CFPB proposes limiting medical bills on credit reports

On June 11, 2024, the Consumer Financial Protection Bureau (CFPB) published a Notice of Proposed Rulemaking (NPRM) to amend Regulation V, which implements the Fair Credit Reporting Act (FCRA)—limiting the inclusion of medical bills on consumers’ financial reports. This amendment, while providing significant benefits to Americans struggling with significant medical debt, could also change and reduce risks for employers who legally consider credit information as part of the pre-employment process.

Considering medical debt information in employment decisions has always been a concern for regulatory agencies in the workplace. In 2014, the Equal Employment Opportunity Commission (EEOC) and the Federal Trade Commission (FTC) published guidelines for U.S. employers on criminal and financial background checks. The guidelines emphasize how credit reports and criminal histories can affect employment decisions. Often, background checks may include information about an applicant’s race, ethnicity, gender, financial history, criminal history, genetic information, or disability. Because of the myriad of federal, state, and local laws and regulations, employers must be aware of any “disparate effects” that the practice of conducting background checks may have on applicants if such information were to influence an unfavorable employment decision, such as rejecting a job offer.

Employers must also be aware of the risk of potential claims of disparate treatment, i.e., intentional discrimination, stemming from information obtained during the background check process. Importantly, with respect to access to medical debt information, the EEOC reminds employers not to attempt to obtain genetic information or family medical history, as such inquiries violate the Genetic Information Nondiscrimination Act (GINA). The 2014 guidance also encourages employers to “be prepared to make exceptions for conditions revealed during background checks that were caused by a disability.”

The FTC, in the same 2014 guidance, reminds employers that they must provide notice (with specific reasons for rejection) and a copy of the “Summary of Your Rights Under the Fair Credit Reporting Act” before taking adverse action based on information disclosed in a credit report. The CFPB’s proposed regulation could therefore reduce the risk that an employer will have knowledge of potentially protected information.

Until recently, medical debt had a detrimental effect on millions of working-age Americans. A CFPB study found that black and Hispanic Americans between the ages of 30 and 44, as well as Americans living in the Southern states, were most likely to have medical debt on their credit histories.

The CFPB’s newly proposed amendment to Regulation V, if adopted in its entirety, would change access to medical debt information on consumers’ financial reports. The proposal includes three major amendments to Regulation V: (1) a definition of medical debt information; (2) removing the financial information exception; and (3) limiting credit reporting agencies from including medical debt in eligibility determinations. However, credit reports would still include medical debt that is in default.

How does this potential amendment affect employers? Given that the government guidance has been in place for more than a decade, the EEOC and FTC, prudent employers are already minimizing their exposure to potential claims by considering mitigating factors related to medical debt or not considering it at all. As such, basic information in medical bills that reveal genetic information, family medical history, or disabilities should be considered confidential and should not be considered when evaluating a job applicant’s qualifications. Therefore, if the CFPB amendments are implemented, employers and job applicants would benefit in a similar way—employers would be assured that they are making decisions based on what is job-related and consistent with business need, regardless of possible protected status, while a candidate would no longer have to explain what might fall under a protected category when a loan has been affected by significant medical debt. Medical payments can still be considered in the event of a default, but a prudent employer may want to consider extenuating circumstances without delving into basic medical history.

Special thanks to Giuseppina Mammoliti for her help in writing this article.