Congress must act quickly to overturn CFPB’s medical debt rule

If Congress doesn’t act quickly, an ill-advised rule finalized by the Consumer Financial Protection Bureau in the waning hours of the Biden administration will be a major problem for consumers, lenders and the entire credit system. The rule in question would prohibit medical debt on credit reports, prohibiting lenders from considering complete and accurate information when making lending decisions. This can lead to consumers taking on future debts they cannot afford to pay back.

Furthermore, medical debt does not magically go away just because it doesn’t appear on a credit report. The debt is still owed, and the consumer still faces collection attempts, garnishment of wages and potential litigation. Congress is considering legislation that would invoke the Congressional Review Act to undo the rule. But it needs to act before the end of April, when the window to repeal the rule with legislation closes.

The United States’ credit system is the most fair and impartial in the world, based solely on the objective data collected and used to determine a borrower’s ability and willingness to repay their debts. While there may be issues with health care services and insurance in this country, the fact is outstanding medical debts are relevant to a consumer’s ability to repay future debts and are important to a comprehensive, data-driven evaluation of consumers’ creditworthiness.

The CFPB’s rule is clearly contrary to how the law treats medical debt in credit reports. Credit reports are governed by the Fair Credit Reporting Act. In 1970, Congress passed the FCRA, which allowed all debt, including medical debts, to appear in credit reports. In 1996, Congress amended the FCRA, prohibiting medical debt information from being used for employment purposes or credit transactions without specific consumer consent, effectively removing medical debt from consumer reports. In 2003, Congress realized that medical debt needed to be included, so it again amended the FCRA to allow medical debt back on to credit reports. There were important restrictions: Credit reports could contain the financial information about the debt — i.e., amount, payment status, etc. — but medical information, such as the name of the provider and type of services provided, could not be included. The CFPB has no regulatory authority to pass a rule directly contrary to the statutory text. Congress must act quickly to stop the rule.

Not only did the CFPB overreach its legal authority, but its data analysis was also fundamentally flawed by not considering the voluntary changes made by Transunion, Experian and Equifax that removed 70% of medical debt obligations from consumer reports by not including paid medical collection debts, debts with an original balance of less than $500 or debts less than 365 days past due.

Furthermore, recent research from FICO indicates that removing all medical debt diminishes credit model accuracy and wrongfully inflates credit scores. Additional research also shows that including the amount of medical debt a consumer owes increases the accuracy of the assessment of their creditworthiness and ability to repay. CFPB did not consider this current data, and they also did not conduct a thorough economic analysis.

Ultimately, removing all information about medical debt from credit reports will not help consumers. They will still owe the debt, be subject to collections and be less able to handle additional debt. Lenders will not know this, and consumers could take on additional debt they are unable to repay. Congress should act now to protect the current system because it is fair, it encourages people to repay their debts on time and gives lenders the information they need to limit credit for those who cannot afford to pay it back.