Biden Administration Proposes Rule to Remove Medical Debt from Credit Reports
In a move that could significantly impact millions of Americans, the Biden administration on Tuesday proposed a rule to eliminate medical debt from credit reports. This groundbreaking proposal was announced by Vice President Kamala Harris and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, marking a major step in President Joe Biden’s efforts to lower costs for Americans, a critical issue for voters in the upcoming election.
The rule, which has been in development since September, is anticipated to go into effect early next year. Vice President Harris emphasized the potential relief this could provide for countless individuals struggling with medical bills. “Medical bills on your credit report aren’t even predictive of whether you’ll repay another type of loan. That means people’s credit scores are being unjustly and inappropriately harmed by this practice,” she stated.
CFPB’s research suggests that the new rule could enable an additional 22,000 people to qualify for safe mortgages annually. This could also benefit lenders, who would see more borrowers with improved credit scores.
Some of the major credit reporting agencies, including Equifax, TransUnion, and Experian, have already started to reduce the impact of medical debt on credit scores. FICO has recently begun to weigh medical debt less heavily in its scores, and VantageScore has eliminated it from its newer models. However, the CFPB found that 15 million Americans still have $49 billion in medical debt that negatively affects their credit scores. The proposed rule aims to extend these practices to all credit reporting in the U.S.
Medical debt remains widespread in the U.S., affecting two out of every five Americans, according to the health policy research organization KFF. The majority of these debts amount to thousands of dollars. Once debts go to collections, credit scores suffer, making it harder for individuals to secure car and home loans, or subjecting them to high interest rates, which exacerbates their financial struggles.
The new CFPB rule also seeks to address the issue of incorrect, confusing, and complicated medical bills, which often lead to prolonged disputes between patients and billing departments. The CFPB, as the agency responsible for consumer empowerment, is keen to simplify this process.
Supporters of the CFPB’s proposed rule argue that the low success rate for collecting on medical bills justifies this change. However, some experts caution that if fewer people feel compelled to pay their medical bills, it could ultimately harm patients who might face increased costs or reduced services.
As the Biden administration continues to refine this proposal, its potential to reshape the financial landscape for millions of Americans remains a key point of interest and debate.
Thomas Lin
News Desk
