January 21, 2025

The Consumer Financial Protection Bureau (CFPB) recently finalized a rule that will not allow medical bills to appear on credit reports that lenders use. Approximately $49 billion of medical debt will no longer appear on credit reports.

This rule amends Regulation V, which implements the Fair Credit Reporting Act (FCRA). As of this finalization, lenders can no longer use medical information when making lending decisions. It also bans lenders from using any information they obtain about medical devices, requiring people to use these devices as collateral for a loan.

According to the CFPB, medical debts do not effectively determine an individual’s ability to repay loans or other debts. These bills often prove inaccurate, should have been paid by insurance, or addressed by a financial assistance program in some cases. Furthermore, the new rule will prevent medical debt collectors from using the credit reporting system.

This prevention ensures they cannot pressure people to pay debts they do not owe. It also removes the carve-out that allowed debt collectors to use medical information this way, which the CFPB considered a problem in the past. The finalized rule will also help improve privacy protections. However, it offers permission for consumer reporting agencies to include medical debt in consumer reports under specific conditions. Such conditions include the following:

“(1) the consumer reporting agency has reason to believe the creditor intends to use the medical debt information in a manner not prohibited by § 1022.30; and

“(2) the consumer reporting agency has reason to believe the creditor is not otherwise legally prohibited from obtaining or using the medical debt information, including by a state law that prohibits a creditor from obtaining or using medical debt information.”

Lenders may consider medical information in specific cases. Examples include needing to substantiate medical forbearances, classifying some benefits as income during underwriting, verifying medical expenses when considering a loan a consumer is trying to obtain to pay medical costs, and other valid uses. The new rule should help protect people from the damage that medical debt can cause, such as lowering their credit score and decreasing their ability to obtain employment or housing.

Creditors who violate the newly finalized rule will break federal law by violating the Federal Insurance Contributions Act (FICA). Employers must also comply with FICA to avoid possible fines and penalties. The best way to comply with FICA when conducting background screenings is to partner with an experienced background check company.

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