Credit reporting - What is the proposed CFPB rule?
All you need to know!
What Is the CFPB's Proposed Rule?
On January 7, 2025, the Consumer Financial Protection Bureau (CFPB) announced a final rule to ban medical debt from credit reports. If enacted, this would:
Remove an estimated $49 billion in medical debt from the credit reports of approximately 15 million Americans.
Prohibit lenders from using medical debt as a factor in determining creditworthiness.
Current Status of the Rule
It’s crucial to note that this rule has not yet been enacted. Its implementation hinges on:
Publication in the Federal Register, after which it will take effect 60 days later.
Legal challenges from industry groups questioning the CFPB’s authority.
Political uncertainty, as a change in administration could lead to modifications or a complete reversal of the rule.
The Unintended Consequences of the Rule
While the proposal appears consumer-friendly, it could have profound negative implications for healthcare providers, the lending industry, and even consumers themselves.
1. Impact on the Healthcare Industry
Encouraging Non-Payment: Without the threat of credit reporting, patients may feel less urgency to pay their medical bills, including deductibles, co-pays, and out-of-pocket expenses.
Higher Upfront Costs: Healthcare providers may demand upfront payments to mitigate the risk of not getting paid. This could make healthcare less accessible for patients who cannot afford immediate payment.
Strain on Small Providers: Small medical practices, already operating on thin margins, may struggle to cope with an increase in unpaid debts, potentially leading to closures or reduced services.
2. Impact on the Lending Industry
Inaccurate Risk Assessment: Creditors rely on medical debt to assess risk. Removing it could make some applicants appear more creditworthy than they are, leading to unexpected defaults.
Tighter Lending Criteria: To compensate for the lack of medical debt data, lenders might impose stricter requirements, inadvertently harming borrowers with marginal credit scores.
Current Reforms Already in Place
Before this proposal, significant reforms were already underway:
As of 2023, medical debts under $500 are no longer included on credit reports.
Paid medical collections are removed from credit reports.
Reporting of new unpaid medical debt is delayed for one year instead of six months, giving consumers more time to resolve issues.
These changes strike a balance between protecting consumers and ensuring accountability, making the CFPB’s proposal appear excessive and potentially harmful.
Bottom line.
A medical practice that wishes to benefit from having their low-balance accounts reported to the credit bureaus should act fast and submit their accounts as soon as possible.
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