Feds draft rule to remove medical debt from credit reports

WASHINGTON (NEXSTSAR) — The Consumer Financial Protection Bureau is drafting a rule that would remove nearly all medical debt from credit reports, a practice the federal agency says unfairly harms 1 in 5 Americans.

"Credit decisions should be based on somebody's ability to repay a debt, not based on an unexpected medical emergency," CFPB senior counsel Kiren Gopal said.

The CFPB says nearly $90 billion in medical bills is currently in collections. The three major credit bureaus — TransUnion, Equifax and Experian— recently took steps to voluntarily remove some medical debt from credit reports. The new rule from the feds would remove virtually all of it.

"A lot of this information is just junk data. It's not accurate," Gopal said.

Christine Hines of the nonprofit National Association of Consumer Advocates said the proposal would benefit millions of low-income households.

"It affected their ability to get credit, get jobs, affected their interest rates and housing, so it's just going to make a huge difference in consumers' financial lives," Hines said.

Ted Rossman, an analyst with consumer financial services company Bankrate, supports the idea, too, saying the current system is out of touch.

"Medical debt has not proven to be as predictive about credit risk," he said.

But, he noted, the rule will not mean a free pass.

"You still owe the debt. They could potentially still sue you," he said.

The CFPB is pushing to have the rule reviewed and finalized next year.