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The Consumer Financial Protection Bureau (CFPB) is proposing a significant rule change that could impact millions of Americans: removing medical debt from credit reports. This move aims to improve credit scores, increase loan approvals, and prevent debt collectors from unfairly pressuring people into paying inaccurate medical bills.
The Fair and Accurate Credit Transactions Act (FACTA) originally restricted lenders from using medical information for credit decisions. However, a loophole allowed medical debts to stay on credit reports, even though they often:
Are inaccurate: Medical billing is complex, and mistakes happen.
Don’t predict future creditworthiness: Studies show medical bills aren’t a good indicator of someone’s ability to repay other loans.
Hurt credit scores: Medical debt on credit reports can significantly lower credit scores, making it harder to qualify for loans or get good interest rates.
The proposed rule has several key parts:
Eliminating the Medical Debt Exception: Lenders would no longer be allowed to consider medical debt when making loan decisions (with some exceptions).
Protecting Consumers from Debt Collectors: The rule aims to stop debt collectors from using credit reports to pressure people into paying inaccurate medical bills. This includes the practice of “debt parking,” where collectors buy and report medical debt without the consumer’s knowledge.
Banning Repossession of Medical Devices: People wouldn’t have to worry about losing essential medical equipment like wheelchairs if they can’t repay a loan.
The CFPB estimates that if finalized, the rule could:
The CFPB’s proposal is currently open for public comment. This means you can have your voice heard and weigh in on the proposed rule.
This change has the potential to significantly impact how medical debt affects people’s financial lives. Stay tuned for further developments as the CFPB finalizes the rule.
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