CFPB Issues New Rule Precluding Collection and Reporting of Consumer Medical Debt

On January 7, 2025 the Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending Regulation V, which implements the Fair Credit Reporting Act (“FCRA”); the new rule removes an exception to the FCRA which allowed the collecting and reporting of consumer medical debt information for credit eligibility determinations. The CFPB estimates that the new rule will impact the credit reports of approximately 15 million consumers; they also estimate that $49 billion worth of medical debt will be removed from consumer credit reports.

The Fair Credit Reporting Act and the 2005 Medical Debt Exception

The FCRA, 15 U.S.C. § 1681 et seq. originally enacted in 1970, regulates the collection, dissemination, and use of consumer information, including consumer credit information.  Specifically, the FCRA regulates: (1) consumer reporting agencies (i.e. Equifax, Transunion, and Experian); (2) users of consumer reports; and (3) furnishers of consumer information.  The FCRA limits how information in a consumer credit report can be used by companies and who can use the information; it also requires notification to a consumer when their credit report is obtained and used by a company. 

The FCRA also creates a number of obligations for creditors in providing consumer information.  The creditor must: (1) provide complete and accurate information to the reporting agencies; (2) Investigate consumer disputes received from reporting agencies; (3) correct, delete or verify information, meeting certain time and investigatory obligations, when notified of a dispute; and (4) inform consumers about negative information placed on their credit report. 

The FCRA precludes the use of a consumer’s medical information in making credit eligibility determinations.  In 2005, the FCRA was amended to create the financial information exception which permitted consumers’ medical financial information to obtained and used by creditors in connection with credit eligibility determinations if certain conditions were met.

The New Rule and the CFPB’s Reasoning

The new rule again amends the FCRA to remove the financial information exception and preclude collection and reporting on consumer medical debt.  CFPB research found that medical debt has less predictive value regarding future defaults than other debt.  The CFPB also found that creditors were giving medical debt less weight than other debt in evaluating credit worthiness, undercutting evidence or reasoning supporting the exception.  The CFPB research concluded that consumer medical debt could not be meaningfully connected to future loan payments because medical debt often occurs because of unique circumstances and incidents out of the control of the consumer.

The CFPB asserts that the new limitation on collecting and reporting consumer medical debt better serves congresses intent in enacting the FCRA, to safeguard consumers’ privacy. The FCRA does still allow collecting and reporting some medical related information, such as income from disability benefits.

Consumer Reporting Agencies Beware

Section 1022.38 details how a consumer reporting agency’s medical debt information reporting responsibilities ae impacted when creditors are prohibited from obtaining or using medical debt information.  The new rule appears to put an additional investigatory obligation on consumer reporting agencies when disclosing consumer medical debt to a creditor.  A consumer reporting agency is only permitted to include medical debt information in a consumer report furnished to a creditor if the following criteria are met: (1) the consumer reporting agency has reason to believe the creditor intends to use the medical debt information in a manner not prohibited; and (2) the consumer reporting agency has reason to believe the creditor is not legally prohibited from obtaining or using the medical debt information, including under any State law that prohibits a creditor from obtaining or using medical debt information.

The new rule also uses a broad definition of medical debt that includes any debt that was once owed to a medical provider.  Consumer reporting agencies may need to exercise caution in reporting debt information received from debt collection agencies if the same could be traced back to a medical provider or medical device.