In pushing through restrictions on medical debt reporting, CFPB brushes off criticisms and concerns

Rebuffing apprehensions of healthcare providers and debt collectors, the Consumer Financial Protection Bureau (CFPB) published a final rule to block medical debt from appearing in a consumer’s credit history.

As initially proposed in June, the regulations prohibit lenders from obtaining and using information about medical debt when determining a consumer’s credit eligibility (exceptions may include instances when a consumer self-reports medical debt on a credit application). In addition, credit-reporting agencies generally will be barred from including medical debt in the information they send to lenders.

The final rule represents one of the last big regulatory initiatives of the Biden administration, which said the impact will include the removal of roughly $49 billion in medical bills from the credit reports of 15 million Americans. Credit scores of affected individuals can be expected to rise by 20 points, on average, the CFPB said.

Steps taken over the past two years already have addressed the issue to an extent, with the three main credit-reporting agencies voluntarily refraining from reporting medical debt that amounts to less than $500 or that has been paid. Protections increasingly are being instituted at the state level as well.

Not set in stone

The Trump administration could freeze implementation of the new regulations on or soon after Jan. 20. Going a step further, the administration could draft regulations to nullify the final rule by the rule’s effective date, which likely will be in March (specifically, 60 days after publication in the Federal Register). President-elect Donald Trump and several close advisors, including Elon Musk, have spoken of a desire to restrict regulatory activity across the government.

In addition, Republican majorities in the new Congress could push through a reversal via the Congressional Review Act, which allows regulations to be repealed via simple-majority votes in the House and Senate between a rule’s publication and its effective date.

The political calculation could be murky, however, if overturning the rule seems likely to stir backlash at a time when healthcare cost and access issues for consumers are squarely in the spotlight. Analysts also note that some of Trump’s policy positions tend to be populist rather than conservative.

Legal challenges to the rule also can be expected. Representing the collections industry, the trade group ACA International recently launched litigation against a CFPB advisory opinion that stated collectors are “violating federal law when they collect on inaccurate or legally invalid medical debts.” Following this week’s release of the final rule, ACA International said it was considering “all options” in response.

On Jan. 8, the Consumer Data Industry Association and the Cornerstone Credit Union League filed suit in Texas federal court to stop implementation of the rule, saying the question of whether certain information can be excluded from credit reports is for Congress, not a regulatory agency, to decide.

Update: On Jan. 9, ACA International filed a lawsuit challenging the rule in Texas federal court.

The nuts and bolts

For purposes of the rule, medical debt refers to debt owed by a consumer to a healthcare provider or a provider’s agent or assignee (i.e., debt buyers, third-party collectors) for the provision of healthcare services. The definition “includes, but is not limited to, medical bills that are not past due or that have been paid.” Medical debt information also includes civil judgments arising from debt collection activities, assuming the debt is owed to a provider or a provider’s agent or assignee.

Not included in the definition are sources such as general-purpose or medical credit cards, medical installment loans, and loans received from third parties to pay medical bills (e.g., home equity loans). Consumer advocates who commented on the proposed rule said leaving out debts owed to issuers of medical payment products could lead to an influx of such products amid a conceivable shift toward requiring upfront payment for medical services.

But the CFPB chose to keep the definition narrow, citing the logistical difficulty of identifying medical debt accrued on a credit card or through a third-party lender, as well as through tax-advantaged health savings accounts and similar mechanisms.

Although debt issues stemming from medical financing products were not addressed in the rule, the bureau referred to its ongoing efforts to engage in outreach and research on that front. But those efforts will be subject to change under the Trump administration.

Another stakeholder suggestion that went unheeded in the final rule was to distinguish between elective and nonelective care as sources of medical debt. The CFPB responded that elective procedures frequently are for unanticipated and serious illnesses or health conditions, thus limiting the ability of consumers to shop for care or control the timing of the costs they incur.

Concerns about consequences

In comments on the proposed rule, representatives of providers and collection companies said impacts of finalizing the regulations likely would be profound because patients would feel less of an obligation to pay their bills. They said specific outcomes would include:

• Financial harm to vulnerable providers
• Requiring upfront payment for nonemergency services
• An increase in litigation to collect on payments

In the final rule, the CFPB either dismissed those concerns or said they did not rise to a level that justified modifying or canceling the rule.

To incorporate a different perspective, the bureau said it examined a report commissioned by ACA International and conducted by an economist who previously worked at the CFPB. That report cited a $24 billion first-year revenue impact on providers.

The bureau claimed it found methodological flaws with the report and that its own interpretation of the data projects a $900 million reduction in recoverable medical debt over a 10-year period.

Meanwhile, a 2024 report published by the National Bureau of Economic Research found a “moderate but statistically significant reduction in payments of existing medical bills” in randomized controlled trials where medical debt was waived.

Aside from concerns about the impact on industry stakeholders, that report raised questions about whether regulatory efforts to mitigate medical debt are worthwhile. The authors found that debt relief initiatives do not affect credit access in instances where the credit reporting has been accurate. Nor is there an apparent influence on mental and physical health, healthcare utilization and financial wellness.

The report found an average credit-score increase of 3.4 points, about one-sixth of the CFPB’s touted projection. The CFPB said the paper’s sample “may not be representative of all consumers with medical debts, as the reported collections were much older on average than most medical collections on consumer reports.”

Faith in the system

“The CFPB has no evidence to conclude that patients are regularly engaging in strategic nonpayment of medical bills — as opposed to nonpayment due to financial distress or error,” the final rule states.

Using hospital cost-reporting data, the CFPB attempted to gauge providers’ exposure to unpaid bills. Among hospitals with non-Medicare bad debt in 2021, that expense category accounted for roughly 6% of total costs, according to the analysis. If hospitals manage a 25% recovery rate under the new regulations, bad debt will rise to an 8% share of costs.

“Because recovery rates are low at baseline, even if all consumers with medical debt would not pay their medical debt in collections under the rule, healthcare providers’ overall costs would not be greatly increased,” the final rule states, later adding that the impact would not be significant enough to justify price increases.

The CFPB also foresees only a “small or negligible impact” on the delivery of emergency care, given EMTALA requirements and the fact that out-of-pocket amounts typically are under $500 and thus already are left off credit reports under the widespread voluntary policies.

The bureau also rejected the notion that more providers will begin requiring upfront payment for elective care, saying “the forgone revenue from denying healthcare to patients whose insurance will pay the majority of the bill or who would have paid at a later date is likely the reason some healthcare providers have not already shifted to this model. Those incentives would remain.”

As to the prospect of increased reliance on litigation by providers and collectors, the CFPB did not have a substantive response except to say such a strategy likely would raise costs and should increase in frequency only in states without similar regulations already on the books and in instances where a bill exceeds $500.