The Consumer Financial Protection Bureau (CFPB) has proposed a new rule that would stop credit reporting companies from sharing medical debts with lenders and prohibit card issuers and other lenders from making decisions based on medical information. For credit card issuers, the decision may not significantly impact their bottom line—but could lead to more widespread card usage.
The CFPB’s decision follows research indicating that a medical bill on a person’s credit report is not a good predictor of their ability to repay a loan. In fact, medical debts can make underwriting decisions less accurate and have led to thousands of denied credit applications that consumers would likely repay.
The announcement did not address credit card issuers directly, but it did discuss the impact on mortgages. Because of improved underwriting, the CFPB expects the proposed rule to lead to the approval of approximately 22,000 additional mortgages every year.
A similar logic would apply to more individuals getting approved for credit cards. “We expect that Americans with medical debt on their credit reports will see their credit scores rise by 20 points, on average, if today’s proposed rule is finalized,” the CFPB said.
The Numbers Behind the Decision
Roughly $88 billion in medical debt is reflected on Americans’ credit reports, although the total amount is likely higher because some debt is not reported to the credit agencies. An analysis of government data by Peterson-KFF estimates that people in the United States owe at least $220 billion in medical debt.
So why does this not affect their ability to repay? Research on this has been trickling out for years. Nearly a decade ago, the CFPB released a report showing that medical debts provide less predictive value to lenders than other debts. The credit agencies then experimented with newer credit scoring models that weighed medical debt less heavily, resulting in an average 25-point increase in FICO scores.
The three largest credit agencies—Equifax, Experian, and TransUnion—have already taken this information into account. They stopped including some medical debt on credit reports in 2023, such as paid-off bills and those for less than $500.
