Maybe you’ve heard this before – creditors are not allowed to take your medical debt into account when making credit decisions. This isn’t new. That’s why the recent ruling by the Consumer Financial Protection Bureau (CFPB) might seem a bit redundant to many. Let’s explore!

Sound familiar?

On January 7, 2025, the CFPB announced its issuance of a final rule amending Regulation V. Regulation V is the implementing regulation for the Fair Credit Reporting Act (FCRA). The final rule does one thing. It prohibits the reporting of medical debt information to credit reporting agencies for inclusion on a consumer’s credit report. It is scheduled take effect on March 17, 2025.

For reasons yet to be understood, the announcement sent shock waves through the credit and collection industry. Educational webinars, white papers, blogs, and lawsuits have inundated our inboxes. But to what end?

According to the CFPB, the new rule will:

• Remove an estimated $49 billion in medical bills from the credit reports of about 15 million Americans
• Ban the inclusion of medical bills on credit reports used by lenders
• Prohibit lenders from using medical information in their lending decisions
• Increase privacy protections
• Prevent debt collectors from using the credit reporting system to coerce people to pay bills they don’t owe (CFPB’s words, not the author’s)
• Remedy the misuse of medical debt information by lenders to predict the borrowers’ ability to repay other debts
• Eliminate consumer complaints about receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.

In sharp contrast, industry analysists, legal experts and operations managers agree one one thing.  The rule will have little to no effect on data furnishers. So even though the sky is apparently falling, as a practical matter, the rule will have little to no impact on the responsibilities and legal obligations of data furnishers.

The amendment is titled Prohibition on Creditors and Consumer Reporting Agencies Concerning Medical Information (Regulation V). But the new rule is essentially a redundant restatement of current law. That’s because the FCRA already prohibits creditors from considering medical information in credit eligibility determinations. However, at some point after the FCRA was passed, a regulatory exception was created. This allowed creditors to consider medical debts. This amendment to Regulation V removes that exception. It also makes it clear that creditors can NOT use medical debt information to make a credit decision.

Questions, anyone?

With so much noise surrounding this new rule, it’s not surprising that collections agencies have questions. Let’s address some of the most common questions we’ve seen so far.

As a data furnisher, must I stop reporting all medical debt information to the credit reporting agencies?

No, the rule does not prohibit data furnishers (e.g. collection agencies) from reporting medical debt information to credit reporting agencies (CRAs). The rule places the risk on CRAs. They must ensure that they do not provide medical debt information to creditors. That way, they can’t use it to determine credit eligibility.

Has the definition of medical debt and medical debt information changed?

The new rule expanded the definition of medical debt to include medical information. The purpose of the expanded definition is to prohibit creditors from considering any kind of medical debt when determining credit eligibility. However, the definition does not include medical debt charged to credit cards, including medical credit cards.

Subpart A—General Provisions, was amended by adding paragraph (j) to read as follows: § 1022.3 Definitions. * * * * *

(j) Medical debt information means 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, for 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 definition is now much broader, making the identification of medical debt information more challenging.

Do consumers now have a right to force me as a data furnisher to remove medical debt information from their credit reports?

No, a consumer does not have the right to force a data furnisher to remove medical debt information from the data that they furnish to a CRA. Remember the CRA has the responsibility to make sure that medical debt information is excluded from a consumer’s credit report when they provide this information to a creditor to determine credit eligibility.

As a third-party debt collector who has a permissible purpose to pull credit reports, am I too prohibited from considering medical debt information when determining repayment plans and settlement offers?

Time will tell. At this point, a strict meaning of the term “creditor” does not include the collection agency retained by the creditor. Or to say it more accurately, it does not include the business associate retained by the covered entity.  However, it will not be surprising if courts hold creditor/covered entities vicariously liable for the acts of their business associates who use medical debt information to make decisions about debt repayment plans, settlement offers, interest forgiveness, and the like. Additionally, numerous states include a third-party debt collector in the state’s definition of creditor.

Does this new rule override the prohibition to not report medical debt under $500 to the credit reporting agencies, the 365-day waiting period before medical debt can be reported, and the Regulation F requirements to delay the reporting of medical debt until I have contacted the consumer to let them know I have been assigned to collect the medical debt?

No, the new rule does not override existing rules that prohibit the reporting of medical debt under $500 to CRAs, the 365-day waiting period before medical debt can be reported on a credit report, or the Regulation F requirement to contact the consumer and let them know that the collector has been assigned to collect the debt. Data furnishers will see no change in their current operation related to these prior existing rules.

Must I configure my collection system to prevent the reporting of medical debt?

The new rule does not require a data furnisher to configure their collection system to prevent the reporting of medical debt. Keep in mind, if a data furnisher (e.g. collection agency) has a low risk tolerance and would like to exclude information that they have determined to be medical debt information from the data that they furnish to the CRAs, they could choose to do this. This may provide a level of comfort to the data furnisher or their clients. But ultimately, the risk continues to lie with the CRA. They must ensure that they do not provide medical debt information to the creditor.

Is there any reason to think this rule will ever take effect?

Yes, it is highly likely. Executive orders, presidential moratoria, pending rules, agency policies and other agency guidance can all be halted by a new administration. This is accomplished through a “regulatory freeze” memorandum. Issued by the Office of Management and Budget, it is sent to the heads of agencies. The memo imposes a moratorium on regulations that have not yet been published in the Federal Register. This gives the incoming administration the opportunity to review pending rules before deciding to finalize or abandon them.

But reversing course on finalized regulations is a much more difficult process.

A regulation is finalized when it is placed on public inspection or published in the Federal Register. Under the Administrative Procedure Act (APA), the rulemaking procedures that an agency must follow for repealing or amending a regulation are the same as for issuing a new rule. This means if the CFPB’s new rule amending Regulation V is published in the Federal Register on January 14, 2025, as planned, the rule will become final. It will also be protected from swift reversal by the incoming administration.

The Congressional Review Act may also impact the implementation of the new rule. The Congressional Review Act extends this deadline to 60 days for “major rules.”  Therefore, if a final rule has not yet taken effect, the new administration can suspend the rule for further review and analysis. Then Congress itself may repeal the final rule. This explanation is a summary of a full article on the topic of final rule overrides.

Much ado about nothing?

A new rule from the CFPB is always going to make an impact. However, the uproar over this new rule is surprising. After all, it just confirms what is already addressed within the FCRA. That is, creditors can NOT use medical debt information to make a credit decision.

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