Medical Debt Banned From Credit Reports

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The Consumer Financial Protection Bureau (CFPB) finalized its ban on reporting medical bills on consumers’ credit reports in January 2025. This ban is an amendment to Regulation V that implements the Fair Credit Reporting Act (FCRA). It aims to fight against abusive practices that negatively affect a consumer’s credit report. This CFPB medical debt rule is estimated to remove about $49 billion worth of medical bills from 15 million Americans’ credit reports.

To learn more about how this can affect your business, this article breaks down what it means for consumers and businesses alike, how medical debts work and how they affect credit scores, and certain standards for debt collection practices.

Does Medical Debt Affect Credit?

Medical debt greatly affects consumer credit scores. According to the CFPB, consumers owed $88 billion in medical debt, which is found on their credit reports, as of June 2021. Fifty-eight percent of the reported debts in the same year also constitute medical debts. Most of these reported medical debts cost less than $500.

Hefty medical debt can bring down consumer scores, which can impact a lender’s decision-making. Consumers may also look less creditworthy, making it harder for them to apply for other essential services. Thirty-two percent of patients reported that their credit scores were impacted by their medical debt. Because the CFPB banned medical debt on credit reports, consumer credit scores could increase by an average of 20 points.

In 2022, Experian, TransUnion and Equifax — nationwide credit bureaus — announced that they wouldn’t be including paid, less than a year old and medical debts under $500 on consumer credit reports. However, the CFPB argued that these changes do not suffice.

Why Medical Debts Are Banned From Credit Reports

Although medical debts are technically debts, just like other debt types, the CFPB justified the new rule through its 2014 study, stating that medical debts do not predict delinquency. A delinquent debt refers to unpaid debt by 30 days or more.

Here are other reasons why medical debt is treated differently:

Medical debts can be inaccurate: Consumers typically report their bills as inaccurate or that they should have been paid for by their insurance companies.
Consumers have the right to privacy: By barring lenders from considering medical debt in their decision-making, they can no longer review consumers’ medical information. Access to this medical information, including medical debts, was only an exemption made by federal financial regulators, which was initially restricted by Congress.
Lenders’ access to medical information has resulted in abusive practices: By limiting access to consumers’ medical information, lenders can no longer use consumers’ medical devices as collateral for a loan. This can also lessen payment coercions, where hospitals get patients to pay their bills by reporting medical debts to credit rating agencies.
Medical debts are usually out of the consumer’s control: Emergency situations and chronic illnesses typically push patients to pay for medical services, regardless of the cost, in the hopes of getting proper treatment. These situations may not involve considerations for other hospitals or alternative treatments.

Having said that, the CFPB’s new rule has garnered pushback from different groups. Fair Isaac Corporation (FICO), an analytics company widely known for FICO scores, stated that removing medical debts from credit scores can have a negative impact on the score’s predictability. The Cornerstone Credit Union League and the Consumer Data Industry Association also filed a lawsuit against the CFPB for “exceeding their authority” under the FCRA. The CFPB’s new rule has been placed on hold until June 2025 due to the lawsuits.

Types of Medical Debts and Exceptions

Keep in mind that not all medical debts are reported to credit bureaus, even before the CFPB announced the rule. Medical providers typically hire third-party services to collect unpaid debts. Because reporting to the credit bureaus is voluntary, debt collectors may not report all debts.

Types of medical debt can include:

Prescriptions
Hospital visits
Doctor appointments
Dentist appointments
Ambulance services
Surgeries

The new rule is only for creditors that make lending decisions — for instance, banks that accept mortgage applications. Employers, landlords and other non-lending persons or organizations may still see a consumer’s medical debt if reported by credit reporting agencies. Patients who use credit cards to pay their medical bills will also not be protected.

Texas Medical Debt Statute of Limitations

The statute of limitations (SOL) refers to the period during which a debt collector can file for a lawsuit for unpaid debts. In Texas, the SOL is four years. If you have medical debt in Texas, the debt will be considered time-barred after four years. It is not technically eliminated. Texas does not allow a revival of the SOL through debt payments or other activities.

Suppose a creditor files a lawsuit within the SOL period and wins the case. The judgment, which is a court order, has a time limit. The time limit in Texas is 10 years, but it can be renewed. Additionally, the SOL does not determine when a debt will be removed from a person’s credit reports. This depends on the Date of First Delinquency (DOFD), which is the date a consumer first missed paying their due. Most negative items can fall off credit reports after seven years.

If your business sells a debt to a collection agency, consumers have 30 days to dispute and rectify the debt before the collector can report the information.

How the Ban on Medical Debts Affects Your Business

The CFPB’s ban on medical debts is only applicable if you’re making lending decisions. That said, you can expect an increase in expenses if you are offering such services. For instance, you might need to audit listed bills for accuracy, which may require the help of experts outside your business. If you need to verify medical expenses that a consumer needs a loan for, you can still access essential medical information.

Additionally, you can review other factors for creditworthiness. Does your prospective client pay their other bills on time? Assuming they struggle to pay medical debts, this may not be the case for other payments, such as rent. What does their credit utilization ratio look like? The rule of thumb for a good ratio is below 30%. Having too many credit cards and a used-up credit limit may be flags to watch out for.

Let Southwest Recovery Services Do the Work for You

Medical debt and credit scores can be tricky to navigate due to their complexities. If the CFPB’s new rule affects your business, you can count on Southwest Recovery Services to help you adhere to the proper collection practices. We can help you catch up and clean up overdue debt, guide you on accurate billing procedures, enable you to resolve account issues early on and more.

You can count on our deep knowledge of the industry as a nationally recognized leader in Financial Business Process Outsourcing. Leave the collection work to our seasoned professionals so you can focus on your business instead. Contact us today to learn more!