The Biden administration has finalized a landmark rule that will prevent medical debt from appearing on consumers’ credit reports. Set to take effect in March, the new regulation is expected to erase about $49 billion in medical bills from the credit reports of 15 million Americans, providing much-needed relief to those struggling with healthcare costs.
The rule, proposed earlier this year and now officially adopted by the Consumer Financial Protection Bureau (CFPB), also prohibits lenders from considering medical debt in their credit decisions. This move is designed to shield Americans from the financial hardships of medical expenses that can often lead to unfairly lowered credit scores.
“People who get sick shouldn’t have their financial future upended,” said Rohit Chopra, CFPB Director. “This final rule will close a special carveout that allowed debt collectors to manipulate the credit reporting system to pressure people into paying medical bills they may not even owe.”
The change comes in response to growing concerns about medical debt’s impact on Americans’ financial stability. According to KFF, a nonprofit research organization focused on health policy, about 1 in 12 adults in the U.S. had medical debt as of 2021. The CFPB’s analysis found that medical debt on credit reports was not a reliable indicator of a person’s ability to repay loans. However, it contributed to significant financial setbacks, including the denial of thousands of mortgage applications.
With this new rule in place, the CFPB expects to see an additional 22,000 mortgage approvals annually. Moreover, individuals with medical debt on their credit reports may see an average increase of 20 points in their credit scores.
In 2023, the three major credit bureaus took an initial step to reduce the impact of medical debt by removing paid medical debts and any medical debts under $500 from credit reports. This new rule builds upon that effort, further protecting consumers from the long-term financial consequences of medical debt.
As the Biden administration works to safeguard its initiatives in the final months before President-elect Donald Trump assumes office, this move is part of broader efforts to protect consumers and ensure that healthcare-related financial burdens do not hinder Americans’ economic opportunities.
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