Medical Debt Doesn’t Make the Cut
The Consumer Financial Protection Bureau (CFPB) released its final rule on considering medical debt for creditworthiness and it is 345 pages long. The good news is that I have read it, so you don’t have to.
The final rule, which goes into effect on March 15, 2025, amends the Fair Credit Reporting Act (FCRA). Congress amended the FCRA in 2003 through the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) which limited a creditor’s ability to obtain or use a consumer’s medical information when determining eligibility or continuing eligibility for credit. This legislation permitted certain exceptions and one of them allowed Federal banking agencies and the National Credit Union Administration (NCUA) to permit transactions that were determined to be “necessary and appropriate” to protect certain needs.
That exception is now canceled.
What does that mean? Simply that creditors will no longer be allowed to consider medical information related to a consumer’s medical debt when looking at creditworthiness and credit reporting agencies will no longer be allowed to include medical debt on a credit report. There are still exceptions but they are much narrower.
The rule provides a newly articulated definition of medical debt information as,
“…medical information that pertains to a debt owed by a consumer to a person whose primary business is providing medical services, products, or devices, or to such person’s agent or assignee, of the provision of such medical services, products, or devices. Medical debt information includes but is not limited to medical bills that are not past due or that have been paid.”
This means to meet that definition, a debt must (1) be directly owed to a person or entity whose primary business is providing medical services, products, or devices, or their agent or assignee; and (2) the debt must be for the provision of the medical services, products, or devices by a health care provider.
Who is a Provider of Medical Services, Products, or Devices?
The CFPB anticipates that whether a provider is a health care provider for the purposes of the final rule will depend on the specific facts and circumstances for each provider. Therefore, it does not specify whether complementary or alternative practitioners count for this purpose. In fact, it expects that the providers will self-select by notifying consumer reporting agencies of their status as medical information furnishers under FCRA section 623(a)(9).
Example: A debt to a grocery store arising from bandages purchased there would not meet the requirements, because the primary business of the grocery store is not the provision of medical services, products, or devices. A debt to an ophthalmologist’s practice would likely meet the requirements.
What If the Debt Was Sold or Resold?
The CFPB’s interpretation includes such debt; the debt buyer becomes the health provider’s assignee for the debt because the health provider created the payment obligation. A third-party debt collector acting on behalf of the health care provider or debt buyer can also be a holder of medical debt.
Civil judgments arising from debt collection actions are also included in this interpretation, whether provided on a consumer report, or if the creditor learns of the civil judgment by other means; a credit score that had weighed medical debt information; and debts arising from medical care that is elective, or otherwise not medically necessary (e.g., some cosmetic surgeries).
When Can Medical Debt Information Be Used to Determine Creditworthiness?
Unsolicited Receipt of Medical Information – A creditor that receives unsolicited medical information in connection with any determination of the consumer’s eligibility or continued eligibility for credit, may use that information without violating the rule.
Example: In response to a general question regarding a consumer’s debts or expenses, the creditor receives information that the consumer owes a debt to a hospital.
Authorization – The information is included in the transaction information of an account for a consumer financial product or service and is accessed with the customer’s authorization.
Income and Benefits – The medical information relates to income, benefits, or the purpose of the loan, including the use of proceeds. E.g.: disability income, worker’s compensation, other benefits related to health or a medical condition that is relied on as a source of repayment and the creditor uses the medical information in a way that is no less favorable than it would use comparable information.
Example: A consumer applies for a mortgage loan of $200,000. The consumer states that her income is $15,000 per year in disability benefits. The consumer’s ability to repay is insufficient, and would be even if her income came from a source that did not disclose medical information. Thus, the medical information is used in a way that is no less favorable than comparable non-medical information would be used.
Given the Current Political Climate, Will This Rule Go Into Effect as Planned?
This rule is facing a number of headwinds before it goes into effect.
(1) An Executive Order (EO) titled, “Regulatory Freeze Pending Review,” issued on January 20, 2025, stated that a category of rules that have issued but not taken effect should be considered for postponement. The EO states that where appropriate and consistent with applicable law, agencies should consider opening a comment period for input on issues of fact, law, and policy.
(2) Although a new CFPB director has not yet been named, the person who steps into that role could choose to rescind the rule or delay its effective date.
(3) Suits alleging the CFPB has overstepped its authority with this rule has been filed by the Consumer Data Industry Association, a trade association which represents the credit reporting companies, and the Cornerstone League, a Texas-based credit union association, and by ACA International, which represents debt collectors. The rule could be paused through preliminary injunctions or overturned by the courts as a result of this litigation.
That’s all for now! Please contact the Compliance Team if you have any questions at compliance@americascreditunions.org.
Amanda L. Smith
Federal Regulatory Compliance Counsel