting agency without first verifying that it’s legitimate or contacting the consumer. The proposed rule bans such practices and establishes guidelines for credit reporting companies to prevent the inclusion of medical debt in credit reports when prohibited by law.
Anticipated Impact
The CFPB’s research highlights the negative impact of medical debt on credit scores and loan approvals, emphasizing its limited predictive value in assessing borrowers’ creditworthiness. By eliminating the special medical debt exception and establishing guidelines for credit reporting, the proposed rule aims to create new opportunities for consumers, including approximately 22,000 additional safe mortgages annually.
Despite industry initiatives to address medical debt reporting, millions of Americans still struggle with outstanding medical bills in collections, amounting to billions of dollars. The proposed rule offers hope for these individuals, with an anticipated average credit score increase of 20 points for those with medical debt on their credit reports.
Looking Ahead
The CFPB’s proposal represents an important step towards empowering consumers and reforming credit reporting practices. By prioritizing accuracy, fairness, and consumer protection, these reforms promise to ease the financial pressures associated with medical debt and reduce coercive debt collection practices.
As the CFPB advances its rulemaking process, it reaffirms its commitment to ending coercive debt collection practices and reducing the influence of medical debt in credit reporting. Through comprehensive research and strategic policymaking, the CFPB aims to create a more equitable and transparent financial system for all consumers.
In conclusion, the proposed rule marks a noteworthy milestone in the ongoing effort to address the complexities of medical debt and ensure a fair and accessible credit market for all.
Author: Jennifer Evancic
Jennifer.Evancic@ResourceManagement.com
Jennifer Evancic is a third-party auditor valued by creditors and large organizations for her knowledge in call monitoring within the collections industry. With meticulous attention to detail and a firm grasp of regulatory requirements, she ensures compliance with clients’ criteria and state and federal regulations.
Jennifer audits collections calls, ensuring they meet client-specific criteria and comply with regulations, providing valuable insights and maintaining industry standards.
Beyond her auditing responsibilities, Jennifer takes the lead in organizing and facilitating monthly call calibrations. These sessions serve as a collaborative forum where clients and their vendors come together to discuss call monitoring results and address any findings or areas for improvement. Jennifer’s guidance fosters open communication and ensures alignment between clients and vendors, driving continuous improvement in collections practices.
Jennifer stays up-to-date with compliance and industry best practices by participating regularly in peer meetings, regulatory updates and industry webinars. This keeps her informed about emerging issues and ensures she remains a knowledgeable leader in collections compliance.
Sign Up for the Twice Monthly Newsletter
Just enter your email address at the top orange bar at:
Collection Compliance Experts – “The Power of Expertise: Oversight Perfected”
It’s that easy! Twice a month – we provide blog updates and Resources for the Collection and Industry Professional.
Your email is just for this newsletter. We never sell your information. No fee. Opt-out at any time.
