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The Biden administration It finalized a new rule this week barring medical debt from being included on credit reports, as well as prohibiting lenders from using certain medical information in credit decisions.
This is to provide relief to millions of Americans whose credit reports or scores have been compromised Negatively affected by unpaid medical bills. For context, about 46 million people listed medical debt in 2020, according to the administration.
Here's what this rule means for Americans:
When it goes into effect, which is 60 days after publication in the Federal Register, $49 billion Unpaid medical bills According to the Consumer Financial Protection Bureau (CFPB), 15 million Americans will be removed from their credit reports.
Healthcare is expensive and frustrating; Government involvement is a big driver
The administration said it will ensure that patients are no longer denied access to credit for home mortgages, car loans or small business loans.
About 22,000 additional affordable mortgages will be approved each year after the rule takes effect, the CFPB estimates.
A patient is waiting in a room at a doctor's office. (iStock/iStock)
According to the CFPB, Americans who currently have medical debt on their credit report can increase their credit score by an average of 20 points.
The new rule will also prevent debt collectors from taking advantage of the credit reporting system to pressure people into paying bills they don't owe.
Despite changes by credit agencies, 15 million Americans are still burdened by medical debt
Previously, creditors were allowed to consider medical debt, which “debt collectors use the credit reporting system to extort payment from patients for inaccurate or false medical bills,” according to the CFPB.
The CFPB's new rules put up fences for credit reporting companies:
Lenders are prohibited from considering medical information
According to the CFPB, Americans who currently have medical debt on their credit report can increase their credit score by an average of 20 points. (Matt McClain/The Washington Post via Getty Images/Getty Images)
Lenders can no longer use specific medical information in making lending decisions. This means that lenders will also be barred from using information about medical devices, such as prostheses, to serve as collateral for loans for the purpose of recovering the devices.
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Ban medical debt on credit report
Consumer reporting agencies will be prohibited from including medical debt information on credit reports and credit scores sent to lenders. This will help stop the practice of using credit reporting systems to force them to pay bills regardless of accuracy. However, lenders will still be able to consider medical information to verify medical-based affordability, to verify medical expenses that a consumer needs a loan to pay, to treat certain benefits as income when underwriting and other legitimate uses.
In 2023, after the CFPB raised concerns about medical debt credit reporting, three nationwide credit reporting groups — Equifax, Experian and TransUnion — agreed to remove certain types of medical debt from credit reports with collections under $500.
Major credit scoring companies FICO and VantageScore also downplayed the degree to which medical debt affects a consumer's score.
Even with the changes, 15 million people still have outstanding medical bills in the credit reporting system.